Gov. raids rainy day fund

March 12, 2009 3:22:40 PM PDT
Earlier this year, Governor Beverly Perdue said tapping North Carolina's rainy day fund would be a last option. It appears that time has come.Late Wednesday, Perdue's office announced she seized the fund as a "precautionary measure to further manage the state’s cash flow and budgetary requirements."

Perdue cited North Carolina’s increasing unemployment rate and the declining national economic climate as reasons for the move.

"The sharp rise in unemployment combined with a significant decrease in state revenue has required me to take certain steps to responsibly manage the state’s cash flow,” said Perdue. “Securing the rainy day fund is necessary for the continuance of day-to-day government operations. Put simply, this move makes sure we will have the cash to pay the bills.”

Perdue said there's about $787 million in the fund. She'll use $250 million to stabilize the state employees' health plan. The rest will be used to manage cash flow when necessary.

Perdue has already grabbed other pots of state money - including funds from the state Education Lottery.

Her decision to grab the rainy day money drew sharp contrasts from House and Senate leaders.

While Senate leader Marc Basnight said he urged Perdue several weeks ago to tap into the fund, House Speaker Joe Hackney said she couldn't spend the money without the Legislature authorizing it.

"I think we ought to leave the rainy-day fund where it is," said Hackney, D-Orange. "The spending of these funds should be done with legislative approval."

Perdue spokesman David Kochman said the governor has the power to seize the money because the state constitution requires her to balance the budget "and provides broad discretion to carry out that duty."

Perdue already had declared a fiscal emergency in January, which also allows her to make changes to the state budget the Legislature approved last summer to narrow a shortfall expected to reach $2.2 billion by the end of June.

"I support her taking the fund," said Basnight, D-Dare. "We're in a fiscal crisis. She does not need to elaborate on that."

The savings reserve fund has been steadily growing since earlier this decade, after lawmakers used $200 million to help pay off a legal judgment and $286 million to help the state recover from Hurricane Floyd in the late 1990s.

Then-Gov. Mike Easley used the remaining $157 million in the fund in 2001 to deal with a $850 million shortfall.

But some House leaders now believe the reserve fund hasn't been appropriated by the Legislature, so the executive branch can't seize it.

"I think we've got a good legitimate, legal argument," said Rep. Mickey Michaux, D-Durham, senior co-chairman of the House Appropriations Committee.

Perdue's budget office said there's a $1.18 billion revenue shortfall through February, or the first eight months of the fiscal year. It equates to a 9.2 percent decline in tax collections lawmakers believed they would have last summer when they passed the state's $21.4 billion budget. Through December, the shortfall was about $625 million.

So far this year, corporate income tax collections are nearly 37 percent below the same period a year ago, while sales tax revenues are 5.5 percent lower and personal income tax 1.5 percent lower.

State Budget Director Charlie Perusse said that shortfall should widen to a previously announced $2.2 billion at the close of the fiscal year by the end of June, or 10.6 percent lower than budgeted projections.

If accurate, it would represent a 5.9 percent decrease in revenues compared to state government revenues received last year, the worst year-over-year decrease since North Carolina began keeping similar records in the early 1970s, the state budget office said.

As for next year, Perusse declined to discuss Perdue's budget proposal except to say the governor is making some tough decisions about spending cuts ahead of Tuesday's proposal. Perdue is expected to provide some clues in a speech Monday.


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