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The storm before the storm

By Chris Fitzsimon

Tuesday morning began at the Legislative Building with officials with the Department of Public Instruction dispelling many of the common myths about the agency’s staffing levels, making a strong case for House budget writers to reject the Senate’s proposal to cut 300 jobs at the department.

That task looked a lot tougher not long after the meeting, when Gov. Beverly Perdue announced that the latest revenue figures show the budget shortfall for the current fiscal year has grown to $3.3 billion, more than a billion dollars more than the last estimate.

Perdue signed an executive order calling for furloughs of all state employees, who will lose 0.5 percent of their pay and can take 10 hours off before June 30, the end of the fiscal year. That move understandably upset teachers and state employees, and reportedly legislative leaders weren’t wild about it either when Perdue told them about it Monday.

Perdue’s order comes the same day that radio ads from the State Employees Association attacking Rep. Margaret Dickson began airing. The commercial criticizes Dickson for co-sponsoring a bill allowing furloughs to address the budget crisis. No word yet if ads are planned against the governor.
The furloughs save the state $65 million, a fraction of the $1.1 billion needed to balance this year’s budget. Perdue also plans to use money from the state’s savings account, $400 million of federal stimulus money that was slated to help with budget problems in the next two years and money that her office says will come from “capturing more special funds.”

No word yet on which special funds those might be or exactly how much is coming from the savings account, but those details were brushed aside by the news of the furloughs. It is hard to imagine Perdue couldn’t have found $65 million more in the special funds or taken the additional amount out of the state’s rainy-day fund.

But the executive order sends a message to lawmakers. Perdue clearly was not thrilled that legislators didn’t agree that she already had the power to furlough state workers. It’s also a very public display of her willingness to take on the State Employees Association and the North Carolina Association of Educators.

The losers, of course, are state workers and teachers, who will not only give up $250 in the next two months if they make $50,000 a year, but will also pay significantly more for health care once the recently approved changes to the State Health Plan go into effect. And the news could get worse before it gets better.

The use of federal stimulus money now creates another hole in next year’s budget and state budget officials say the shortfall for the current year could still grow more, prompting worries that more furloughs could be on the way.

The other story from Tuesday’s announcement is the effect it has on the legislative debate over next year’s budget. Elaine Mejia with the N.C. Budget and Tax Center points out that the new revenue numbers mean the House budget writers will have to find almost double the $1.3 billion in cuts the Senate proposed unless they make the wise choice of raising more than the $500 million in new revenue included in the Senate plan.
The Senate proposal to expand the tax base while lowering some of the rates is a good place to start and so is closing a loophole that allows multi-state corporations to avoid paying taxes that North Carolina-based companies pay.

The anti-government crowd is renewing its call for cuts alone to balance the budget, a proposal made even more absurd by Tuesday’s news. They are using a misleading poll to claim that the public opposes the Senate plan to expand the sales tax to more services while reducing the overall rate. The conservative Pope Civitas Institute says 52 percent of voters are against the plan, while 33 percent support it.

The question in the survey mentions haircuts first in the list of services that would be taxed under the Senate proposal. But haircuts would not be taxed, a point Sen. Dan Clodfelter made clear last week when the plan was released. Then there is the problem with public opinion polls and taxes in general.

Wonder what people would say if you asked them if they would support making the tax system fairer by lowering the rate and adding services, while raising revenue to protect their child’s school from devastating cuts?
Tuesday’s news was grim, but it doesn’t mean schools can stand even more cuts or that mental hospitals now need less funding to take care of patients. The job of lawmakers has not changed. It is still to protect vital state services and balance the budget fairly.

Chris Fitzsimon is executive director of N.C. Policy Watch.

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