N.C. governor uses money from savings reserve for bills

BY GARY D. ROBERTSON

RALEIGH

Gov. Bev Perdue took nearly $800 million in North Carolina's rainy-day reserve fund Wednesday to ensure the state has enough money to pay its bills, a move that divided legislative leaders over whether she can spend it.

Perdue said she seized the savings reserve fund assembled by lawmakers as a "precautionary measure" to combat one of the sharpest declines in overall tax collections in recent state history.

The governor said she would use $250 million of the $787 million immediately to ensure the state employee health insurance plan still has cash at the end of the month.

The move came the same day the state said the jobless rate rose to 9.7 percent in January — the highest in more than 25 years — and that her budget office announced North Carolina tax collections are now nearly $1.2 billion below revenue projections this fiscal year.

Two weeks ago, Perdue said she would shift another $300 million from other reserve funds — including some state lottery proceeds — to manage cash flow.

"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," Perdue said in a prepared statement. "Securing the rainy day fund is necessary for the continuance of day-to-day government operations."

Her decision 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 an $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 with 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.