Letter Questions Growth Rate

But members of the General Assembly are unfazed by the prediction and say it will not influence debate on a tax proposal the legislature is considering.

State Treasurer Richard Moore sent a letter Tuesday to Gov. Mike Easley, Senate Pro Tem Marc Basnight and House Speaker Jim Black stating his concern that North Carolina might have overestimated its growth during the next two fiscal years. The state's economy is projected to grow 4 percent this fiscal year and 4.5 percent in 2002-03. The letter states that this figure is well above the average projected growth rate used in other state budgets this year.

"The National Conference of State Legislators has recently indicated that the average growth rate used in state budgets this year is less than 2.5 percent," Moore stated in the letter. "In light of stock market declines, consumer confidence declines, our unemployment rate and other recent economic indicators, it may be worthwhile to rethink the 4 percent and 4.5 percent growth rates currently being projected."

Senate leaders met Tuesday to discuss the issues raised in Moore's letter. Rob Lamme, spokesman for Basnight, said Wednesday that it is important for the growth rate to be as accurate as possible.

If the projected rate is inflated, it could lead to a budget shortfall similar to the $800 million shortfall that was created earlier this year. But if the projected growth rate is too low, the General Assembly could make unnecessary budget cuts or tax increases.

Last week the House approved a $390 million tax package that calls for a half-cent increase in the sales tax, a 6 percent sales tax on liquor and a temporary income tax on the wealthy.

Senate leaders have been pushing for a larger tax package, but Black has struggled to build a consensus in the House with Republicans and a small group of Democrats opposing a sales tax increase. "Clearly we need to be conservative in the estimate, but we can't be over conservative," Lamme said.

Senate leaders met Tuesday with Mike Walden, an N.C. State University economics professor, to discuss the state's economic outlook.

Lamme said Walden reassured lawmakers that their projections were consistent with his own revenue growth estimates for the next biennium.

But Moore stated his concern for the state's economy during the downturn. "We are two months into the current fiscal year, and while we seem to be holding our own overall, I personally do not see much evidence to support substantial short-term revenue growth," he stated.

But Walden said the economy appears to be improving, not remaining stagnant. "My general comment was that we're in a temporary slowdown in the economy; it's been caused by national factors," he said. "I think we're past the low point in the economy, and we're beginning to recover from the slowdown."

The Senate currently has no plans to alter the predicted growth rates, but Lamme said they are keeping their eyes open to economic changes and making sure they have contingency preparations. "We're going to continue to watch that and look at the tax revenue numbers as they come in this month and adjust it as necessary."

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