Through two months of this fiscal year, revenues coming into state coffers are about $50 million short of state budget projections and $200 million lower than the same two months in 2013.
But the state’s newly installed budget director, Lee Roberts, said it’s too early in the fiscal year, which began July 1, to make sound projections on how revenues will look when lawmakers return to Raleigh in January.
A report from the Office of the State Controller shows state revenues decreased by more than $200 million in July and August when compared to the same period in 2013. Tax revenues decreased by $134 million, or 4.6 percent, while nontax revenues, such as judicial and other fees, decreased by $66.1 million, or 35 percent, according to the report.
The sharpest decline came in personal income tax receipts, down nearly $226 million, or 13.5 percent, over the same period last year. The decrease is likely the result of income tax cuts made by the General Assembly, along with federal tax changes and other factors. Franchise tax receipts also dropped, while corporate income and sales tax revenues increased in those two months over the same period in 2013.
Roberts acknowledged that state tax revenues are lower than last year through two months.
“We had comprehensive tax reform that was designed to save taxpayers money,” he said.
But, Roberts noted, comparing revenue totals to the previous year isn’t especially meaningful, given that the state budget reflects the projected effects of state and federal tax changes.
Revenues for the first two months are about $50 million shy of current year budget projections, he said. The state received about $2.91 billion in revenue through August, compared with $2.96 billion budgeted for the two months. That means revenue is about 1.7 percent behind projections. Such numbers, two months into the fiscal year, “just don’t tell us anything one way or another,” Roberts said.
Thomas Mills, a Democratic analyst and blogger at PoliticsNC.com, expressed concern that tax cuts enacted by the legislature in the most recent two-year session would leave the state without enough cash to adequately pay for services, such as education.
“And these are people that claim to be fiscally responsible,” Mills said of Republicans who approved the tax cuts.
Mills suggested that if the state is $50 million behind in collections after two months and the trend continues, the state will find itself in a $300 million hole by the end of the fiscal year.
Roberts countered that forecasting revenues over a full fiscal year after two months is “impossible.” He said July and August are historically two of the slowest months for receipts and that September would be the first month the state would receive quarterly estimated tax payments from taxpayers.
Asked whether he was worried about revenue, Roberts said he didn’t have enough data to say one way or another. “If we are materially short, then we’ll have to start thinking about what that means for spending,” he said.
Roberts recently took charge of the Office of State Budget and Management, replacing Art Pope, a former legislator and conservative business mogul. Before Pope left, he sent a memo in late August to all state departments, institutions and agencies requesting that they come up with options on how to cut 2 percent for next year’s budget.
“The reductions should be prioritized and should not be across-the-board reductions or management flexible reductions,” the memo notes. “Agencies are encouraged to eliminate lower priority programs and apply the savings to high priority programs that support the agency’s core mission.”
The request is a starting point for preparing McCrory’s two-year budget recommendations for fiscal years 2015-17, and the proposed cuts may or may not be included in final budget proposal to lawmakers, the memo states.
Roberts reiterated that asking departments for ideas on how to trim 2 percent from their budgets doesn’t have any bearing on what individual agency budgets will look like come July 2015, when the next budget cycle begins.
The budget office, Roberts said, has routinely sent out such requests early in the budget process to give the governor and legislature options as they draft budgets.
Rep. Nelson Dollar, a Republican from Cary and the House’s senior budget writer, said the General Assembly set aside $186 million this year for any potential Medicaid shortfall and has hundreds of millions more in a rainy-day fund for unexpected spending needs.
“I think at the present time, we’re not concerned about where we are in terms of revenue and the budget,” Dollar said.