Gov. Bev Perdue presented a $19.9 billion budget plan Thursday that would keep a portion of the temporary sales tax she had promised would expire this year, while eliminating thousands of state jobs and dozens of programs.
Republicans, who control the state legislature, immediately criticized the Democratic governor for breaking her word on the temporary tax. And they vowed to pass a budget in a few months that will cut even more than Perdue's plan.
Perdue's proposal is just the first step in what is likely to be months of tough negotiations between the governor and the legislature over taxes and spending.
"It's going to be an interesting conversation I look forward to having with them," Perdue said.
The governor said her budget is based on two priorities - increasing jobs and education.
Nearly 10,000 state jobs - about 3,000 of them currently filled positions - would be cut under Perdue's plan, which includes funds to induce 1,000 employees into retirement.
Dana Cope, executive director of the State Employees Association of North Carolina, said the governor's proposal is "way more than what we were expecting."
"It will send this state into a death spiral when you add that many people to unemployment," Cope said.
Republicans criticized Perdue for shifting millions in education costs from the state to local governments.
"The governor would take $800 million out of the pockets of North Carolinians in order to balance this budget," said Senate leader Phil Berger, an Eden Republican. "It's time for government to tighten its belt."
Perdue's plan would keep all state-paid teachers and teacher assistants, but cut state spending on school administrators, central office staff and school bus purchases. Local school districts would have to pay their own workers' compensation claims and school bus accident claims.
State budget director Charles Perusse said the state had been gradually picking up what had been local expenses over the past 10 years and that this budget represents a partial shift back.
"We're making a statement that there has to be shared pain among all of us," he said.
Tax extension an issue
Perdue prepared her budget knowing that Republican legislators had promised not to extend the temporary taxes.
Keeping 75 percent of the 1-cent sales tax increase would raise $826.6 million, which Perdue said would pay for 13,499 jobs in schools, universities and community colleges, as well as for community mental health treatment.
Perdue did not keep the temporary income tax surcharges imposed along with the sales tax increase, and she called for a cut in the state's corporate income tax rate from 6.9 percent to 4.9 percent. The corporate cut would begin in January and cost $115 million over six months. Additionally, her plan would offer small businesses an unemployment insurance tax credit at a cost of $65 million.
She anticipates the business tax cuts translating to private sector jobs, though some economic analysts said research does not support Perdue's claims of job growth.
Two years ago, Perdue asked for the taxes to boost a budget that was gasping. Questioned then about how North Carolinians could be sure that the temporary tax increases would not become permanent, Perdue replied: "Because I'm the governor."
Cuts to state agencies
The proposal includes a reorganization of state agencies to cut administrative and middle management jobs. It would eliminate money for 68 of what Perdue called "nonessential programs," and it would cut another 71.
Drug treatment courts and mediation programs would get less money, a youth development center would close and there would be no more money for dropout prevention grants. Smart Start would see a 5 percent, or $9.4 million, cut.
Democratic legislators and public-interest groups praised Perdue for sparing teachers and spending more on mental health. But county governments and local school boards said they were hit unfairly.
The added workers compensation expenses for school districts and accident settlements will likely be higher than Perdue's budget estimates, said Leanne Winner, lobbyist for the N.C. School Boards Association.
"All the costs they're sending down are public-school related," she said. "There's no guarantee the monies will appear at the local level."
GOP seeks more cuts
Republicans are combing the budget looking for more cuts. House Speaker Thom Tillis, a Mecklenburg County Republican, said the budget could lose $1 billion "without affecting core services." But budget writers need not stop at $1 billion, he added.
"If our committee chairs come back and say we've got $2 billion worth of stuff we shouldn't be spending, then there's another $1 billion on the table," Tillis said. "We're not going to stop when it's just balanced. We'll stop when we're spending responsibly."
Republicans criticized Perdue for not including savings from a bill they passed last week that would take money from economic development accounts to help pay next year's expenses. Supporters say it would go a long way toward closing the budget gap, but Perdue doesn't like the proposal.
The budget does not include a proposal to legalize and tax video poker, derailing a likely major battle.
"I didn't want the next six months, when quite frankly so much is at stake for North Carolina, to be distracted by this philosophical and moral debate over gambling," Perdue said.
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