RALEIGH, N.C. — As state lawmakers began picking apart Gov. Beverly Perdue's $21 billion budget plan Wednesday, proposed tax increases and the size of a budget reserve fund quickly appeared as two major sticking points.

Perdue released her proposal Tuesday, recommending a $1-per-pack increase to the state cigarette tax and a 5 percent increase on alcohol taxes to help erase a projected $3.4 billion revenue shortfall. She also proposed cutting 1,033 state jobs – some of them are already vacant – freezing state salaries and eliminating more than 20 programs to save money.

The governor also broke with tradition by failing to fund state salaries fully in her budget. Agency directors often have used unspent salary money – when employees left and positions were temporarily vacant – to cover other expenses.

Perdue's proposal funds salaries at 95 to 97 percent, which reduces agencies' spending flexibility.

"If we cut the percentage ... (for) the salaries, then we'll have to have more in the 'rainy day' fund because you've got to have dollars available if you get into trouble," said Rep. Jim Crawford, D-Granville.

Perdue tapped the "rainy day" reserve fund last week, saying she would use $250 million to shore up the troubled State Health Plan and would use the remaining $537 million to help manage day-to-day cash flow for state operations.

Lawmakers said the state needs to set aside more money in case the recession drags on. Perdue's budget analysts have projected flat revenue during the 2010-11 fiscal year.

"I think that's a rosy prediction," Senate Minority Leader Phil Berger said. "It may turn out to be true, but I think it would be prudent for us to be a lot more conservative than that."

"We've got to prepare for worst," Crawford said.

Republican leaders denounced the proposed tax increases Tuesday, saying a national recession is a bad time to raise taxes. They also criticized Perdue for relying on $1.7 billion in federal stimulus money to balance the budget, saying she should have put more effort into cutting spending than using new taxes and one-time money to increase revenue.

"I don't care what kind of tax it is. It's just the wrong thing to do," said Berger, R-Rockingham.

Even some Democrats questioned including tax increases in the budget plan.

"It's kind of hard to hit a man when he's down," Crawford said.

Tobacco giant Reynolds American Inc. said Wednesday that Perdue's proposed cigarette tax increase would put 50,000 North Carolina jobs at risk, including growers, retailers and truckers.

Perdue proposed cutting $1.3 billion across state agencies, but spending increases in education and some other initiatives more than offset that.

Overall, her plan would cut spending by 2 percent from the 2008-09 budget lawmakers approved last year. Because subsequent cuts have reduced that budget by almost $1 billion, however, her proposal would increase spending by about 3 percent over current levels.

During the 2001 economic downturn, former Gov. Mike Easley balanced the budget by holding money back from counties and cutting human services programs.

County officials statewide were pleased Perdue didn't use the same tactics to balance her proposal, said Rebecca Troutman, intergovernmental relations director for the North Carolina Association of County Commissioners.

"We realize she had a very difficult job in front of her, trying to carve out billions from the state budget," Troutman said. "We think she certainly treated counties fairly."

The Department of Correction would take some of the biggest cuts in Perdue's plan, losing $68 million and 527 positions – more than half of the total number of state jobs eliminated in her budget. The proposal calls for closing six minimum-security prisons and a prison hospital.

DOC spokesman Keith Acree said most of the prisons were scheduled to have been closed years ago but weren't because of space considerations. The department will shift inmates around to accommodate any closings that lawmakers approve, he said.

"We would do some custody changes. Some prisons would convert from medium to minimum (security). We would add beds by double-bunking at some facilities, adding additional beds in others," Acree said. "We don't lose any beds as a result of this. No inmates get out of prison as a result of this."

There is some concern about increased violence among inmates because of double-bunking, he said, adding that lawmakers will eventually have to address increasing prison populations.

The department's Division of Community Corrections, which includes probation offices, would get an extra $13 million next year under Perdue's plan to hire dozens of officers and supervisors and provide them with additional training.