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N.C. Senate Gives Initial OK To $18.8 Billion Budget

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RALEIGH, N.C. — The state Senate gave initial approval Wednesday to an $18.8 billion budget for next year that cuts sales and income taxes while offering the largest raises for state employees and teachers in years.

The plan also increases the state's minimum wage by a dollar and caps the gasoline tax -- popular issues in an election year -- while beefing up neglected mental health and substance abuse services and the court system.

"I'm confident that this budget makes the right investments for our state," Sen. Linda Garrou, D-Forsyth, one of the chamber's chief budget writers, said before the Democratic-controlled Senate voted 34-15 in favor of the spending plan.

Republicans said the budget, which adjusts the second year of the two-year spending plan approved last session, spends too much without returning enough to taxpayers who deserve a larger piece on an estimated $2 billion surplus. They are worried the budget could lead to another fiscal crisis like the one earlier this decade if the economy weakens.

"I don't think we can sustain spending at that level on an ongoing basis without a tax increase in the future," said Senate Republican Leader Phil Berger, R-Rockingham. "It's a down payment for a future fiscal crisis."

A handful of Republicans sided with the Democrats in approving the plan. A final Senate vote will come Thursday.

The budget would begin to remove temporary taxes approved in 2001 to help cover a shortfall. The Legislature extended them in 2003 and 2005 because of a tepid revenue picture, and they're now set to expire in 2007.

The proposal reduces the state sales tax by a quarter-penny as Gov. Mike Easley sought in his budget recommendation, allowing most citizens to now pay a sales tax of 6.75 percent. Senate Democrats also agreed to cut the individual income tax rate for the highest wage earners from 8.25 percent to 8 percent in January.

The proposal suggests cutting the sales tax by another quarter-penny and the income tax to 7.75 percent by the end of next year, but Republicans said it should've happened a long time ago.

"We have the largest surplus in this state history but we're still not taking all of those taxes off," said Sen. Fred Smith, R-Johnston. "We're not keeping our promise to our people."

The proposal would also set aside $105 million in new spending to improve community crisis services for the mentally ill, add more local psychiatrists and expand treatment centers for alcohol abusers and the developmentally disabled. The state also would borrow to build replacements for psychiatric hospitals in Goldsboro and Morganton.

Public school teachers would receive an average 8 percent raise, university workers and community college faculty 6 percent and other state employees a 5 percent salary increase.

Rank-and-file state workers who lobbied the General Assembly earlier Wednesday want both teachers and employees to receive a 7 percent raise.

"We haven't had a significant raise in 15 years. It is a matter of equity," said Dana Cope, executive director of the State Employees Association of North Carolina.

The Senate budget also would raise the minimum wage to $6.15 in a move that would affect 139,000 workers in North Carolina. The state gasoline tax would be capped at its current rate of 29.9 cents a gallon.

"Whenever you go back home, senators please let our constituents know that things are going to be a little better for the poor working man," said Sen. Charlie Dannelly, D-Mecklenburg.

The state would be able to hire 100 literacy coaches to help improve reading comprehension among middle-schoolers, a provision sought by Easley.

The Senate also set aside $253 million for several university construction projects, build a new state emergency operations center in Raleigh and state data recovery center in Rutherford County.

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