State Could Finish Year With Surplus

Now halfway through the 2002-03 fiscal year, North Carolina is on schedule in tax revenue collections for the first time in three years.

As of Dec. 30, the state had collected nearly $60 million more than it had expected, said Deputy State Budget Officer Charles Perusse.

"We're hoping that things will continue positively," he said.

But the extra sum is not as significant when compared to a $14 billion budget, said Linda Millsaps, a fiscal analyst for the N.C. General Assembly.

Still, the state is in a better position this year than at the same point in the past few years, Perusse said. He said that if the first six months are an indicator of the rest of the year, the state should meet its projected 1.9 percent net revenue growth.

This prediction is significantly lower than those of previous years, according to reports from the Office of State Budget and Management.

Last year's extended General Assembly session, which lasted until Oct. 4, contributed this fiscal year's low projected growth rate, Millsaps said.

"There is an upside to the session that never ends," she said. "(Legislators) were still making adjustments into October."

Though legislators' predictions have been on target thus far, the state still faces two telltale months for revenue collection.

January and April typically generate most of the money that will fill state coffers, Perusse said. He added that the month of January is often an indicator of how much revenue will be collected in April, when citizens pay their state income taxes.

Financial analysts warn that there are several major factors that could affect revenue in the next two fiscal quarters.

Perusse said money used for repairs and cleanup after the recent ice storm was one unexpected expenditure that continues to drain state revenue.

"It looks like the ice storm could cost us somewhere in the $25 million range," he said.

Another major factor that officials say will determine the outcome of the state's net revenue for the fiscal year is whether the United States declares war on Iraq before April.

A large deployment of troops from North Carolina to the Middle East would mean fewer soldiers and families in the state to buy goods and pay sales tax.

"If it looks like they will be gone a long time, their dependents may look to go back to their home states," Millsaps said.

She said this effect was seen in the low sales tax revenues in places like Cumberland County in 1991, when troops were deployed to the Persian Gulf during the Gulf War.

Perusse said the increase in the price of oil to $40 to $50 per barrel as a result of a potential war with Iraq also would decrease sales tax revenue.

Buying more expensive gas would make North Carolinians' wallets thinner and leave them less able to purchase other goods and contribute to sales tax revenues, Perusse said.

But Millsaps said sales taxes are just part of the picture.

"While the sales tax is important, the vast majority comes from income tax," she said. "The real issue becomes what happens in April."

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