Time for straight talk about the numbers

Judging from the headlines lately, you'd think a consensus has almost developed on how to address North Carolina massive budget problems. Last week Governor Beverly Perdue ordered more spending cuts for state agencies, reductions as much as seven percent for many state departments.

The folks on the Right are not only applauding the move, but citing the lack of protest about it as evidence that the cuts won't hurt any important programs and  that the state budget is bloated and filled with waste. They want the cuts made permanent and then increased to handle next year's budget shortfall.

Perdue and other Democratic leaders have refused to even consider that new revenue should be part of any plan to balance the budget. One prominent Democrat defended that view by saying that it doesn't make sense to raise taxes during a recession.

That's music to the ears of the anti-government crowd too and means that as the General Assembly convenes next Wednesday, most state leaders and think tanks on the right at this point agree that budget cuts alone are the answer the state budget problems.

It's time to back up and take an honest look at the numbers. Not the ones the right is putting out, the real numbers.  (Check the latest Radical Right Reality Check by Rob Schofield to read about the Right's misleading claims.)

First, it is important to remember that there are two separate budgets involved, the one for the current fiscal year that ends June 30 and next year's budget that begins July 1. State revenues for the current year may end up $2 billion short of forecasts and Perdue is required to keep the books balanced.

Governor Mike Easley had already ordered a five percent reduction in most state agencies. Perdue's latest announcement calls for two percent more in many departments, but not in education, mental health, and the criminal justice system.  And ninety percent of the state budget pays for education, human services, and corrections, so smaller cuts to those departments are an acknowledgement that deeper reductions are unwise.

Perdue and state lawmakers face a shortfall of $3 billion in the budget for next year that they will put together this legislative session. Perdue has asked state agencies to send her proposals for three levels of budget cuts for that spending plan, three percent, five percent, and seven percent.

The state's operating budget is $21.3 billion. Seven percent of that is $1.49 billion, roughly half of the hole that needs to be filled. And that's even with seven percent cuts to education, human services, and corrections, departments that she doesn't want to cut seven percent from this year.

Here's another way to think of the $ 3 billion shortfall. Lawmakers could completely eliminate the Department of Agriculture, the Department of Commerce, the Department of Environment and Natural Resources, the Department of Labor, the Department of Cultural Resources and abolish the entire community college system and they still wouldn't save enough to balance next year's budget.

That ought to be enough to show that next year's budget should not be balanced with cuts alone. And there's also strong evidence that a balanced package of reductions and new revenue is much sounder economic policy for the state during an economic downturn.

The Center on Budget and Policy Priorities cites an analysis by Nobel Prize winning economist Joseph Stiglitz of Columbia University and Peter Orszag, President Obama's nominee for head of the Office of Management and Budget and former head of the Congressional Budget Office to make the point.

Stiglitz and Orszag find that most budget cuts reduce demand in the economy more than a moderate tax increase and they conclude that tax hikes on the wealthy are the "least damaging way for closing state deficits in the short run."   The long run involves progressive tax reform.

Let's hope lawmakers understand all that when they convene next week. The numbers and the evidence are clear that the predominant view in Raleigh is wrong about the budget shortfall. The thousands of families who rely on the services that are in line to be cut can't afford for state leaders to make that fundamental mistake.