Large Deficit May Force Easley to Divert State Allocations

With projections of the N.C. budget deficit nearing an estimated $740.8 million - $240 million more than previously estimated - Gov. Mike Easley might decide to invoke emergency privileges to curb the state's growing fiscal woes.

The emergency privilege, if used, would grant Easley the authority to enact necessary actions to cut the deficit.

The last time a N.C. governor invoked emergency privilege was in 1991 when Jim Hunt used state highway and retirement funds to reduce a $1.2 billion deficit.

A spokeswoman for Easley said no decision would be made Wednesday and that there is no exact timetable for when a decision will be made.

But Easley announced Tuesday in a memo to N.C. government department heads and chief fiscal officers that the increased deficit might possibly force him to issue the emergency declaration.

"Up to now, I have been optimistic that the deficit could be managed within spending controls previously implemented," the memo stated. "However, it is becoming clear that further measures must be taken, some of which may require the issuance of an emergency declaration in order to meet the balanced budget requirement prescribed in ... the North Carolina Constitution."

The governor placed a freeze on new state hires, cut the budgets of some state departments and also ordered government-related travel be reduced, but the increased deficit will require further measures, Easley said.

State legislators say Easley is responsible for taking the necessary actions to handle the budget crisis and that they will support whatever decision he makes.

Sen. Kenneth Moore, R-Alexander, said he believes using emergency power is the only option Easley has left to deal with the budget crisis.

Moore said that while he expected a budget surplus, he is surprised by the extent of the latest figures. "I am surprised at the magnitude (of the deficit), but we knew when we passed the budget last year that there were some risks involved."

He also said that he was upset that the deficit problem surfaced so quickly after the fall elections, which included the successful passage of the higher education bond. "I'm a little disappointed that it is coming on the heels of this great expansion," Moore said.

Danny Lineberry, spokesman for N.C. House Speaker Jim Black, D-Mecklenburg, also said he believes the responsibility and power to deal with the deficit lies with Easley.

He added that a loss in state revenue and higher-than-expected costs in some state programs, especially Medicaid, are reasons for the deficit. "The revenue is not coming in the way they thought it would, and the cost of Medicaid is larger than expected," Lineberry said.

Rob Lamme, spokesman for N.C. Senate Speaker Pro Tem Marc Basnight, D-Dare, said there are many contributing factors to the budget deficit.

"First, the economy is slowing and the projected revenue to the state is down," Lamme said. "Second, the cost of Hurricane Floyd continues to be something that we have to deal with."

But Lamme said he did not believe the increased deficit will fuel additional support for a state lottery program, an issue Easley campaigned heavily for during his campaign. "I don't think it adds strength to it," Lamme said. "Even if we approve the lottery this year, we probably wouldn't see the revenue until next year."

Easley previously stated that a state lottery could bring in $500 million annually in additional revenue to the state that would go toward education.

Although no definite decision has been made on how to handle the budget deficit, Easley stated in the memo that the task will require the cooperation and management skills of all top-level officials. "Together we will take the necessary steps to move North Carolina through this temporary economic problem."

The State & National Editor can be reached at stntdesk@unc.edu.