January 2001

Another weak month for the General Fund

State agencies told to cut spending
to deal with worsening budget deficit 
The state's worsening budget situation continues to raise alarms after November receipts came in $106 million under budget. Five months into the state's fiscal year, the General Fund now is $287.1 million below target. Including non-tax revenue, mainly income on investments controlled by the state Treasurer's office, the deficit grows to $301.8 million for the period. NCCBI is stepping up its monitoring of the budget situation by tracking additional revenue line items (see the chart below), including piped natural gas, plus adding a column where we compare year-to-date figures with tax collections from the same period last year.

State officials already have begun some belt-tightening measures to deal with the looming deficit, which State Budget Officer Marvin Dorman said could grow to as much as $325 million. Agency heads have been told their budget allocations will be cut for the rest of the fiscal year. A directive from the Budget Office requires agencies to cut spending by their average reversions for the last five years plus one percent of the agencies' current state appropriation. Exempt from the cutbacks are the Department of Health and Human Services, which faces a shortfall in Medicaid funding, and the judicial branch.

Hunt Administration officials and legislative budget analysts are anxiously awaiting sales tax figures for the Christmas shopping season.. No one is expecting a surge in revenues; the hope simply is that the revenue slide will stop there. However, weak December numbers could swell the shortfall by another $70 million to $100 million.

The problem is that tax revenues aren't growing as fast as the state assumed they would when the current budget was adopted last June. For example, the state has collected $169 million more in individual income tax collections through five months of this fiscal year than last. But the budget assumed a growth of $350 million. The same is true in about every line item. Moreover, the state lost a couple of lawsuits over illegally collected taxes and has had to refund $60 million to Ford Motor Co. and Chrysler. That money came out of existing corporate income tax collections, which is why that line item is in the red in the chart above. 

Overall economic conditions in the state remain positive but not as robust as before. Latest available numbers from the Employment Security Commission show the state gaining 27,900 new jobs from October 1999 to October 2000, with seasonally adjusted industrial employment now standing at 3,818,000. Those numbers would have been much better but for the fast that the industrial sector lost 15,000 jobs in October. About half of those job losses were in manufacturing.

Most paychecks are fatter today than a year ago. Manufacturing production workers earned an average of $12.82 an hour in October and worked an average workweek of 41.1 hours for weekly earnings of $526.90. That's $11.60 more than a typical manufacturing worker earned last year at this time.

The state recorded 26 mass layoffs in the third quarter, putting 4,316 people out of work. Manufacturing had 17 mass layoffs in the quarter, representing 2,851 workers. Unemployment is edging up a bit even in the metro areas, as shown below:

Asheville, 2.4 percent, up from 2.3 percent
Charlotte/Gastonia/Rock Hill, NC/SC, 4.0 percent, up from 3.4 percent
Fayetteville, 4.0 percent, unchanged
Goldsboro, 3.5 percent, up from 3.2 percent
Greensboro/Winston-Salem/High Point, 2.9 percent, up from 2.7 percent
Greenville, 4.2 percent, up from 4.0 percent
Hickory/Morganton/Lenoir, 2.8 percent, up from 2.7 percent
Jacksonville, 3.4 percent, unchanged
Raleigh/Durham/Chapel Hill, 1.6 percent, unchanged
Rocky Mount, 5.6 percent, up from 5.0 percent
Wilmington, 3.4 percent, unchanged

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