$17 billion budget released Senate to vote on budget

05/04/2005
Charlotte Observer
Dan Kane

If you're wealthy or own a business, you could see your income taxes drop. If you smoke, you might have to pay another 35 cents per pack. And if you need a driver's license or new car title, you can expect to shell out a few more dollars to get it.

That's the upshot of a $17 billion budget proposal released by state Senate leaders Tuesday. The plan includes about $500 million in cuts and roughly $800 million in new revenues to cover a projected $1.3 billion budget gap caused by years of using one-time revenues to pay for recurring expenses.

The plan, which could be voted on by the full Senate today, sets the stage for the most important debate legislators face this year -- setting priorities for state spending and deciding how to balance tax increases with budget cuts. Although both the House and Senate are controlled by Democrats, House leaders have already signaled that they have significant differences with the Senate leaders' approach.

The plan drew criticism from the state employees' lobbying group and from advocates for the needy, who said the haves are getting a break at the expense of the have-nots.

Tax breaks in the proposal include a half-percentage point reduction in the corporate income tax rate and a 0.25-percentage point reduction in the income tax rate for high earners. Those tax cuts would amount to roughly $60 million that can't be used to plug cuts in health care for the poor or to bring up state employee pay.

The Senate proposal makes permanent what was supposed to be a temporary half-penny sales tax increase adopted in 2001. It would extend the sales tax to candy, and increase it for satellite television service and liquor.

"We are concerned that the state is shifting all of the weight to working-class people," said Brian Lewis, executive director of the Covenant with North Carolina's Children, an umbrella group for organizations that advocate on behalf of children.

The spending plan includes pay raises of 2 percent or $500 -- whichever is greater -- for state employees, and raises the minimum annual state salary to $20,112. Retirees would receive a 2 percent cost-of-living increase.

The Senate plan also provides about $125 million to cover rising costs in the state health plan, though employees will still face higher co-pays and deductibles.

Dana Cope, president of the State Employees Association of North Carolina, said the plan should have provided more after years of meager compensation increases.

Senate leader Marc Basnight, a Manteo Democrat, said the spending proposal provides tax breaks to keep North Carolina competitive in business recruitment with other states. Dropping the corporate income tax from 6.9 percent to 6.4 percent, he said, will get North Carolina's rate below two southern competitors.

Basnight said the additional revenue raised in the budget are primarily going to educational programs that lift people up.

"It's going to people who need to be trained so they can go to work," Basnight said.

Education leaders praised the spending plan, which fully funds costs associated with increasing enrollment and provides a $48 million discretionary fund for public schools. Community college faculty and administrators would receive an additional 2 percent pay raise.

"We are extremely grateful that the Senate budget keeps reductions in the university's operating budgets as low as possible, and that it provides the university with the flexibility to make required cuts in a manner that minimizes harm to each campus," UNC President Molly Broad said.

The Senate plan is far more than a budget bill. The bill would also create a lottery for North Carolina and ban one of its chief competitors -- video poker. Senate leaders incorporated both into the budget bill in order to win votes for the package.

Sen. Charlie Albertson, a Duplin County Democrat and a country gospel singer, has long opposed a lottery.

But he said he will vote for it, so long as it is part of a budget that he thinks will benefit education and economic development, and get rid of video poker machines.

Senate Republicans criticized the bill as being laden with tax increases, fees and pork-barrel spending. They said the Senate again broke its promise to end a temporary half-penny sales tax adopted in 2001. They also objected to using the budget to pass a lottery.

"It's a budget that's bad for North Carolina," said Senate Minority Leader Phil Berger, a Rockingham County Republican.

Among the spending items they questioned were several appropriations to community colleges, from $200,000 to $5 million, that had not gone through the state community college board for approval; a $715,000 fire truck for a fire department that serves Western Carolina University; and $1.5 million to help pay for a telephone system for a new courthouse in Mecklenburg County.

Though it appears there is enough support among Senate Democrats to get the bill through the chamber, the bill faces tough passage in the House.

House Speaker Jim Black said the Senate should have separated the budget, the lottery and a video poker ban into separate bills. Early last month, the House narrowly approved a lottery bill by a two-vote margin.

"We fine-tuned that lottery bill right up to the last minute to get that passed," Black said.

(Staff writers Lynn Bonner and Jane Stancill contributed to this report.)

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