1 State of North Carolina Budget and Legislative Update Office of State Budget and Management Annual Conference October 15, 2008

2 Presentation Topics FY Update –Employment –Revenue –Appropriations/Closeout FY Summary –Economic Assumptions –Budget Management –Statewide Studies

3 State Update: 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

4 State Update: 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

5 State Update: 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)

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

7 Authorized Budget Summary FY (as adjusted for actual 2008 collections) ($ millions) Unappropriated / Actual Credit Balance as of 6/30/07$ 317 Overcollections FY Reversions FY Earmark Savings Reserve Account 0 Earmark Repairs and Renovations Account -70 Beginning Unreserved Credit Balance 7/01/ Tax Revenues Existing Tax Structure19,859 Non-tax/Highway Trust Fund966 Adjustments (Tax Changes/Transfers) 25 Total Availability21,449 Recommended Appropriations21,356 Funds Unobligated (left on table)$ 93

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 , OSBM began implementing management measures to ensure balanced budget on (required 2% reversion) Agencies and universities given flexibility to meet this mandate

9 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 System - Requires the State CIO to develop a plan that provides for the transition of all state agencies to a single system by January 1, Plan is to be presented to Governmental Operations by November 1, 2008

10 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