Easley tells state to cut 2%

Fallout from U.S. economy feared

RALEIGH -- Gov. Mike Easley has told state agency leaders to cut their budgets by 2 percent in case the national economic downturn takes a toll on the state's revenues.

So far the state's finances are faring well considering the economic crisis facing the nation. But top advisers to Easley said Thursday that cutting back now would make it easier to react if the state's sluggish revenues worsen.

"Given the problems with the national economy and given the volatility in the markets, it would be irresponsible to just think everything would be fine," said Dan Gerlach, a senior budget adviser to Easley, who has a few months left in office. "It is the fiscally responsible action to make sure that the next administration has sufficient reserves to manage the potential situation."

The cut is actually a reversion, which means the state holds back 2 percent of current agency budgets. A 2 percent reduction amounts to roughly $400 million from the $21.4 billion state budget that lawmakers passed in July. The total will probably be lower because public schools, college financial aid and Medicaid are exempt from the cuts.

The reductions could mean fewer classes for students at community colleges, which typically see a spike in enrollment during tough economic times.

Wake Tech President Steve Scott said full-time enrollment is up roughly 10 percent over the previous academic year. He said state officials gave him advance warning two months ago that budget reductions could be on the way. The college is looking to trim expenses and reach out to private donors for help. It also has received an additional $500,000 from the county to help with the opening of new facilities.

But Scott said that likely won't be enough to prevent cuts in the spring semester.

"We went ahead and offered the classes in the fall with the assumption that we would have a million dollars more than it looks like we're going to have come springtime," Scott said. "So that could be exceptionally problematic, and we'll have to turn people away. That is what it boils down to."

According to the legislature's fiscal research division, state tax collections are sluggish. Sales and income tax collections were approximately $60 million to $70 million below expectations in July and August, according to a report prepared by an economist with the research division.

By the end of December, budget forecasters will take a look at tax collections and decide whether to cut more or relax.

State Rep. Mickey Michaux, a Durham Democrat and chief budget writer, said the cutbacks are an attempt by the governor to stay ahead of the national economic slump.

"We are maybe falling a little bit below our expectations on a monthly basis," Michaux said. "He may be doing something that we need to do in order to try to stave off any problems as a result of the national situation."