Legislators reach budget deal

House and Senate leaders reached an agreement on a $21.3 billion budget proposal by postponing two tax breaks and greatly increasing borrowing for construction projects at UNC campuses, state prisons and other state facilities.

"We think this is a very good budget, a budget that in tough times still keeps us moving in North Carolina in a number of ways," said House Speaker Joe Hackney, an Orange County Democrat.

The agreement calls for no tax increases and includes modest pay raises for teachers and state employees. Teachers, UNC professors and community college instructors would receive an average increase of three percent, though beginning teachers would fare better, in deference to a request from Gov. Mike Easley. All other state employees would receive the greater of a 2.75 percent or $1,100 increase. Retirees would receive a 2.2 percent cost of living adjustment.

The legislative leaders dropped a Senate provision that would have given Easley the opportunity to further boost teacher pay in the fall if revenues improved beyond expectations. Hackney said there was little chance that would happen, given the sinking economy.

Dana Cope, executive director of the State Employees Association of North Carolina, said he was disappointed the raises were not better.

Senate leader Marc Basnight, a Manteo Democrat, said the raises are among the highest, if not the highest, being offered in the Southeast.

Basnight and Hackney said the budget proposal includes $857 million in borrowing for construction projects. That's roughly $180 million more than what the Senate first proposed and $300 million more than the House. Both chambers had different ideas on what projects to borrow for, so legislative leaders agreed to much of what both chambers wanted.

Among the projects authorized is a new complex downtown that includes an office building for the state Department of Environment and Natural Resources, a parking deck and an expansion of the N.C. Museum of Natural Sciences. Hackney and Basnight said the $107 million price tag would be financed by reauthorizing retired debt from higher education bonds voters approved in 2000.

Both said that the bond law gave lawmakers the ability to borrow up to two-thirds the amount of retired debt. The borrowing would be spread out over several years to keep within spending guidelines set by the state treasurer, Hackney and Basnight said.

Lawmakers who have voted against the House and Senate budget proposals have criticized the level of borrowing, and they are likely to complain about even more borrowing in the compromise spending plan.

Basnight said that the construction projects will provide a strong economic stimulus, creating about 20,000 jobs, during tough times.

Education spending, construction projects and tax breaks tied up budget negotiations over the past two weeks. Easley said lawmakers had to adjust their spending after new revenue estimates showed a $70 million budget hole.

Lawmakers agreed to postpone a repeal of the state gift tax and an increase in an earned income tax credit for lower income working families to free up $30 million. They also said a savings reserve would help cover a revenue downturn.

"I believe (Easley's) going to be very happy," Basnight said. "I think at the end of the day we did all we could to satisfy his wishes and concerns."

Easley has to sign the budget before it can become law, unless lawmakers come up with two-thirds majorities to override a veto.

Basnight and Hackney said they plan to schedule votes on the budget proposal Monday and Tuesday, depending on whether the budget bill can be printed by tonight. Otherwise, votes would be cast Tuesday and Wednesday.