State
retains its Triple A credit rating
even as another budget crisis arises
North
Carolina has weathered one major financial crisis only to come
face-to-face with another one. Days after overjoyed state
officials said North Carolina will get to keep its Triple A
credit rating, Gov. Mike Easley reported that state revenues
through the end of the fiscal first quarter were substantially
below budget and that he was directing most state agencies to
cut spending by 4 percent. Only the public schools, community
colleges and universities will be spared from the cuts.
Easley said he had learned from State Budget Director David
McCoy and State Controller Robert Powell that General Fund
revenue for the first quarter came in 3 percent below budget.
Although actual revenues for July, August and September were 6
percent higher than collections in last year’s fiscal first
quarter (see chart above), they fell well short of
projections, officials said.
“It is clear that we will have to set spending priorities
and make tough choices. But, education will remain our No. 1
priority because it is through education that we create
economic opportunity,” the governor said, adding: “I have
not asked the university system, community colleges, or the
public school system to make 4 percent cuts in their budgets.
We are asking them to work with us to move through a tight
fiscal year and come back with a plan for generating savings,
just as they did last year.”
Easley said he knows it will be tough for most agencies to cut
spending by 4 percent because the state already slashed nearly
$800 million in spending to balance the budget for the year
ended June 30. Easley indicated that, at a minimum, the
travel, purchasing and employment restrictions already in
place will be extended indefinitely.
Spending
cuts, increases in taxes and a contingency plan for dealing
with another financial emergency did the trick in allowing
North Carolina to keep its coveted triple-A bond rating, state
officials said earlier this month after visiting three
bond-rating agencies in New York. State Treasurer Richard said
the rating agencies were impressed that the state was able to
stabilize its budget "even in extraordinary times."
"They were impressed that we had a contingency
plan," Moore said, referring to money the General
Assembly earmarked in the current budget for another financial
emergency, including:
 Depositing $181
million into the Rainy Day Fund, the state's main savings
account, lifting the balance in the fund to more than $330
million.
Earmarking $125 million for the state's Repair and Renovation
Fund, which pays for maintaining state government buildings.
With that money set aside, the state won’t have to rob funds
from other accounts if the roof starts leaking on the Capital.
In light of lower-than-expected revenues in the first quarter,
State Budget Director McCoy said he will impound the money
until the end of the second quarter to see if the state's
revenue recovers.
Funding the state employee salary budget at 100 percent of
anticipated costs, rather than 98 percent as was seriously
proposed during budget negotiations between the House and
Senate. Because some jobs won’t be filled and others will be
vacant for weeks or months, it’s usually safe to fund
salaries at less than 100 percent of anticipated costs. But
doing so means little or no reversions at the end of the year
and less wiggle room if revenues are below target.
Reserving $47.5
million for a new mental health trust fund to begin paying for
the expensive proposition of decentralizing the
state’s mental health services in favor of community-based
programs.
Depositing $40 million into the state's Clean Water Management
Trust Fund for acquiring important environmental properties.
Easley said the state’s credit rating wasn’t lowered
because a majority in the General Assembly were brave enough
to vote for a budget that included higher taxes. "We
maintained the Triple A bond rating for one reason and one
reason alone -- the 63 House members and 35 senators who
were willing to stand up in the face of adversity and vote for
the budget," Easley said. "Had it not been for that
political courage, we would not have kept the Triple-A
rating."
Moody's
Investors Service said it wouldn’t lower North Carolina’s
credit rating but that it also wouldn’t take the state off
its credit watch list, a bit of sour news that was mostly
overlooked in the initial euphoria about the decision by the
ratings agencies. Moody’s, which placed the state on a
negative credit outlook in July, said it’s keeping North
Carolina on the watch list because of the general uncertainty
after the Sept. 11 terrorist attacks on the United States.
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