State urged to watch budget - Panel expresses cautious optimism on economy

DURHAM

North Carolina's economy will continue to grow in 2007, but the state must keep adapting to global competition and keep investing in schools and colleges, a panel of business and economic leaders said yesterday.

The group, speaking at an annual forum billed as an economic forecast for the coming year, expressed mostly cautious optimism about the North Carolina and U.S. economies.

But North Carolina, one of the fastest-growing states in the nation, will face budgetary challenges, including an array of requests for new spending expected to come before the General Assembly after it reconvenes later this month.

Despite various potential requests for large statewide bond proposals, state legislators will need to be careful about how much new debt they take on, said State Treasurer Richard Moore, who was one of the panelists.

All of the state's new projected borrowing needs -- which include school construction, water and sewer infrastructure, affordable housing and road building -- would require it to borrow $6 billion to $9 billion, Moore said.

But right now, if the state wants to maintain a conservative debt load, it can afford only $1.5 billion to $2 billion in new debt, Moore said.

"These are all worthy projects with noble goals. But we must maintain our commitment to keep our financial house in order," said Moore, a Democrat. "We can't allow ourselves to confuse what we want with what our state needs"

Moore, who is a likely candidate for governor in 2008, asked legislators to allow voters to decide, through bond referendums, whether the state should take on large amounts of new debt.

Another long-term challenge for legislators will be the cost of retirement benefits for state employees. The state's projected health-care liability for retirees over the next 30 years is $24 billion.

In addition to financing that liability directly, Moore said, the state should take steps to reduce health-care costs by promoting healthier lifestyles.

"We've got to do a better job of investing in preventive health-care measures for our public employees," he said. "We've still got far too many office buildings in the state where you can smoke. The junk that's served in snack bars -- it's just horrible, in my personal opinion. But now it's got actual dollars tied to it."

Yesterday's forum was put on by the N.C. Bankers Association and N.C. Citizens for Business and Industry. Organizers estimated that 1,200 people -- mostly members of the business community -- attended.

The other panelists were John Allison, the chief executive of BB&T; Harry Davis, an economist at Appalachian State University; and Knight Kiplinger, a financial journalist who runs The Kiplinger Letter, the nation's leading economic-forecasting publication.

The three men gave similar projections for the national economy in 2007, predicting moderate inflation, flat interest rates and moderate growth in the national gross domestic product of between 2 percent and 3 percent. They said that North Carolina's economy would grow slightly more than the national GDP.

They also praised the state for heavy investments in its public-university system and its community colleges. A year ago, at the 2006 economic-forecasting forum, Moore called on legislators to raise the state's minimum wage. A few months later, they did -- and the $1 increase to $6.15 an hour took effect this week.

As a corollary to the minimum-wage increase, Moore and other state officials are now pushing for a state version of the federal earned-income tax credit. Moore renewed that push yesterday.

After the forum, Kiplinger said that it is a good idea, calling the tax credit "the most powerful poverty-fighting device there is."

The credit reduces the taxes paid by working people who make up to about $35,000 a year.

In 2003, 277,000 taxpayers in North Carolina applied for the federal earned-income tax credit. The average credit given out was about $1,800.