For now, consensus North Carolina shortfall estimated at $271 million for $21 billion budget

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RALEIGH, North Carolina — North Carolina's tax collections this year are expected to come up $271 million short of what's needed to cover the $21 billion state government budget, economists at the General Assembly and Gov. Pat McCrory's administration say.

They released a consensus report Tuesday saying they anticipate the gap between actual and expected tax collections to be 1.3 percent of the anticipated revenues.

That's higher than the $199 million difference that legislative analyst Barry Boardman calculated through Dec. 31, or the first half of the fiscal year. Year-over-year operating fund revenues are still forecast to grow, but not as much as anticipated. Actual growth is now predicted at 2.9 percent, not the 4 percent expected earlier.

The state can close the gap through reserves and unspent funds, as it did last summer when the shortfall was $450 million. But that could make it harder to fund programs in the new fiscal year beginning July 1.

As with last year's shortfall, the consensus report blames continued weak growth in wages for the gap, even while the state unemployment rate has fallen markedly over the past two years to 5.5 percent. The taxes withheld from individual paychecks also have fallen because the 2013 tax overhaul law reduced income tax rates.

The report was released as the legislature began convening budget committee meetings this week. By tradition, the House will write and pass the initial version of the next two-year budget through mid-2017. The Senate will then make changes. The two chambers want to get a final proposal to McCrory before the end of June.

Lawmakers will still watch carefully the volatile April 15 tax payments. GOP lawmakers who passed the 2013 tax law remain hopeful the shortfall will disappear based on the consensus report's assumption that tax filings will generate lower refunds and higher payments. But Boardman and State Budget Office economist Nathan Knuffman said the forecast "adopts a cautious approach."

"We probably do need to take a conservative number as we start working with the budget process," said Sen. Harry Brown, R-Onslow, co-chairman of the Senate Appropriations Committee. "I think it's going to be lot closer to breaking even after we get those April numbers."

Democrats opposed to the tax law have said the shortfalls are proof the tax law is taking away more money from government coffers that could be used for public education and health care.

The report also predicts baseline revenue growth of roughly 4 percent during the next two years, below the long-term average of 5 percent. The 2015-17 revenue outlook "reflects a continuation of moderate, steady economic growth," the report's authors wrote.

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