State budget status: One vote down, one to go

Raleigh, N.C. — General Assembly members watched the clock tick off the required 24-hour waiting period Tuesday as they waited to vote a second time for the nearly $21.4 billion final budget bill they approved Monday night.

The plan for the 2008-09 fiscal year that began July 1 slows the recent rapid rise in spending, but provides a hefty IOU in the form of $857 million in debt.

The result of two weeks of intense negotiations between House and Senate Democrats, the measure increases spending by 3.4 percent, or $698 million, compared to more than 9 percent growth in each of the previous two years.

The relatively small increase results from a slowing economy that provided a meager surplus for the year ending June 30 and required lawmakers to make some last-minute changes to attempt to satisfy fellow Democratic Gov. Mike Easley.

"Not everybody gets what they want, but I believe this is a very good budget for the state of North Carolina," said Sen. Linda Garrou, D-Forsyth, a chief budget-writer, before the Senate gave it initial approval by a vote of 34-16.

The Senate and the House, which minutes later approved the spending plan 97-21, were scheduled to cast the second of two required votes Tuesday. Easley will be asked to sign the bill into law.

"It is both fiscally responsible and respectful of the problems some people are having making ends meet," said House Majority Leader Hugh Holliman, D-Davidson, during the debate.

But some Republicans complained the budget still spent too much in uncertain economic times and borrowed too much without requiring statewide voter approval. And they warned that the budget would require higher taxes to pay for the debt in the future.

"I think given the economic times that we've got, it would be must more prudent for us to look at our situation realistically," said Senate Minority Leader Phil Berger, D-Rockingham, during Senate debate. But the bill still breezed to initial approval with bipartisan support.

There are no new taxes and tax breaks are few this year as Easley successfully persuaded fellow Democrats to delay for a year eliminating the gift tax and expanding a refundable tax credit for the working poor.

Easley was worried there wasn't enough revenue after tax collections missed estimates by $63 million total in May and June, forcing some last-minute spending reductions. Easley, who has never vetoed a budget bill, is in his final year in office.

"The over-collections were not what we expected them to be," said Rep. Mickey Michaux, D-Durham, the chief House negotiator.

Easley failed to receive all that he sought for his signature More at Four preschool initiative, while a provision left out of the budget would have given the governor power to raise public schoolteacher salaries if tax revenues improve this year.

"The governor is reviewing the budget," Easley budget adviser Dan Gerlach said. "You have to look at the whole budget overall, not just this thing or that thing."

Teachers would receive average 3 percent raises while other state employees would receive the greater of 2.75 percent or $1,100 – less than what either group wanted. An Easley plan to increase taxes to pay for 7 percent teacher raises never got serious consideration from a Democratic-controlled Legislature in an election year.

But Democratic lawmakers said the budget still gives significant raises compared to surrounding states dealing with revenue shortfalls.

"Most any other state would be envious of this plan," Holliman said.

The bill also permits the state to borrow $857 million over the next four years to construct 1,500 additional prison beds, university and state buildings – even renovating the polar bear exhibit at the N.C. Zoo in Asheboro.

Democratic leaders say the borrowing – the most authorized by the Legislature in a single year in recent memory and more than either the Senate or House budget proposals offered – could generate 20,000 jobs in the state during a tough economy. They also say it remains within the level of borrowing that State Treasurer Richard Moore says is reasonable.

"I don't know of anybody in business ... that can survive without debt," said Sen. Stan Bingham, R-Davidson, one of three GOP senators to join Democrats and vote for the budget. "It's a necessity for keeping up with the times."

The budget orders tens of millions of dollars of cuts from the Community Support program, a mental health initiative that provides non-medical care for patients living at home. A state review of the program said it may have wasted hundreds of millions of dollars in overpriced or unnecessary care.

The measure does extend or expand tax credits for small business employee health coverage, in-state film production and renewable energy. A sales tax holiday for energy efficient appliances would be held the first weekend in November.