State News

Senate Budget Leaves Out Taxes, Incurs $1.2 Billion in Borrowing

Posted May 29, 2007

State budget

— Senate Democrats rolled out their proposed state budget for the next two years on Tuesday. It would let two "temporary" taxes finally expire and borrow almost three times what the House agreed to earlier this month for state and university construction projects.

The roughly $20 billion spending plan for the fiscal year starting July 1 is $263 million less than the House budget, primarily because the Senate wants to eliminate a quarter-penny on the sales tax and a higher income tax bracket for the state's top wage-earners.

The House decided to let the two temporary taxes -- they were first approved in 2001 and extended twice already -- remain on the books for another two years to pay for education and health care needs. They would add about $300 million to the government's coffers next year and are expected to be a key point of contention in upcoming negotiations to hammer out a final budget for Gov. Mike Easley.

"The General Assembly said in 2001, 'We are in a fiscal crisis in this state. These are temporary taxes.' It's been six years. It's time to sunset these temporary taxes," said Sen. Richard Stevens, R-Wake.

Sen. Kay Hagan, D-Guilford, one of the Senate's chief budget-writers, said the Senate hoped to hold the first of two required budget votes on Wednesday.

A portion of the temporary taxes expired last year. Under the House plan, the sales tax most consumers pay would remain 6.75 percent. The Senate wants it to drop to 6.5 percent. The Senate wants the income tax rate to fall to 7.75 percent for the state's highest wage earners, compared to 8 percent for the House.

The Senate made up for the lost revenue by setting aside about $165 million less than the House in the state's already flush rainy-day reserve fund and spending about $116 million less in upfront money on the state's building needs.

Instead, the Senate wants the state to incur more than $1.2 billion in debt to pay for about 30 university, prison and other government construction projects. The debt would be issued without the approval of voters in a statewide referendum, which is sure to draw the ire of fiscal conservatives, already upset by the about $450 million in such debt proposed in the House budget.

Hagan said the additional debt is needed to keep up with the state's building demands. North Carolina's population is expected to grow from nearly 9 million to 12 million by 2030.

Later this year, the General Assembly also is expected to consider a separate spending package that could include a bond referendum to pay for roads, schools and infrastructure.

The Senate also would give 4 percent pay raises to rank-and-file state employees. The House gave them 4.25 percent. The Senate gave teachers an average raise of 5 percent, matching the raises included in the House and Easley's proposed budget.

The Senate budget also leaves out several tax changes made as part of the House budget, including several business tax credits and a state version of the federal earned income tax credit for low-wage taxpayers.

Also absent is $100 million in one-time money the House included for the state's 100 counties to help them pay for their share of Medicaid costs. The Senate, which is looking for a long-term solution to the $500 million-plus counties must pay annually, set aside nothing.

While there are differences between the budgets prepared by lawmakers in the two chambers, they aren't all that dramatic, said House Speaker Joe Hackney, D-Orange.

"Their priorities are the same as ours," he said. "Their priority is education, their priority is fiscal stability."

But Sen. Janet Cowell, D-Wake, said the differences between the two budget proposals are great enough to ensure lengthy negotiations before a final budget bill is hammered out.

"There's some pretty different perspectives on both the tax revenue (and) where we put money," Cowell said. "(There's) probably 10 major issues where we took a fairly different world view on it."

The budget also would set aside up to $16 million from a trust fund that receives money from the national tobacco settlement for cancer research at UNC Hospitals. The hope is for the allocation to one day reach $50 million annually, Hagan said.

The Senate budget would spend about $60 million more than the House on education, with the extra money largely going to the state's university system. The Senate would spend half of what the House set aside for additional direct help to low-performing schools and for literacy coaches in middle schools.

The Senate declined Easley's request to change the funding formula for the lottery, and instead provided an additional $37.5 million in tax money - rather than revenue from ticket sales - to help reduce class sizes in early grades.

But the Senate agreed to earmark $100 million, compared to $75 million from the House, over the next two years for Easley's college grant program. The program is aimed at helping low-income students get a public university degree without going into debt.


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  • reinert12580 May 29, 2007

    Everyone needs a raise due to the fact that wages no longer match the cost of living. Raises should come out of the pocket of those working on the state budget. As a teacher I am happy about the five percent raise, but it's really just to pay another bill. Compared to the fact NC teachers make at least 5,000 dollars less than most other states, it still puts us behind. All state employees should get a raise for the same reason teachers do, life is getting to expensive for the common person. To those complaining about teachers getting a supplement, it's really just the state creating a summer savings plan for you, and it's less than a regular pay check.

  • jesusfreakforu May 29, 2007

    I worked for the state transportation dept for 9 years...THEY DONT!

  • poohperson May 29, 2007

    If raises and benfits for state employees are as bad as everyone says, why do they stay?

  • bigjim835 May 29, 2007

    Wonder how is being borrowed to make up for the lottery shortfall and to pay for the Shaheen raise.

  • SS67 May 29, 2007

    State employees don't get a free ride when it comes to insurance. So far we've been running negative as far as COL vs pay increases. State employees don't receive COLA or step increases. We're still at the mercy of politics. And we don't have a union, just a toothless association.

  • G-man May 29, 2007

    No SS67, I live in the real world. Most folks I find on these post live in Never Never Land.

  • Not_So_Dumb May 29, 2007

    teammom3459 - "Don't you think we deserve raises like anyone else?"

    Only if you have earned it, like anyone else. The budget bill shouldn't say that everyone gets X% more. It should say that X% more is in the budget for raises to those who deserve them. Maybe that is the way it is, in which case then yes, you should have the OPPORTUNITY TO EARN a raise like anyone else. But there shouldn't be a system that says you get it just because you show up. That is how the article above makes it sound.

    Anyone know for sure? Is it a straight bump-up for all or a percent budgeted increase for merit based increases?

  • Not_So_Dumb May 29, 2007

    It would be interesting to see what change in total compensation has been like over the years and if it has kept or exceeded the rest of us. I know one year I got a raise (not even the 4% that seems to be too low for some) and it was all taken up by the increase in health insurance premiums. I never saw a penny of it in my pocket. So yes, I got a raise, but since my employer passed more of the cost of healthcare to the employees, our total compensation was probably about the same.

    I don't know if this is the case for state employees, but it would certainly be something I would want to know were I in the position to vote on this.

  • Ladibug May 29, 2007

    The House decided to let the two temporary taxes - first approved in 2001 and extended twice already - remain on the books for another two years to pay for education and health care needs.

    I like the part that states it has been extended for another 2 years to pay for education. Someone please tell me what the Education Lottery is for??????

  • teammom3459 May 29, 2007

    To Beachboater. State employees don't pay for their medical, we do have deductibles. But if we want to add any of our children, then that's where they get us. So how is that better? So even though we are not paying for health insurance, they are still getting us in other ways. Don't you think we deserve raises like anyone else? We work just as hard as anyone else.