State News

Sin taxes to fund teacher raises, money for mental health

Posted May 12, 2008 10:00 a.m. EDT
Updated May 12, 2008 9:45 p.m. EDT

— Gov. Mike Easley on Monday proposed increasing taxes on cigarettes to pay for 7 percent raises for public school teachers and higher alcohol taxes to fund more spending on the state's mental health system.

The $21.5 billion budget proposal – it's the last budget of Easley's administration – represents a 4.2 increase in spending from the 2007-08 fiscal year.

In addition to spending on teachers and mental health, the proposal calls for increased funding for the state's beleaguered probation system, phasing out the annual transfer from the Highway Trust Fund and smaller raises for all other state workers.

The state will collect $150 million more dollars in tax revenue than originally forecast. However, that will be eaten up by state workers' pay raises, teacher performance bonuses, increased student enrollment and additional fuel costs for school buses.

Each 1 percentage-point salary increase costs about $130 million. Easley needs the teacher pay raises to fulfill an election pledge to raise their salaries above the national average by the time he leaves office in January.

The state is 6.9 percent below the national average for teacher salaries, he said. A 7 percent across-the-board raise would put North Carolina at the national average without any "smoke and mirrors" of weighing cost-of-living increases, he said.

"I'm using raw dollars so we have real results and do right by teachers," he said.

Increasing the cigarette tax by 20 cents a pack would generate enough revenue to pay for the raises, he said. The increase would put the cigarette tax at 55 cents per pack, ranking the state 40th nationwide.

North Carolina last raised the cigarette tax two years ago, when it went from 30 to 35 cents a pack as part of two-phase increase.

Easley also proposed putting more money into mental-health programs, which have been plagued by problems recently. He wants to shift money set aside for administrative costs to fund patient services.

Raising the tax on liquor by 4 percent and by 4 cents a can on beer would provide an extra $68 million for the mental health system, he said.

"It's not a significant amount of money for the consumer, but it's a significant amount of help for the mentally ill," he said. "If (an extra) 4 cents a can causes somebody economic hardship, then they're probably drinking too much and are going to be customers of mental health substance abuse (programs) sooner or later."

North Carolina's beer tax is the fourth highest nationally, trailing Alaska, Hawaii and South Carolina.

Plan gets negative reactions

Although he isn't running for re-election, he said, he thinks voters support increases in sin taxes to pay for teachers and mental health care. So, legislators up for election in November shouldn't have a problem backing his plan, he said.

But the proposal left anti-tax groups fuming Monday.

"I think the real sin is increasing taxes on people who are facing recession and $4 gas prices," said Dallas Woodhouse, a spokesman for Americans for Prosperity.

Lawmakers, who reconvene Tuesday, also gave Easley's plan a cool reception.

"I'm doubtful we'll have any revenue increase in this budget. I'm skeptical there will be the support to do that," House Speaker Joe Hackney said.

To cover extra spending in some areas, Easley also has asked each state agency to make spending cuts totaling about $400 million.

Classrooms will be exempt from those cuts, and tuition will not be increased under Easley's budget.

"Having a balanced budget entails, from time to time, having to raise revenue in addition to making cuts," he said.

The slowing economy was accounted for by lowering forecasts for next year's tax collections, he said, noting his last budget was similar to his first in 2001, when the state also faced hard economic times.

Tight budgets for several years and "good decisions" by the General Assembly in recent years have left the state's finances healthy, Easley said. The proposed budget would add money to the "rainy day" fund, leaving it at about $850 million.

"It's because we built on our strengths that we find ourselves in good condition moving forward," he said.

Aside from teachers, other state employees would receive a 1.5 percent raise under Easley's proposal. They also would get a one-time $1,000 bonus and an extra week of vacation.

Easley said he didn't want to make the bonus a recurring cost in future budgets because of the uncertain economy.

The disparity in raises between teachers and other state workers disappointed officials with the State Employees Association of North Carolina.

"It leaves working families behind," said Ardis Watkins, legislative affairs director for SEANC.

The governor would also give more money to the Department of Correction to address problems in the probation system, recently uncovered by the murders of Eve Carson, the student body president at the University of North Carolina at Chapel Hill, and Duke University graduate student Abhijit Mahato.

Easley's budget included a five-year phase-out of the annual $172 million transfer of automobile-related taxes and fees from the state's Highway Trust Fund to the general operating budget. The first year would lower that transfer by $25 million.

The transfer has been in place for 20 years but remains controversial with gaps in transportation funding predicted to reach into the billions in the coming decades.

He didn't include a transportation bond in his budget, but kept the cap on the state gas tax in place.

A blue-ribbon transportation panel, formed jointly by Easley and Democratic legislative leaders, recommended a statewide referendum on a $2 billion transportation bond.

His budget also called for $31 million more in part to expand children's health insurance and child care subsidies and to help homeowners at risk of foreclosure.

The governor said about a third of the money would be used to get another 10,700 children in low-income families enrolled in a federal-state health insurance program. Another $9 million would take about 1,100 children off of the waiting list for child care subsidies, and $8 million would benefit adults participating in foster care or adoption programs.

About $1 million would go toward housing counselors to help homeowners avoid foreclosure.

The budget also included measures for a sales-tax holiday on energy-efficient products and appliances, a committee to work on statewide drought issues and a new trade office in Shanghai, China.