RALEIGH, N.C. — The state House gave tentative approval Friday night to an $18.6 billion budget for state government next year that imposes higher taxes added by Democrats who argued they're necessary to avoid crushing spending cuts.
Lawmakers agreed to the spending plan in largely party-line votes of 64-54. Republicans argued unsuccessfully it should have never required a $784 million tax package because the shortfall is exaggerated and would delay North Carolina's economic recovery.
The second and final vote came just after midnight. Passage allows House and Senate Democrats to begin negotiating a final two-year spending plan in earnest next week. The Senate passed a budget bill in April.
But Democrats who largely drew up the plan said losses to education and health care would have been too devastating to the state without the extra taxes. The plan reduces but does not eliminate those losses.
"In order to really provide services that we need, it is necessary sometimes to look at some increase in revenue," Rep. Mickey Michaux, D-Durham, senior co-chairman of the House Appropriations Committee, said during a three-hour debate that culminated with a vote at 11:35 p.m.
“We’ve put together a plan that’s about 50 percent cuts, about 30 percent recovery act monies and about 20 percent increased revenues,” House Speaker Joe Hackney, D-Orange, said prior to the vote.
The package would raise the sales tax by a quarter-penny so that most residents would pay 7 percent. It would also add two new marginal income tax rates for the wealthy and create or raise taxes on liquor, movies and digital downloads.
The extra revenues still won’t prevent elimination of funding for several thousand state employee and teacher positions, as lawmakers have watched a drop in tax collections accelerate this spring.
With one month to go in the fiscal year, revenues are down $1.7 billion — an unheard of 10 percent decline compared to last year, according to the Office of the State Controller.
House Minority Whip Thom Tillis, R-Mecklenburg, said Democratic leaders have failed their duty by forcing citizens to pay more for taxes while failing to prioritize spending. He accused Democrats of scaring citizens needlessly by proposing spending reductions that were restored by a tax package unveiled earlier in the week.
“Everybody in the state of North Carolina needs to be worried about this budget,” he said. “They’re trying to make us feel good about taking back things they never should have taken away.”
Democrats shot back that Republicans have done nothing but complain and have failed to make tough decisions in budget subcommittees.
The proposed House budget bill would still increase class sizes on average by two students beginning in fourth grade to save $184 million, or funding for 3,400 teachers. Eight prisons and a juvenile offender facility would be closed, and there would be no raises for teachers, state employees and retirees.
The University of North Carolina system would raise tuition by a maximum of $200 and face $263 million in cuts, or a nearly 9 percent reduction.
But the tax package eliminated $75 million in additional cuts for UNC and restored dozens of other cuts including funds for at-risk public school students, while keeping class sizes at current levels in kindergarten through third grade.
The bill also raises money to balance the budget by taking $270 million from other dedicated pots of money and $88 million in new and higher fees, including an additional $350 fine for motorists traveling 25 mph over the speed limit or driving while impaired.
The budget also gets balanced with $1.3 billion in federal stimulus funds next year, but Democrats warned that such money would be gone by late 2011.