State's tax flow slows

Economic woes may prompt cuts

The state's tax collections are decreasing as an economic slowdown affects North Carolina.

Revenues are running slightly -- about 1.25 percent -- ahead of projections, according to a Feb. 13 report from the Fiscal Research Division, a nonpartisan staff for the legislature.

But tax revenues are slowing. The state has more money than anticipated at this point in part because officials expected a sluggish economy and were conservative with projections.

State Rep. Jim Crawford, a chairman of the House Appropriations Committee, said that what little "extra" money there is won't go far in a state budget that exceeds $20 billion.

"It can go in a heartbeat if the economy turns down," Crawford said. "We're absolutely dependent on the economy from here on in."

For example, the state must still come up with $100 million to pay for teacher bonuses at the end of the school year, said Crawford, a Granville County Democrat. Crawford said the state budget can likely withstand the economic slowdown, but legislators may have some work to do when the session begins in May.

"I don't think we're going to be in trouble, but I think we're going to have to tighten our belts a little bit," Crawford said.

North Carolina has about $140 million more than the $11.1 billion officials expected to have collected through the first half of the fiscal year. That's a lot better than other states, which are seeing less money than anticipated, said Dan Gerlach, a senior budget adviser to Gov. Mike Easley.

But officials are aware that there will be less money to spend next year. The governor has asked departments to take a hard look at spending and to find places to make cuts.

"I think no matter what you do, we're going to have to look at some reductions in the budget," Gerlach said.

The first half of the year is always easier for economists to forecast because revenues collected early on are relatively stable, said Barry Boardman, an economist with the Fiscal Research Division. In the next few months, the state will collect corporate income taxes, capital gains payments and other similar revenue sources that are more sensitive to changes in the economy.