Unable to close the largest budget shortfall in North Carolina history, state lawmakers passed an emergency measure to keep the government in business June 25.
State law requires the legislature to plug the $4.7 billion hole in the 2009-2010 fiscal year budget by the end of the legislative session July 1. Although the North Carolina House of Representatives and the state Senate have each passed different versions of the budget, both bills use a combination of tax and fee increases and deep spending cuts to achieve this goal.
Lawmakers in both chambers of the legislature have given themselves more time to reconcile the differences in their proposed budgets, as a compromise seems unlikely given the sharp disagreements over how best to close the budget gap. The continuing resolution will fund government at 85 percent of the current spending levels.
Republicans in the legislature and Gov. Bev Perdue, a Democrat, have criticized the budget resolution, which was written by a legislature controlled by Democrats. Although Republicans have said the $800 million in tax and fee increases will hinder economic recovery, Perdue has called on the legislature to approve additional tax increases to avoid making steep cuts in education.
"I applaud the General Assembly for their work to put a budget together. But in North Carolina we must act boldly to protect the classroom," Perdue, a former public school teacher with a Ph.D. in education administration, said in a statement June 17. "We will cut deep. We will do more with less. But as state leaders, we cannot increase class size, we cannot lay off teachers and we cannot sacrifice our economic future."
Perdue has called for nearly $1 billion in additional revenue-most likely the result of tax increases-to help avoid cuts she says will "cripple education." Currently, the legislature has appropriated $10.8 billion for education, totalling more than half the state's $18.5 billion general fund budget.
To generate public support for her plan, Perdue is barnstorming across the state, holding rallies in Raleigh, Greensboro, Charlotte, Asheville, Greenville and Wilmington.
Republicans, however, oppose the large increase of taxes and fees, citing areas of wasteful spending that should be cut prior to any tax increases. House Finance committee member Rep. Thom Tillis, R-Mecklenburg, said the budget is full of waste that was not removed during the budget process.
"In the media, they are telling you that these taxes are to save programs that are vital to the public health," he said. "What they are failing to tell you is that they have programs in the base budget that are not critical to health and public welfare."
In order to close the budget gap, the budget calls for increasing the highest income tax brackets, rasing the state sales tax from 6.75 percent to 7 percent and adding 1.5 percent to the state liquor tax rate.
The budget also calls for the creation of new taxes, some of them the first of their kind in the United States. Warranties, installations, repairs and maintenance-such as those given for automobiles-will be taxed as well as packages sent by local and interstate courier services like United Parcel Service and Federal Express. Additional taxes would also be applied to movie and amusement park tickets.
Senate Minority Leader Phil Berger, R-Rockingham, said the "creative" new taxes will affect everyone in North Carolina-not just the wealthy, as Democrats claim. He noted that raising taxes during a recession will not help lift the state out of the current recession.
"The economists tell us that when you are in a recession, increasing taxes creates a drag on the economy," he said. "Not only is it not helpful, but some will argue that the increasing of taxes will only exasperate the recession."
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