April will be a pivotal month for the state budget and NC State’s financial prospects.
Although tax revenue has been lower than projected through February, the state is poised for recovery in 2010-11, State Budget Director Charles Perusse told attendees at last week’s general faculty meeting.
Last year, in the face of a $3.2 billion shortfall in state revenue, NC State reduced its budget by 10 percent to cover reductions and future cuts in the two-year budget cycle.
“The hope is that we can go into next year without academic units being subjected to another round of cuts,” Chancellor Jim Woodward said.
Leaders will be watching tax revenue in April, the first big collection month of the calendar year.
For the rest of this fiscal year, which ends June 30, academic units are operating within their budgets and the state is not expected to order budget reversions to take back funding, said Charles Leffler, vice chancellor for finance and business. However, if revenue declines, spending restrictions could be put into effect.
Perusse says North Carolina faces an uphill climb to economic recovery.
As barometers of the mood downtown, he quoted two office posters. “It is what it is,” the first one read. The second? “The light at the end of the tunnel has been turned off until further notice,” he said, drawing laughter.
His assessment is a bit less dim. “After 18 months, the light is coming back on, but it’s a 40-watt bulb at this point.”
The state’s current forecast calls for a revenue drop of 1.6 percent in the 2009-10 fiscal year, followed by 2.8 percent growth in 2010-11.
Growth would mark a turnaround from the worst financial conditions the state has faced in 80 years. From a $1.3 billion surplus in 2006-07, revenue went flat in 2007-08 and then “fell off a cliff” to the $3.2 billion shortfall in 2008-09, Perusse said.
“We’ve really never seen anything like this since the Great Depression, and the numbers bear that out.”
Overall, the state reduced spending by $4.6 billion in 2009 to reach a balanced budget as required by state law. North Carolina relied on a combination of $2.1 billion in budget cuts, $1.4 billion in federal recovery funding and $1 billion in tax increases, Perusse said.
“We cut about half (the amount), the federal government gave about 30 percent and we raised taxes about 20 percent.”
Those steps allowed North Carolina to maintain its AAA bond rating, making it one of only seven states to do so.
Dr. Warwick Arden, provost and executive vice chancellor, reviewed the 2009-10 budget cuts, which resulted in a loss of 117 faculty and 323 staff positions, cancellation of 300 class sections and a 3 percent drop in instructional capacity.
“Students are seeing the effects of these cuts,” he said, adding that members of a communications class he had spoken to the night before told him they were having difficulty getting classes.
Given the state’s financial outlook, no funding for new items will be allowed in expansion budget requests this session, Arden said.
The university expects no state funding to maintain and operate new buildings, cover inflation for utility costs and library acquisitions, replace vehicles and motorized equipment or increase the benefits budget, he said.
While an enrollment increase would be funded, it would not be at the projected level of growth, he said.
For the 2010-11 budget, the governor has asked state agencies to submit a plan for a 5 percent reduction in state funds, he said.
In the coming budget cycle, it is anticipated there will be limited funding for pay increases for state workers, who will face cost increases for health insurance. However, Gov. Bev Perdue has raised the possibility of refunding last year’s half-percent pay reduction.
“It’s under discussion in concert with other components,” Perusse said in response to an audience member’s question. The governor expects to release a budget proposal before the legislative session, which begins May 12, he said.