To lawmakers who are having to deal with it, the state budget crisis is a matter of perspective.

Rep. Phil Haire, a Sylva Democrat who represents the 52nd District, says the state is “flat in a bind.”

Rep. Marge Carpenter, a Maggie Valley Republican who shares the 52nd District with Haire and who said during her campaign she wanted to closely examine state spending priorities, says the current situation presents an “opportunity to be more fiscally sound.”

“We don’t have a revenue problem, we have a spending problem,” Carpenter said last week while back in the mountains for the weekend.

How ever one looks at it, lawmakers meeting in Raleigh for the budget writing long session of the General Assembly are facing an unprecedented budget upheaval. The governor has already frozen reimbursements to towns and counties, shutting off millions of dollars these local governments were supposed to receive by April 1. It remains to be seen what - if any - permanent measures the state may take, and how that will affect local governments, state employees and state programs.

“Look, we are very sensitive to their needs,” said Sen. Dan Robinson of Cullowhee, referring to how legislators feel about the effects of their actions on residents back home. “We don’t want to create problems with the local governments where they can’t go back and do the things they need to do.”
Haire said the current situation, however, is forcing lawmakers to proceed cautiously.

“It’s all on the table,” Haire said, including projected pay raises for state employees.

The budgeted revenues for the 2000-2001 fiscal year were $14 billion, but as of last week fiscal experts were predicting that they would miss that figure by $635 million.

In addition to the drop in revenues, Medicaid expenses have risen by $156 million, putting the state in the hole by $791.3 million.

Easley sweeps into action
Gov. Mike Easley has used his constitutional authority to issue sweeping emergency executive orders to try and keep the state’s fiscal house in order. These measures include:
° Reviewing and limiting budget allocations on a monthly instead of quarterly basis.
° Establishing an escrow account from which funds will be available in June. Money will go into this account from state employee retirement contributions, the local government reimbursements, cash balances left over from the FEMA account for Hurricane Floyd relief, and authorizing access to the Employment Security Commission account if necessary.

All of these actions are preliminary, according to lawmakers. After May 1, they said they will have a better idea of exactly what the fiscal picture is. That is when income tax revenues can be accurately analyzed.

The reasons for the downturn in revenue are many, but the loss of manufacturing jobs is cited as one of the prime factors. Other causes are rising Medicaid costs, a drop in sales tax receipts, a drop in corporate income tax receipts, the stock market drop, and higher enery prices, according to David Crotts, the legislative budget office.

What happens locally?
While the governor’s actions were aimed at restoring confidence in the state’s ability to meet its obligations, some state employees have become concerned about its affect on their retirement.
Robinson is a retired state employee, and he said these people who served the state have nothing to worry about.

“I’ve had several calls from people, and I want them to know this is not going to affect their benefits,” Robinson said.

Haire agreed.

“We are just freezing the fund and putting that money aside for awhile in case we need it. We may not need it when the time comes, but at any rate we will make sure the retirement fund is paid back,” Haire said.

Waynesville Town Manager Lee Galloway told aldermen last week that a temporary freeze in reimbursements for the inventory tax shouldn’t cause many repercussions.

“As long as its just temporary, we’ll be all right. If this happens again next year, then we might have to start worrying,” Galloway said.

A changed atmosphere
Robinson and Haire have both supported measures in the past that would provide local governments with additional taxing authority. For the last couple of legislative sessions, Robinson said those bills never got very far.

“They never saw the light of day,” he said.

This year, however, the mood might be changing, he said.

“You know, we’ve had this devolution, where the federal and state governments have cut spending and sent responsibility for decision making back to the local governments,” he said.

Now, the local governments are clamoring for legislative authority to determine their own needs and their own funding sources. More and more, lawmakers are beginning to talk about how to do that, Robinson said.

“It’s just hearsay now, but what is talked about most is a 1-cent sales tax based on getting a local referendum passed,” he said.

In the House, Rep. Mickey Micheaux of Durham and Haire are the two co-sponsors of House Bill 99 which was introduced last week. That bill would provide local governments - towns and counties - the power to enact several measures to raise additional money as long as the measures were supported by a local referendum: a local 1-cent sales tax, impact fees on developers, meal taxes, occupancy taxes, income taxes, and land-transfer taxes.

“Basically, the bill delegates authority to the towns and counties, and lets the people vote these measures up or down,” Haire said of the bill. “I think perhaps this gives a little more home rule.”

Carpenter, however, will not support that bill. In fact, she thinks state lawmakers can use the current situation to set an example for local governments about being fiscally sound.

“You know, we are increasing our revenues every year, so we have to just be more careful about spending,” Carpenter said. “In our spending we can set a great example for counties and towns, and perhaps this will move the state toward line-item budgeting.”

“I’m pretty excited about our opportunities to revisit spending priorities, and it seems to me that a lot of people in Raleigh are ready to cut back on spending,” Carpenter said.

Several counties in Western North Carolina  including Haywood, Jackson, Macon and Swain - have sought authority in the past for additional revenue raising measures. Most of those requests have been for the additional sales tax, the land-transfer tax or both. The land-transfer tax is without doubt the more controversial of the two, garnering heated opposition from realtors and builders.

“It’s just a discriminatory tax,” said Tom Bommer, past president of Northern Jackson County Board of Realtors. That organization has been trying to rally opposition to a land-transfer tax in Jackson County, including taking out advertisements in local newspapers.

The transfer tax is a fee paid each time a piece of real estate changes hands. Most say it would be 1 percent of the sale price.

“It just taxes a small segment of the population. And though they say it only raises the value of a house by 1 percent, that’s not completely true,” Bommer said. “If a homeowner pays just 5 to 10 percent as a down payment, then you’re actually raising their price by 10 or 20 percent.”

Bommer said a sales tax is a more fair way to raise money because everyone pays.

“I’m not opposed to paying a fair share of taxes for schools, recreation and other needs, we just think it should be fair,” he said.

In Macon County, County Board Chairman Harold Corbin was concerned that the budget crunch could delay that county’s plan to build a Southwestern Community College campus. He told the Franklin Press it could delay the construction by up to two years.

SCC’s George Stanley, however, said he didn’t think the budget situation would slow the sale of university and community college bonds approved by voters Nov. 7. He did not know, however, if the reimbursement delay might affect Macon’s ability to come up with its portion of the matching money.
Joe Steward, the chief of staff for State Treasurer Richard Moore, said the governor’s actions have solidified the state’s AAA bond rating. That rating ensures the best interest rates when the state borrows money. The first of those bond sales will take place March 7.

“There are no plans to delay the sale of the bonds,” Stewart said. “In fact, some economic theories say that in times of revenue shortfalls, the issuance of debt for public projects is good.”

 

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