N.C. Senate Gives Initial Approval To $17 Billion Budget

By a party-line vote of 29-21, Democrats pushed through the budget, which would raise the cigarette tax by 35 cents, make permanent a half-cent sales tax increase set to expire and increase consumer prices on liquor, telephone calls and satellite television.

The budget follows most of Gov. Mike Easley's tax proposals and is $56 million larger than Easley's spending recommendation to the Legislature in February.

Democrats defended the plan as generous for education as North Carolina grapples with a population that has surged by a half-million people so far this decade.

It reduces the growth rate of Medicaid, the government health insurance program for poor children, the elderly and the disabled, another $127 million further than Easley sought.

"We've had to make decisions that have been hard ones," said Sen. Linda Garrou, D-Forsyth, one of the three chief budget writers. "I think that we've made the best effort to keep our state moving forward."

While all the Senate Republicans voted against the measure after nearly three hours of debate, fellow Democrat Easley offered some of the most sour response to his party's budget.

"Many of the Medicaid cuts proposed by the Senate are extreme and unacceptable," Easley said in a news release after the vote. He also called no additional funding for low-wealth schools "indefensible."

"These types of proposals do not reflect North Carolina values," he added.

Sen. Walter Dalton, D-Rutherford, another budget architect, said the spending plan was sound by eliminating a potential $1.3 billion shortfall without spending one-time funds to do so.

Dalton said the Senate spent $47.5 million -- $25 million more than Easley -- to help low-performing schools comply with the court decision on Leandro school funding.

As for the Medicaid reductions, he added: "I think they are defensible. I don't think they unfairly impact services."

The budget also would alter a lottery bill that passed the House last month even before it becomes law, while banning video poker. The House has declined to go along with a ban in the past.

The second of two required votes on the two-year spending plan was expected Thursday. The measure then goes to the House, which would substitute its own spending plan. The two chambers would then have to mold a final plan to Easley's liking by July 1.

Although the budget also reduces the corporate tax rate in 2007 by a half percentage point, and phases out the 8.25 percent individual income tax bracket over two years -- items Republicans have clamored to change -- GOP senators complained the budget is too big. It's grown by about $1 billion the past two years.

"Fiscal responsibility and spending restraint are nonexistent in this budget," Senate Minority Leader Phil Berger, R-Rockingham, said after the debate.

Advocates for the poor argue the budget is unfair toward the poor and middle class. Higher fees on everything from driver's licenses to seat belt violations and newborn screenings will hit lower-income residents harder, said Elaine Mejia with the North Carolina Justice Center.

But Sen. David Hoyle, D-Gaston, said on the Senate floor that North Carolina's per-capita tax burden is lower than most states in the Southeast.

The budget debate avoided the cigarette tax, which would rise to 40 cents a pack July 1 if the budget becomes law. Senate Democrats fought over the size of the proposed increase within their caucus.

The 278-page budget doesn't explicitly create a state-run numbers game in North Carolina, the only state on the East Coast without a lottery.

Language inside the proposal would earmark lottery proceeds to benefit Easley's education initiatives and school construction, but only if a stand-alone lottery passed the House.

Sen. Fred Smith, R-Johnston, introduced an amendment that would have removed the lottery language, but a motion to vote on the bill failed 23-27.

"We believe the lottery is bad public policy for the state," Smith said during the debate. "It takes those that have the lowest amount of income and gives them false hope."

The budget would spend $190 million for teacher bonuses as well as projected enrollment growth this fall for public schools, universities and community colleges.

A permanent $44.3 million discretionary reduction placed on local school districts has been eliminated, but money was removed to pay more than 2,400 teacher assistants - most of them in third grade.

Medicaid reimbursement rates for physicians and pharmacists would be reduced and frozen for hospitals. Another $53 million in cost savings would be generated by moving 57,000 patients from their current combined Medicaid and Medicare coverage to Medicare only.

Most state employees, including public school teachers, would see an average pay raise of 2 percent. Community college faculty and staff would see an additional 2 percent on top of the base raise. Money also would be set aside to ensure every state employee earns at least $20,112 per year.

Senators approved amendments to expand NC Health Choice, the child health insurance program for low-income families and to eliminate a provision that opponents argue would have forced school districts in the same county to consolidate.