State Budget

ASSOCIATED PRESS:

The House gave final approval early Saturday to an $18.6 billion state budget proposal that includes more than $780 million in new taxes, clearing the way for negotiations to begin with the Senate on a compromise plan. The bill passed on a largely party-line vote of 64-53 following a three-hour debate. Democrats who drew up the House plan called it a balanced approach to handle the state's worst fiscal situation in a generation: more than $2 billion in cuts, combined with the taxes and federal stimulus money. "With the new revenues focused squarely on education and helping those who genuinely need our help, we have avoided the worst of the cuts," said House Speaker Joe Hackney, D-Orange. The House tax 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.

Passage of the House plan allows Democrats in the House and Senate to begin negotiating a final two-year spending plan in earnest this week. The Senate passed a budget bill in April. Senate Democrats are lobbying hard for their own tax package that would raise more revenues but change dramatically sales and income taxes and lower their rates. Democratic Gov. Beverly Perdue wants to have input on the bill, and wants it ready to sign before the new fiscal year begins July 1. But that deadline may be hard to meet. "I'm expecting it to be a long process," said Rep. Mickey Michaux, D-Durham, senior co-chairman of the House Appropriations Committee. "I'm hoping that it's not."

The competing House and Senate plans are far apart in sheer size, the result of the Senate drawing up its proposal weeks before lawmakers were told dwindling tax collections had deepened the budget hole by $1.5 billion.

Michaux said a key fight in negotiations may center on the University of North Carolina system, which historically has had strong allies in the Senate. Despite the differences in the plans, some cuts were in both proposals and appear likely to make it into the final budget. They include:

* Elimination of funding to pay salaries for 3,400-6,000 public

schoolteachers as average class sizes are increased.

* Elimination of an undetermined number of vacant and filled jobs

within state government. Remaining employees should expect no pay raises, and furloughs are possible.

* Coverage reductions for Medicaid patients and frozen or decreased

payments for doctors who treat them.

* Closing of several prisons.

Lawmakers acknowledged that any tax hikes carry political risks. "A lot of folks in my area that contacted me, they couldn't afford additional taxes at this time," said Rep. Van Braxton of Lenoir County, one of two Democrats who voted with Republicans in opposing the House budget bill. And raising income tax rates that are already the highest in the southeastern U.S. may be a deal-breaker for some Democratic senators who believe it would discourage companies from moving to the state. The rate was raised temporarily in 2001 but didn't expire for six years. "I'll never vote for that - ever, never,"

said Sen. David Hoyle, D-Gaston, one of the authors of the Senate tax plan.

Republicans, who are in the minority in both chambers, have argued unsuccessfully the budget could be balanced without new taxes that would delay the economy's recovery. "I am convinced there are hundreds of millions of dollars in cuts that wouldn't harm citizens," said House Minority Whip Thom Tillis, R-Mecklenburg.