A recession is on the horizon for NC and will take a toll on the state budget
If North Carolinians aren’t feeling the impacts of a recession yet, they soon will be. The coronavirus pandemic is taking an economic toll, and how much of one is still to be determined.
Charles Perusse, director of the Office of State Budget and Management, gave a budget update presentation to state lawmakers on Tuesday. On a spreadsheet comparing budgets, the amount next to “revenue loss” was two question marks.
“We know it’s going to have a substantial impact, it’s already having a substantial impact on our economy, and if we’re not already in a recession we’re going to be shortly,” said Perusse, whose agency is part of the Cooper administration,
Gov. Roy Cooper and local officials have shut down much of the state’s economic activity to slow the spread of the virus.
Perusse pointed out the state budget balance of $2.25 billion on the bottom line, showing how much money the state still has left over after a failure to agree on a full two-year budget led to a series of mini-budgets with lower spending levels.
“That was a month ago. Obviously a lot of things have changed,” he said. “We anticipate a substantial revenue loss.”
The General Assembly Fiscal Research Division and the Office of State Budget and Management will publish a consensus revenue forecast in mid-May.
In an email sent March 30 to Sen. Brent Jackson and other budget writers, legislative economist Barry Boardman told them that “it appears much of the world, the nation and the State are in, or entering, a recession.”
Billion-dollar budget hit
Boardman told the senators that revenue could be down $1.5 to $2.5 billion during the biennium, with most of that loss in the 2020-21 fiscal year, according to the email first reported by The Associated Press and obtained by The News & Observer through a public records request. Boardman cautioned that it was only a preliminary estimate.
“How well we are able to contain the virus so that we can return to our normal economic lives will determine how severe the economic effects will be. An extended shutdown of several months would see those job losses grow,” Boardman wrote in the email.
Boardman also cautioned against ending the shutdown “too soon.”
“I should note that almost all economist[s] are in agreement that a slowdown to stop the spread of the virus will lessen the overall economic impact than if we open the economy back up too soon.”
Perusse, for his part, anticipated economic recovery coming in the fourth quarter of the year.
During the battle over the budget in the summer of 2019, Senate leader Phil Berger’s office said that $2.6 billion would be needed to withstand a recession, The N&O previously reported.
Ray Starling, general counsel for the North Carolina Chamber, told state lawmakers on Tuesday that about 25% of small businesses have already shut down.
“Among those who have not, 40% believe they will if nothing changes in next two weeks,” he said.
“When do these losses become unrecoverable?” Starling said to the lawmakers.
“As a state we do feel that we are better positioned than many,” he said, because the state itself is in good fiscal health and has a diverse economy.
“If anyone’s going to climb out of this quickly, it’s going to be North Carolina,” he said.
State tax relief bill
State officials from both parties, including the governor, agreed last week that they support passing a new law to waive interest on late tax payments. Draft legislation was presented to the House Select COVID-19 Committee on Tuesday morning, and might become part of a larger COVID-19 relief bill.
The state already followed the IRS’s lead in extending deadlines for both filing and payments for income taxes from April 15 to July 15. But because of state law, the state Department of Revenue can’t waive the interest that starts accumulating on late taxes after April 15. So the General Assembly would have to pass a bill, which the governor would have to sign, to make that happen. The current interest rate on late payments is 5% a year.
In a moment of bipartisanship, Cooper, Berger, state Senate Democratic leader Dan Blue, House Speaker Tim Moore, and House Democratic leader Darren Jackson released a joint statement. Cooper is a Democrat; Berger and Moore are Republicans.
They said they all support “retroactively waiving the accrual of those interest payments to provide further tax relief for North Carolinians amid the COVID-19 crisis, an important step to offer certainty and recovery assistance for millions of our state’s residents,” they said.
Perusse said in addition to the decline in state tax revenues, the shift to the July 15 deadline would impact the budget.
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