North Carolina budget writers brace for $5B shortfall

North Carolina's budget could be short by about $5 billion as a result of the response to the COVID-19 pandemic, state economists predict.

Analysts from the Legislature's Fiscal Research Division and the Office of State Budget estimated that revenue collections over the biennium will drop by $4.9 billion or 8.4 percent in their latest economic forecast for the state.

The group that publishes the forecast about three times a year said the effect of the outbreak has made it difficult to narrow down the timeframe for recovery. They dubbed May's report "uncharted waters."

"Due to the unprecedented nature of the ongoing public health crisis, this forecast was produced with greater uncertainty than usual," they wrote.

The state will end the 2019-2020 fiscal year June 30 with $1.64 billion less in the General Fund than what was previously forecasted. In 2020-2021, North Carolina is expected to take another $2.57 billion hit.

The shelter-in-place order and shutdowns caused by COVID-19 started in mid-March, and that created a lag for economists when accessing the state's current financial status.

Tax collection data rest on collections from the month prior. Therefore, May's reported tax revenue is what was collected in April. However, the tax payment deadline was postponed to July because of the pandemic. Economists cannot say for sure how much of the shortfall is because of the downturn from COVID-19.

Barry Boardman, chief fiscal economist, told members of the joint appropriations committee Tuesday that the forecast does not cover the "worst-case scenario."

"We're not putting in second waves of the pandemic," he said.

Consumer confidence drives the market, and with lingering uncertainty about COVID-19, economists cannot estimate how long the recovery will take.

The Fiscal Research Division and the budget office produces the forecast before every biennium, which initiates the budget process.

Budget writers also are facing a $774 million drop – or 9.7 percent – in the Highway Fund and Highway Trust Fund caused by the decrease in commutes brought on by the orders to stay home, State Economist Emma Hanson Turner told lawmakers.

"Obviously, it's a grim picture we're looking at," said Rep. Donny Lambeth, R-Forsyth, senior chairman of the House Appropriations Committee. "Some might even say it's a pretty doggone scary picture you're looking at, so we've got a lot of work ahead."