Governor Perdue is rightly touting the good news  that state revenue collections are running about $150 million above the $9.4 billion target as of the end of December. If state collections continue the rest of the year on target, the additional $150 million surplus would be just enough to cover the state’s projected Medicaid shortfall  through the end of the fiscal year.
It’s important, however, to put this small mid-year surplus* in the context of the substantial hole revenues must climb out of to reach pre-recession levels. As the chart below shows, even if North Carolina ends each of the next two years with a $150 million revenue surplus, revenue collections will still be far below the average levels of the two decades prior to the recent recession.
To dig out of the revenue hole resulting from the economic downturn — exacerbated by recent state tax cuts — would require a revenue surplus of nearly $2.5 billion at the end of the current fiscal year and $2.9 billion next year.
*Technically, above-target collections do not qualify as a true revenue surplus. A true revenue surplus refers only to above-target revenue collections at the end of the fiscal year. Furthermore, as the General Assembly’s staff economist, Barry Boardman, has noted , there is still a lot of uncertainty about revenue collections in the second half of the fiscal year.