With the U.S. House in Republican hands come January, not only is another round of federal stimulus funding for the states a virtual impossibility, it may be that the GOP will try to pull back unspent funds from the 2009 stimulus package. (In the U.S. Senate debates, Richard Burr and Elaine Marshall both said that about one-third of the initial stimulus remains to be spent — which if my math is right would be, after accounting for the fact that one-third of the stimulus funding was in the form of tax cuts, about $150 billion.)
So the N.C. General Assembly will be on its own next year as it figures out how to close an estimated $3.3 billion gap between anticipated revenues and continuation-level spending for the 2011-12 fiscal year beginning July 1. The budget hole is approximately 15 percent of total state spending, which this year amounts to some $18.9 billion.
Ordinarily, some combination of spending cuts and tax increases would be under consideration in Raleigh, but we are not in ordinary times: In January, Republicans will take control of the General Assembly for the first time in more than 100 years, and they’ll do so with healthy margins in both houses — 31-19 in the Senate, 68-52 in the House.
The Republicans ran on a promise to balance the budget without tax increases. If they follow through, that means radical cuts in Medicaid, social services, the UNC system’s budget, and especially to local school aid (K-12) which accounts for some $7 billion of annual state spending — by far the biggest line item.
Before the Republicans get in the budget game, however, the first move belongs to Gov. Perdue. She’s already indicated that she won’t seek the extension of the temporary 1-cent sales tax increase that was enacted for the current fiscal year only and raised an estimated $1 billion. She’s asked every cabinet official to submit budget numbers to her reflecting a 5 percent cut in spending, a 10 percent cut and a 15 percent cut.
In short, all indications are that Perdue will submit a budget that is slashed to the bone — no new taxes —
and see whether the Republicans have the stomach to pass it.
Is that what she should do?
It’s what a Republican governor would do, presumably, but if we wanted a Republican governor we’d have elected one.
Perdue may not be able to enforce a budget veto — 60 percent of the members in both houses are enough to override her, meaning the 31 Republicans in the Senate can do it if they stick together and the 68 Republicans in the House would need just four Democrats to join them and they could override her too.
Still, Perdue should draw the line between cuts she’ll accept and cuts that she can’t accept because they’re irresponsible given the needs of children, the disadvantaged, those with physical and mental disabilities and the long-term economic vitality of the state.
She could try to out-cut the Republicans. If she does, she’ll face a rebellion in her Democratic base —and maybe a primary challenge.
Or she can find a way to draw a clear line with Republicans: progress versus retreat, go forward or go back.
It’s no easy choice, given her precarious public standing.
Pearce advises her: Go with your base.
One strategy Perdue might consider is to submit a budget with no new revenues, spelling out where the cuts would have to fall, but also making it clear that such a budget would be enacted only over her veto.
Perdue could then present an alternative budget with higher spending that she would accept — one presumably containing a good deal more state aid to schools. She could attach to this budget a menu of acceptable tax increases to pay for it. The list might include extending the sales tax to services; raising cigarette taxes; raising gasoline taxes; or, fairest of all, raising the income tax on upper-income folks.
Presenting the budget this way would frame the choice for legislative Republicans:
a) Cut state aid to schools and force the counties to either slash their school budgets or raise property taxes; or
b) Fund the schools by slashing social services; or
c) Fund the schools by finding new revenues.
This, not incidentally, would also frame the choice for the voters in 2012 if the Republicans force slash-and-burn budget onto the books.
Democrat Perdue should have no trouble taking a pro-schools position. She may be forced to swallow an anti-schools budget, but she doesn’t have to sign up for one in advance.