Seth Effron, founder of the subscription news service The Insider, is a reporter who has followed North Carolina government and politics for three decades. He also served as Special Project Director at the prestigious Neiman Foundation for Journalism at Harvard University and handled press in the Governor’s Office and Department of Environment and Natural Resources. 

North Carolina’s budget year is a mere two months old and already there are annoyances that could be signs of huge problems in a few months. Total general fund revenues are $200.4 million short where they were at this point last year, according to the Monthly Financial Report for August 2014, issued by State Controller’s Office on Tuesday. If the current trend continues, it is likely legislators will be dealing with a budget hole of $725 million to as much as $1.2 billion.

This past legislative session, the General Assembly had to confront a $500 million shortfall as they struggled to meet a variety of election-year spending demands, including pay raises for teachers and other state workers. Most state agencies started the year already in an austerity mode and it won’t be surprising, if by the end of September or October, memos will be dispatched from Lee Roberts, Gov. Pat McCrory’s new budget director, with belt-tightening orders and restrictions on state employee travel.

McCrory will likely try to avoid doing anything before election day, so it won’t have an impact on the various campaigns, particularly for fellow Mecklenburg County Republican Thom Tillis, the speaker of the state House of Representatives who is locked in a very close race for the U.S. Senate against incumbent Democrat Kay Hagan. Don’t be surprised when legislative leaders and key budget analysts declare that it is still too early in the process to say whether any trends are in place and that they expect revenues to increase in late October and into November and December with holiday shopping and lucrative year-end bonuses.

The major culprits for this latest revenue shortfalls are individual income taxes running $225.5 million behind last year along with franchise fees which are running $51.3 million behind the same point last year.  Tax cuts enacted by the legislature have had a major impact that haven’t been made up with predicted economic growth in other areas. In August 2012 the state collected $816.5 million in personal income taxes. This past August, the total was $680.3 million – a difference of $136 million. Broadening of the state sales tax has, over the same period, brought in additional $124.6 million – still not equal to the income tax cuts, including reductions in the corporate income tax.