Governor cuts pay, calls for furloughs for state employees

RALEIGH, N.C. — In an effort to close the gap on a state budget shortfall $1 billion more than originally expected, Gov. Bev Perdue on Tuesday ordered a half-percent pay cut for all state employees and teachers.

The pay cuts, for May and June, will save an estimated $65 million, a relatively small amount, she said, compared to the expected $3 billion-plus shortfall for the current fiscal year, which ends June 30.

That means state workers earning $30,000 a year could expect to see their monthly May paychecks cut by $75, followed by another $75 cut in June.

The executive order, signed Tuesday morning, calls for full-time employees to take 10 hours off in return, what the governor called "flexible furlough," between June 1 and Dec. 31.

"Therefore, when an employee takes their time off, their pay will not be deducted any further beyond the 0.5 percent taken this fiscal year," the governor's office said in a statement Tuesday afternoon.

Acknowledging the order was not well written, the governor's office had to clarify twice Tuesday afternoon what it meant.

Groups representing teachers and state workers said they expected possible salary hits next fiscal year but were surprised by Perdue's announcement.

"We're a bit disheartened by it, and we're hoping that we'll be able to stave off any further furloughs or cuts as we go down the line," said Dana Cope, executive director of the State Employees Association of North Carolina.

The governor also identified funds to close the remaining budget gap for the fiscal year, which include capturing $200 million in special funds, tapping the state’s Savings Reserve Account for up to $350 million and utilizing $400 million in federal stimulus funds.

"The world is not ending," Perdue said at a news conference. But she acknowledged that, "these are solutions that may be distasteful to our people."

The cuts come on top of moves she had already taken to close a $2.2 billion gap between income and planned state spending. Perdue has cut state agency spending by up to 9 percent, and tapped at least $550 million from reserve funds.

Perdue said Tuesday she was acting under her constitutional obligation to balance each year's state budget.

Although Perdue cannot impose salary cuts on elected officials such as lawmakers and judges, she said she had asked Chief Justice Sarah Parker and legislative leaders to take voluntary pay cuts.

Perdue said she would cut her own pay. House Majority Leader Hugh Holliman, D-Davidson, confirmed legislative leaders would accept pay cuts. The state constitution bars governors from changing the salaries of elected officials during their terms.

"Everybody is willing to give up a little of their salary," Perdue said.

Perdue said she decided on an across-the-board salary cut after legal advice that it was the option most likely to sustain a legal challenge. Her office said she would ask the General Assembly to pass legislation specifying that the pay cuts would not affect longevity pay, retirement or other benefits.

The federal stimulus money Perdue will spend in the next two months comes from a fund designed to allow states to avoid deep layoffs as they confront budget shortfalls.

The governor's proposed budget for the two years beginning July 1 recommended spending the $1.4 billion evenly over the two-year span. Instead, Perdue decided Tuesday to spend $400 million of that now, State Budget Director Charles Perusse said.

Perusse said the total spending gap for the current budget year could wind up between $2.8 billion and $3.2 billion, and the eventual amount would sway how much of the state's reserve funds are used.