Cuts, sin tax increases, federal help will balance budget

Raleigh, N.C. — When state lawmakers return to Raleigh next Wednesday to begin crafting the state budget, they will use a combination of cuts, tax increases and federal assistance to erase a projected $2 billion deficit, Sen. Marc Basnight said Thursday.

Basnight, a Dare County Democrat and the powerful president pro tempore of the Senate, was short of specific, however, when speaking with reporters about the difficult task of balancing the budget amid a recession that has cut into revenue from sales and personal and corporate income taxes.

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Basnight: 'You can't cut your way out'

Tax loopholes would be closed, spending would be cut and services would be streamlined, he said, declining to elaborate.

Gov. Beverly Perdue last week ordered state agencies to cut spending by 7 percent to save about $1 billion in the current budget. She also went to Washington, D.C., to seek money from the proposed $800 billion national economic stimulus package.

Senate Majority Leader Tony Rand said recently that he expects lawmakers to look at cutting education spending – an idea that previously was unthinkable – solely because public schools account for about 60 percent of the budget.

Basnight said so-called "sin taxes," levies on cigarettes and alcohol, would likely go up to boost revenue, but he said other tax increases would be unlikely.

"I don't believe you can cut your way out of this alone. You would do damage that would be long-term," he said.

Senate Minority Leader Phil Berger, R-Guilford, said the Democratic leadership works too hard to chase revenue instead of doing more to cut programs.

"We continue to enable the bad decisions that have been made in the past. We should be treating this economic downturn as an opportunity to make government leaner," Berger said.

Basnight said he would move to retain the option of transferring money from the Highway Trust Fund to the general fund to cover any shortfalls. The state will have to raid its "rainy day fund" to put the State Health Plan on better financial footing, Basnight said.

The State Health Plan, which provides medical insurance for almost 650,000 state workers, public school teachers and retirees, is about $300 million in the red and needs an immediate bailout, officials said. Jack Walker, the plan's director, recently said premiums and co-pays likely would go up to ensure the plan remains solvent.

Basnight didn't address the subject of pay for state workers, but he said he doesn't expect any layoffs.

"I can't see laying people off," he said. "Certainly, people will retire, (and) there will be vacancies. Will they be filled? In education, I would assume so. In corrections (and) health care, yes. In other positions, probably not."

Perdue last week froze hiring in state agencies, except under extraordinary circumstances.