The two-year budget increases spending by $700 million in the first year, to $15.0 million, and rises to $15.6 million by the 2004-05 fiscal year.
"Three principles guided us in developing this budget," Easley said. "I wanted to maintain our commitment to stimulate the economy, make progress in education, and reduce the size of government."
Sherry Melton, of the State Employees Association, said a 1.6 percent pay raise is a start.
"State employees are also going to look at health plan cost increases plus higher drug co-pays and increases in dependant coverage costs," she said.
Easley relies on $500.5 million in tax revenue growth, representing a 3.5 percent increase, to balance the books.
He also takes $60 million from tobacco settlement proceeds and $268 million from road building trust funds.
"I have what I believe is a very good budget. It is balanced, just like the current one is," Easley said during a news conference. "This budget is about educating children and creating jobs."
The budget document was to be presented to the General Assembly later Wednesday.
It will be the third budget document presented to lawmakers since he assumed office, the first that does not include proceeds from a lottery that has yet to be approved.
And for a third straight year, it includes some unpopular cuts because of tax revenue growth that hasn't kept pace with previous years when the economy is strong.
Easley said the budget includes $800 million in cuts to existing programs, even while raising overall spending.
"This budget is not based on gimmicks or sleight-of-hand. It is balanced with the discipline we need to maintain our AAA bond rating," Easley said.
Cuts to Medicaid, the health care program for the poor, include $41 million in reimbursements to doctors and other health care providers by doing away with inflationary increases.
The governor also would slash spending in programs that provide services to the mentally ill and developmentally disabled by $16 million.
The state's public university system would receive $46.6 million to pay for enrollment increases, and overall spending would increase by $100 million.
Although public school spending rises, local school systems would have to absorb $42 million in discretionary cuts. A fund that helps some school systems with construction would also receive no money over the two years of the budget plan, eliminating $58 million in the first year.
"We think it is in the best overall interest of the state to reduce costs," the governor said.
But as Easley indicated prior to the document's release, he keeps in place a half-cent sales tax hike and an income tax hike on top earners through June 30, 2005. The taxes are scheduled to expire July 1 of this year. The move keeps $460 million in the state budget that otherwise wouldn't be available.
Easley defended keeping the taxes in place, rebuffing critics who say the move amounts to a tax hike.
"They are just dead wrong," Easley said.
But he added that the state ultimately needs economic growth to recover from tough financial times.
"In the long run, North Carolina can't cut or tax our way out of this recession," Easley said. "We have to grow our way out of it."
As expected, the plan expands Easley's education initiatives. It provides $25 million to hire 571 additional second grade teachers to reduce class size and $8.6 million to expand the More at Four preschool program for four-year-olds at risk of academic failure.
Easley also would put $100 million into the state's rainy day reserves and $50 million in state building repair and renovation.