State of North Carolina

Budget and Legislative Update

Office of State Budget and Management Annual Conference October 15, 2008 1

Presentation Topics

• FY 2007-08 Update – Employment – Revenue – Appropriations/Closeout • FY 2008-09 Summary – Economic Assumptions – Budget Management – Statewide Studies 2

State Update: 2007-08 Results Employment

• • • • Job Growth remains higher than national averages – In FY 2008, State had net gain of 25,700 jobs (+0.6%) compared with National average and median growth of 0.4% and 0.2% – Unemployment rate has risen to 6.9% in August 2008, 0.8% above the national rate High-end service sectors lead the way adding 21,900 jobs over year (Finance, Business, Health Services, Education) – Government (+8,600), trade (+1,500), and leisure and hospitality (+6,700) showed gains as well – Manufacturing employment declined by 3.2% – Construction employment declined by 0.3% Employment expected to grow by 0.4% and 1.3% over next two years Housing starts have fallen, but prices continue to increase 3

State Update: 2007-08 Results Revenue Collections

• General Fund tax revenue collections grew by 0.7% (0.4% growth budgeted) • Net changes include: – Individual +3.8% (budgeted +3.7% -- *base growth +5.0%) – Corporate -24.2% (budgeted -27.6% -- *base growth +2.6%) – Sales & Use +0.2% (budgeted +1.1% -- *base growth +1.5%) • Actual revenue collections exceeded budgeted forecast by $68 million • *Base growth controls for tax law changes and one-time settlements and refunds 4

State Update: 2007-08 Results Appropriations/Closeout

•

• Budget administration was “business as usual” for year (no major program shortfalls, weather-related emergencies, etc.)

Reserved fund balance estimated to be $960 million as of 7/30/08

Major components: • Rainy Day Fund ($787 million) • Repair and Renovation Account ($70 million) • Disaster Relief Reserve ($71 million) 5

2008-09 Summary Economic Assumptions

• Base Revenue Forecast is the “most likely” scenario – Individual 4.3% (base growth is 3.8%) – – Sales & Use 7.4% (base growth is 3.1%) Corporate 9.2% (base growth is 2.4%) • General Fund Tax and Non-Tax Revenues budgeted to grow by 5.0% (base growth is 3.3%) • Transfer from Highway Trust Fund reduced by $25 million • Budget includes $129 million in pay-go capital appropriations and $70 million in Repairs and Renovations Reserve 6

Authorized Budget Summary FY 2008-09 (as adjusted for actual 2008 collections)

Unappropriated / Actual Credit Balance as of 6/30/07 Overcollections FY 2007-08 Reversions FY 2007-08 Earmark Savings Reserve Account Earmark Repairs and Renovations Account

Beginning Unreserved Credit Balance 7/01/08

Tax Revenues Existing Tax Structure Non-tax/Highway Trust Fund Adjustments (Tax Changes/Transfers)

Total Availability Recommended Appropriations Funds Unobligated (left on table)

7 ($ millions) $ 317 68 284 0 -70

599

19,859 966 25

21,449 21,356 $ 93

2008-09 Summary Budget Management

• During Short Session budget deliberations, revenue expectations were lowered due to slowing national economy • Revenue forecast assumes slow growth in first half of the year, with strengthening to begin spring 2009 • Coincides with large April individual and corporate tax collections, which are notoriously volatile • Governor is committed to ensuring that the next administration has sufficient reserves to manage this potential situation • On 9-18-08, OSBM began implementing management measures to ensure balanced budget on 6-30-09 (required 2% reversion) • Agencies and universities given flexibility to meet this mandate 8

Statewide Studies

• Section 6.3: Budget Code Consolidations - Allows OSBM to make transfers among programs to consolidate or eliminate budget and fund codes • Section 6.14: Single Electronic Email System - Requires the State CIO to develop a plan that provides for the transition of all state agencies to a single email system by January 1, 2010 - Plan is to be presented to Governmental Operations by November 1, 2008 9

Statewide Studies

• Section 22.5: BEACON Staffing Survey - Requires OSBM to do a staffing analysis of all agencies and universities that use BEACON - Report to Governmental Operations by March 1, 2009 • Section 6.5 of House Bill 2438 (Technical Corrections Bill): Study Use of Lapsed Salary - Requires OSBM to report on the amount of lapsed salaries generated by each agency - Report is due to Governmental Operations by February 1, 2009 10