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Recession near if not already here, lawmakers are told

RALEIGH — A recession is coming, if it’s not already here, the state budget director at the N.C. Office of State Budget and Management told lawmakers in a meeting of the House Select Committee on COVID-19.

The Continuity of State Operations working group of the COVID-19 committee met Tuesday to hear from a range of state agencies on how they’re faring.

The outbreak is paralyzing the state’s economy, Charles Perusse, state budget director at OSBM, told lawmakers. But the full extent of the economic damage isn’t yet known.

State officials anticipate a dramatic decrease in tax revenue as Gov. Roy Cooper’s executive orders hamper businesses and restrict the movements of residents to slow the spread of COVID-19.

A delay in tax filing will lead to a tax revenue decline, Perusse said.

The biggest state finance concerns are the unknowns, said Joe Coletti, senior fellow at the John Locke Foundation.

N.C. Department of Transportation Secretary Eric Boyette expects a $20-million revenue loss. Income and sales tax losses will probably be even higher, Coletti said.

“The state government will receive $2 billion from the CARES Act, which could offset the income tax revenue that will be deferred until July,” Coletti said. “That leaves more flexibility for the $2.2 billion unreserved cash balance.”

Perusse said he expects GDP to contract slightly in the first quarter and substantially in the second. The recovery will likely begin in the fourth quarter.

Updated revenue estimates will come in early April, Perusse said.

The OSBM is monitoring state agencies on COVID-19 related expenditures and revenue losses.

State agencies, from the N.C. State Board of Elections to the transportation department, are seeking financial and regulatory relief.

The judicial branch is asking for help from the General Assembly for emergency judges, temporary courthouse staffers, and personal protective equipment, among other things.

It’s surprising restrictions on spending or hiring aren’t in place for agencies seeking new money to deal with the pandemic, Coletti said.

“While OSBM is asking state agencies to track their extra spending, it should also be looking for savings for the rest of this fiscal year and for fiscal year 2020-21 to make possible any additional spending beyond Medicaid and education,” Coletti said.

Coletti cautioned lawmakers against a tax hike, temporary or permanent, to address tax revenue lost from COVID-19. North Carolinians can’t shoulder the burden, Coletti said.