Editor's Desk for February 2003

Deja vu All Over Again

It’s difficult to make accurate predictions, as Yogi Berra once said, particularly when you’re talking about things in the future. Most predictions miss the mark but some come true with startling accuracy, such as the one I came across while cruising through the magazine archives at our web site. From the State Government column in the May 1999 issue comes the following, which seems chillingly relevant with the General Assembly reconvening to again deal with a deficit-ridden budget:

“If another recession like the one in 1990 struck, the $522 million in North Carolina’s Rainy Day Fund would be quickly wiped out and the state would have to make significant cuts in services and sharply raise taxes to balance its budget, according to a report by the Washington-based Center on Budget and Policy Priorities.

“If such a recession lasted three years, as most do, the state –– after emptying its Rainy Day Fund –– would face a $2.36 billion revenue shortfall, or almost 19 percent of the state’s total budget, the report says….

“North Carolina is hardly alone in having only thin financial reserves. The report concludes that more than three-quarters of the states couldn’t weather another recession like the one that struck in 1990 without cutting spending and raising taxes. To avoid repeating that experience, state governments on average need to maintain reserves of 18 percent of current expenditures, about double the current level, according to the study.

“The report examines a hypothetical recession that begins in the middle of calendar year 2000 and assumes that states experience fiscal stress for the subsequent three years, parallel to the experience in the relatively mild recession of the early 1990s. It was prepared using data from the National Association of State Budget Officers, the National Conference of State Legislatures (NCSL) and state fiscal offices.”

The predictions by the Center on Budget and Policy Priorities missed the mark only in assuming the next recession would begin in the middle of 2000; in reality the downturn started in late 1999. And North Carolina’s budget shortfall probably will top $3 billion instead of the predicted $2.36 billion.

Although economic conditions now are improving, it still will be difficult for the General Assembly to hammer out a balanced budget for the coming biennium. But just getting to break even won’t be enough. We need to start now on rebuilding the state’s financial reserves. If we don’t learn from our painful budget history of the past two years, we will be bound to repeat it.

-- Steve Tuttle


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