Gov. Perdue to sign $19B state budget

The budget was due July 1, but differences over spending priorities, where to cut and how to raise new revenue to erase a projected $4.6 billion deficit created an impasse between the House and Senate.

The two sides negotiated on and off for weeks before agreeing to a tax plan last Thursday – an earlier version collapsed after Perdue objected to it – and then to spending decisions on Friday.

Copy machines churned out copies of the 300-page state budget proposal Tuesday morning to give lawmakers a chance to look through it before it was brought to the floor for a vote.

The Senate quickly approved the measure by a 27-17 vote. The House followed suit late Tuesday afternoon with a 65-52 vote.

Perdue said late Tuesday that she expects to sign the spending plan but will do so with "serious reservations.” She also said that lawmakers had "gone as far as they are willing to go."

Perdue expressed concern over cuts to mental health services, not enough funds for public safety and no additional monetary help for working families, such as an increase in the earned income tax credit.

"We know this has consequences for people who need services and the people who are state employees," House Speaker Joe Hackney said.

"The kind of things we've done in this budget, I think, protects the very essence of North Carolina. It will allow us to move forward as times improve," Senate Majority Leader Tony Rand said.

Republican leaders quickly panned the proposal.

"If a baby is unloved this bad, it should be put up for adoption," House Minority Leader Paul Stam said.

Sen. Bob Rucho, R-Mecklenburg, said the state is quickly becoming known as "North Taxolina."

The budget proposal includes a one-cent increase in the state sales tax rate, raising it to 7.75 cents in most locations. It also would impose a 2 to 3 percent surcharge on the income tax liability owed by individuals with a state taxable income of $60,000 or more and couples with a state taxable income of $100,000 or more.

"This is a tax on (people's) tax liability," Senate Minority Leader Phil Berger said. "I had someone come up to me and say, 'Well, I guess they've run out of other things to tax that now they're taxing taxes.'"

Perdue said late Tuesday that a one-cent sales tax hike was better than raising income taxes across-the-board for working families.

Taxes on tobacco and alcohol also would be raised, and the state would claim a bigger share of alcohol taxes, holding onto some money previously distributed to municipalities.

On the spending side, lawmakers agreed to preserve class sizes in kindergarten through the third grade. Districts will have flexibility in reducing spending, but the budget directs schools to preserve the classroom as much as possible in grades 4 through 12.

Previous proposals called for increasing the average class size by two to three students, which would have eliminated thousands of teaching jobs.

“This is one of the most challenging budget years on record in North Carolina, and I want to applaud Gov. Bev Perdue and the General Assembly for their efforts to protect public school classrooms and to maximize educational opportunity,” state Board of Education Chairman Bill Harrison said late Tuesday in a statement.

Lawmakers also managed to spare state workers from another pay cut or mandatory furloughs. Both measures were used in the spring to balance the 2008-09 budget.

The budget proposal cuts the Department of Health and Human Services budget by 29 percent and cuts education spending by almost 10 percent. About 725 state workers will lose their jobs under the budget, and another 1,318 vacant positions will be eliminated.

"There is no pork in this budget for those of you who worry about such things," Hackney said.

"We made cuts in our budget, but we tried to protect education, health care, job creation and public safety. The process has been hard. We made some tough choices," said. Sen. Linda Garrou, D-Forsyth.

Hackney shot back at GOP critics, saying simply cutting everything wouldn't have been a prudent approach to balancing the budget.

"They are not up to governing in a recession, when decisions are hard and when things get tough," he said.