Gov. Beverly Perdue paid back one of the state funds she used to keep the state's checking account flush during the last fiscal year.

The state was facing a $3.2 billion shortfall last year. From month to month, the cash situation was dicey, to put a fine point on it. To ensure the state could pay its bills, Perdue transferred hundreds of millions from four state funds in February as well as ordering agencies to curb spending.

"When the national recession created a shortfall of billions of dollars, I had to turn over every stone to pay North Carolina’s bills — to pay teachers, to keep schools and other core services running," Perdue said in a statement.

Perdue authorized transferring up to $100 million from the Public School Building Capital Fund, the pool of money used to distribute school construction money raised by the state lottery. Perdue took only $37.6 million from that fund because she wanted to spare education, a spokesman said.  

Perdue said Friday that she was using money left over from the last fiscal year to replace what was taken from that fund.

Perdue also took $50 million from the Public School Textbook Fund. That money was repaid by the current state budget.

Transfers from two other funds, the Education Lottery Reserve Fund ($50 million) and the Clean Water Management Trust Fund ($100 million) have not been paid back.

Gov. Beverly Perdue says the steep drop in revenue made it hard to keep a campaign promise to help seniors.

Perdue was responding to questions posed by readers of The Charlotte Observer. Two readers asked her about a plan Perdue touted during her campaign to expand the homestead exemption and freeze property tax evaluations for seniors who make less than $50,000 and have lived in their homes for 20 years.

Perdue said the recession and a steep deficit made such a promise difficult to keep.

North Carolina faced a shortfall of $4.7 billion — a 20 percent hole in the state budget — for this fiscal year. Even with new revenue and federal recovery funds, we cut $2.1 billion from the state budget. As a result, many tough decisions had to be made to balance the budget and to protect public school classrooms and other core services in health and public safety.

I'm hopeful that as the economy rebounds we'll be able to make progress on many issues this budget could not address.

Republicans have said Democrats overstated the size of the deficit by measuring available revenue against what they would have hoped to spend in the best of times instead of what was actually spent in the previous year.

Taxpayers who have to write a check to the state tend to wait until the very last day.

And the roster of procrastinating taxpayers includes folks who owe six figures or more, said state Budget Director Charlie Perusse.

"Folks who are required to pay final payments for the prior tax year, especially large income tax payers, hold onto their money as long as possible," Perusse said.

It's human nature to wait to write that check to the state. There's also a financial incentive — the money draws interest if a taxpayer hangs onto it.

All those checks getting mailed on the deadline is part of the reason why April numbers are a big deal for those writing the state budget. Perusse said the revenue department is still processing tax returns and it's too early to know whether the state's $3 billion budget deficit will grow or shrink.

In past years, the state has collected more than $1 billion in April. Officials have been pleasantly surprised in past years when the April numbers were even better than expected.

"Obviously the surprise could go either way," Perusse said.

Legislative Republican leaders outlined cuts in spending Tuesday that could send more than $590 million back to the state's coffers.

Senate Republican Leader Phil Berger of Eden and House Republican Leader Paul Stam of Apex said the biggest savings — $300 million a year — would come from increasing class sizes in public schools by two students. That would bring the average class size to 23, they said.

Stam and Berger said there is no guarantee that smaller classes make for better schools. They repeated skepticism about Gov. Beverly Perdue's proposal to increase spending on education when the state is facing a deficit of more than $3 billion.

"It's an intuitively happy thought that your child is in a smaller class," Stam said. "It's hugely expensive."

Other proposals the leaders highlighted would purchase software to avoid improper Medicaid payments ($100 million in savings), suspend $100 million funding of the Clean Water Management Trust Fund (which Perdue has already proposed) and end the state's $80 million appropriation to the Golden LEAF Foundation.

Stam said that consolidating Gov. Jim Hunt's Smart Start and Gov. Mike Easley's More at Four early education programs could save something on the order of $10 million.

Stam said that Perdue would be welcome to put her name on the new, combined program.

"She can call it the 'Perdue Phenomenal Program,' and we can save some money," Stam said.

That name, of course, doesn't rhyme (although it is alliterative).

The state's revenues dropped $286 million or 14.3 percent in January compared to the same period last year.

The news was released Monday in a report by state Controller David McCoy.

"Revenue growth is slowing dramatically," McCoy said in a news release. "This decline was expected, and the state's financial plan was adjusted, but we are continuing to feel the strain of budget pressures." 

According to McCoy's report, personal income tax collections accounted for the nearly all of the loss in revenue for the month. McCoy also reported that investment earnings declined by $16 million, or 89 percent. State spending is down by 1.7 percent. Education and health and human services spending, the largest category of state expenditures, was 5.6 percent higher in January.

Perhaps a reflection of all this bad news, sales and use taxes, alcohol and tobacco taxes grew by $42 million or 8.5 percent in January 2009.

Education is the biggest expense in the state's budget and erasing next year's deficit will require lawmakers to seriously consider cuts to schools and universities, a fiscal analyst said Tuesday.

Legislators got a look at the reasons the state budget grows and Evan Rodewald, an analyst in the Legislature's Fiscal Research Division, included the difficult truth about education in his report.

Because education programs comprise most of the budget, some portion of future budget reductions will likely come from education.

The briefing was part of a series of updates on the state's budget picture.

How education spending adds up after the jump.

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DENVER – All seven Democratic congressmen representing North Carolina showed up Tuesday morning at a state delegation breakfast in an unusual show of unity.

He also said there was a strong chance that Democrats would add to their numbers by electing Larry Kissell over Republican Rep. Robin Hayes in the 8th District.

Reps. Mel Watt of Charlotte and G. K. Butterfield of Wilson urged delegates not to emphasize race in the presidential campaign despite the historic nature of Barack Obama's candidacy. Both said there are other ssues far more important to the country, such as the economy, the war in Iraq and the growing federal budget deficit.

“Don't let the media here or back home let you get trapped in the race question,” Butterfield said.