RALEIGH- State government began fiscal 2020-21 with $1.5 billion in cash left over from the prior year, plus $1.8 billion more in rainy-day funds and other earmarked reserves. Since then, the state has collected some $1.5 billion more in general fund revenue than it has spent.

That’s a lot, but will it be enough to cover expected state budget deficits? It’s impossible to say yet.

Back in May, the legislature’s fiscal staff and Gov. Roy Cooper’s budget office produced a consensus forecast that predicted the state would collect $4.2 billion less in general fund revenues than originally expected in the 2019-21 budget cycle.

They properly produced estimates for the biennium. We can’t get an accurate read by looking at just one year. For instance, lawmakers delayed the April 15 tax deadline into July. Shifting dollars from one year to the next doesn’t change their quantity.

At this writing, that consensus revenue forecast hasn’t been updated. Too many puzzle pieces were still in motion.

Want to feel optimistic? Look at sales-tax collections. They haven’t been as walloped by the COVID crisis as some feared. From July 2019 to June 2020, the state took in $7.82 billion, vs. $7.75 billion in 2018-19. That’s lower than originally projected, of course, but sales taxes didn’t crater.

Want to feel pessimistic? Look at employment numbers. As of July, North Carolina’s headline jobless rate was 8.5% — a tick up rather than a drop down from June. Employers are hiring people back, but not as robustly as we need them to. We are still down 326,000 jobs since February. That represents a lot of people on the sidelines of the economy, producing less, spending less, and going deeper into debt.

Some policymakers in the Cooper administration and legislature apparently concluded North Carolina won’t need any sweeping and potentially unpopular steps to balance the state budget. They see billions in cash reserves, billions in missed revenue projections and figure the two will end up roughly matched.

Maybe, but they shouldn’t be counting on it. Here are three reasons why state officials need to tamp down on spending to increase reserves:

• Local needs. While the state went into the COVID crisis with significant cash reserves, many counties, municipalities and school districts didn’t. They’ll come to Raleigh this fall, and especially next spring, with cries for relief. I suspect some of thecries will prove irresistible.

• Second waves. What if the onset of colder weather produces an upsurge in COVID infections and hospitalizations, triggering a new wave of lockdowns? What if Washington doesn’t fully sustain the federal borrowing binge that has propped up consumer spending thus far? What if economic downturns in other countries damage export markets for North Carolina industries?

In these and other scenarios, our already-too-slow economic recovery could falter. North Carolina’s revenue shortfall could grow by a billion dollars or more.

Both the Cooper administration and General Assembly say the COVID crisis uncovered big needs for long-term public investment such as expanding broadband access, upgrading public-health facilities and modernizing air-conditioning and ventilation systems in public buildings to reduce transmission of airborne pathogens. Policymakers will likely propose state borrowing to finance much of this — I hope all such bonds are submitted to voters for approval in a referendum — but debts must still be paid and some projects will be better suited for pay-as-you-go finance, anyway. If we don’t maintain sufficient state reserves for future rainy days, literal or fiscal, our credit rating could suffer, hiking our cost to borrow.

They were sometimes criticized by Cooper and left-wing activists for this, but our legislative leaders are to be commended for building up the state’s reserves. The savings are good, but don’t blow it in one year.

John Hood chairs the John Locke Foundation.

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