Cover Story: NC saving for recession

By Jeff Atkinson - bio | email

Posted by Sarah Hildmann - email

CHARLOTTE, NC (WBTV) - NC Gov. Bev Perdue proposing to raise taxes in a recession, and in the face of a huge budget shortfall.  She's promising it won't be permanent.  The hike is only to get us over the hump.

North Carolina is still operating without a budget -- still facing a multi-billion dollar shortfall.

And you're about to be called on to fill that gap.  The governor wants to raise the state sales tax, sin taxes, and the income tax on the highest wage earners.

None of the options look very good in this economy.  We're asking is there a better way.

Chances are you save for retirement, you know it's coming, you want to have the money for the future..

Suppose state government operated like your family's budget and saved up in the good years.

It's a novel idea that's gaining steam.

If you think it's a far fetched idea.. then you haven't talked to Ben Russo.

"I view it as insurance."

This economist and fiscal policy expert at UNC Charlotte says if North Carolina would have set aside a certain percentage of its revenue the last six or seven years call it a "rainy day fund" then we wouldn't be in the mess we're in right now having to layoff teachers and looking at painful tax increases.

"It's extremely unfortunate," says Dr. Benjamin Russo.  "A lot of the pain and gnashing of teeth that we have now could be avoided."

Recessions are kinda like an eclipse.

You're not sure when one's coming, but count on it about every few years.

And since North Carolina isn't the federal government, can't go out and print more money and can't operate with a deficit when times get dark (like the recession we're in right now) the state has to either make cuts or raise taxes.. or both.

What Dr. Benjamin Russo and others propose is this.

Say there's five good years and a recession in the sixth year.

Bank three percent of the state's revenue in the five good years.. (not spend every time in other words) and you'd have 15-percent to apply to the sixth year, what the typical budget shortfall is in a recession year.

"It's like saving for retirement," he says.  "If we want to be able to maintain our living standard during retirement we have to save before it occurs."

Sounds like a no-brainer to me.. well why then doesn't it happen?

Blame both political parties.  When times are good and the state's flush with cash.. most Democrats want to spend it.. create new programs.  Republicans.. want to return it to the people.

Russo understands why there's no stomach to for putting the money in the bank.

"We don't want the government just collecting revenues and holding onto them without doing anything that's socially useful. But in the case of these budget shortfalls there is clearly a social useful way of using the funds."

North Carolina has a rainy day fund but lawmakers don't set near enough money aside each year to weather a recession year.

The state saves up about 5-percent, experts say needs to be 15-20 percent.

What's the chances of something happening?

This has been such a nightmare for budget writers.. some think the climate may be warming up to starting to save more money in the good years.

Interesting to note-- with each recession since about the 80s.. the budget shortfalls have progressively gotten worse.