State Revenue Might Fall Short

The budget is based on a growth rate of 4 percent during the 2001-02 fiscal year and 4.9 percent in 2002-03.

But critics say the estimates are too optimistic in light of the Sept. 11 terrorist attacks and an economy that continues to slow. Last week the Dow Jones industrial average suffered its worst one-week drop in history. Several airlines with N.C. hubs have announced layoffs.

Rep. Warren Oldham, D-Forsyth, who is the co-chairman of the House Appropriations Committee, said it is too early to speculate on the state's economic future. "Right now, who knows what's going to happen?" Oldham said. "We will have to wait and see what the revenue situation is the second year."

He added that if the budget has to be adjusted in 2002-03, education and human services, which tie up 80 percent of the budget, could be targeted for cuts.

"It stands to reason that if you've got to make cuts, that's where you've got to go," Oldham said.

But other experts have remained optimistic about the revenue situation.

"The governor may have to make some (later) adjustments," said Dan Gerlach, director of the N.C. Budget and Tax Center.

But Gerlach added that an economic recovery in the corporate world, as well as an increase in consumer confidence, should be in full swing by next year.

Much of the revenue from an estimated $1 billion tax package the state legislator passed last week comes from a half-cent sales tax increase. The amount of revenue earned from a sales tax will decline if consumers are unwilling to spend money.

Gerlach praised the new revenue increases, which included the sales tax increase, higher taxes on the wealthy and a 9 percent systemwide tuition increase.

"Because the General Assembly had the courage to enact tax increases, it gives the state a cushion that it might otherwise not have had," he said.

Gerlach added that the legislature will be alerted if revenues begin to dwindle.

Michael Walden, an economics professor at N.C. State University and an adviser to the General Assembly, said the legislature already was too far along in the budget process to make major changes after Sept. 11.

"They probably did the best that they could do," Walden said.

Walden added that the legislature originally underestimated economic growth, possibly creating enough "slack" to compensate for an economic downturn. Walden also predicted that the economy would rebound quickly.

"The effects of September 11 will be relatively short-lived," he said. "I would look for a much better economic climate starting next year."

Gerlach also said that the attacks' impact on the economy would not last long. "We can live in fear, but I don't think Americans want to do that," he said. "Americans like to enjoy themselves."

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