RALEIGH, N.C. — State budget problems dominated this year, and it looks like it will be the same story for 2003. As Gov. Mike Easley wraps up his second year in office, he said he will ask the new Legislature for a lottery and he will not rule out higher taxes if state lawmakers bring the idea to him.

Easley is proud of the progress even though the state operating budget was cut for the first time in 30 years.

"Citizens ought to know if my state is making progress even in tough times and we are here in North Carolina," he said. "No other state over the last two years has started an pre-K program for at-risk 4-year-olds. No other state has reduce classroom size in grades K through 3. No other state has made the gains we have in closing that achievement gap that we are going to eliminate in North Carolina."

With last year's budget problems still fresh on his mind, Easley said he is looking forward to a better 2003, but he knows it could be a repeat.

"We are going to have to have a new source of revenue for education," Easley said.

Easley said he still wants a lottery. In the latest Mason-Dixon poll, 65 percent of voters also support a lottery.

"Obviously, I like the lottery. It is an anti-tax measure. It gives us $450 million to $500 million a year," he said.

Easley said he is also open to tax increases if state lawmakers pass them.

"It's not my preference. If the House and Senate decide to go in that direction, obviously I'm open to working with them on that," he said. "There was a lot of talk last year about a tobacco tax, sin tax, alcohol tax -- those sorts of things. If they want to come up with a proposal on those lines, it's certainly not anything we'd reject."

Easley said he would have a midterm report on his desk in January assessing what the state has learned from the recent ice storm. The goal is to prevent a repeat of the loss of power to almost half the state.