Are we close to having a state budget?

House and Senate budget negotiators say they are close to reaching a deal to raise nearly $1 billion in order to balance a $19 billion state budget. But the two sides concluded negotiations on Tuesday without agreement on some important details, one of them exactly how much to raise sale taxes. An obstacle that may loom even larger: Reluctance by some key House Democrats to agree to any increase in cigarette taxes. [The North Carolina State Grange has opposed the increase in cigarette taxes because the tobacco industry has been hit extremely hard this year with an increase in the federal tobacco tax, FDA regulation of tobacco & the passage of stringent smoking laws in the state and tobacco growers shouldn't be forced to bear any more of the burden of the budget crunch than they're already experiencing] Even so, Democratic leaders said the two sides have made substantial progress and agreed in principle to the broad strokes of the plan. "We still have a lot of options," House Speaker Joe Hackney said after emerging from a closed-door caucus meeting in which House Democrats discussed the proposal. "We're closer than we've ever been," he added. After another round of evening negotiations, chairs of the House and Senate finance committees said more caucus meetings and negotiations would be needed to reach agreement on final details. "We're very optimistic we will conclude this week," said Sen. David Hoyle, D-Gaston.

The agreement calls for a 3/4 cent increase in the state sales tax, which could rise to 1 cent if House Democrats reject an increase on the tax on electricity sales. The plan would also impose a 2% surcharge on personal and corporate income tax liability, meaning an individual owning $1,000 in income taxes would see their bill rise by $20. That tax, unlike others in the place, would be temporary, expiring in two years. So-called sin taxes -- excise taxes on alcohol and cigarettes -- would also rise. No sales taxes on services, which had been large part of a Senate tax plan and a smaller part of a House plan, are included in the latest proposal. Rep. Paul Luebke, D-Durham, a co-chair of the House Finance Committee, acknowledged that a cigarette tax hike, historically opposed by rural Democrats, again had its critics. "There are members of the House caucus that are having a problem with even a small increase in the cigarette tax," Luebke said. [The North Carolina State Grange has communicated its concerns with members of both the House and Senate Appropriations Committees.] Hackney could be seen talking to one of those rural Democrats, Rep. Dewey Hill, D-Columbus, after leaving the caucus meeting and heading to the House floor. The proposal being considered would raise cigarette taxes as much as 15 cents per pack.

But just as in the other areas, Senate negotiators apparently are willing to make tradeoffs if that amount is lowered. In thise case, lowing the cigarette tax hike could mean increasing the hikes on beer, wine and liquor, all in order to hit a set target as part of a $990 million overall tax increase. The proposal also ties an overall sales tax hike of 3/4 of a cent to an increase in the sales tax in electricity. If the electricity sales tax doesn't rise from the current 3% rate, the overall sales tax could rise even more, to 1 penny, to make up the difference. Senate Democrats planned to caucus this morning to discuss where the negotiations stand. House Democrats were likely to meet around lunchtime. Legislative Republicans, meanwhile, criticized both Democrats' inability to reach an agreement and their focus on new taxes. Senate Minority Leader Phil Berger, R-Rockingham, said Democrats weren't engaged in a high-minded debate about reforming the tax code but trying to do the lease damage to their political futures. (THE INSIDER, 7/22/09).