N.C. Senate Says Surplus Used Reasonably In Its Spending Plan

The proposal also would set aside nearly $579 million to fill up reserve funds for building repairs and disasters.

"What we've developed is a budget that meets the needs of North Carolina," said Sen. Linda Garrou, D-Forsyth, one of the chamber's three primary budget-writers. "It was not just a rush-though budget."

The proposal adjusts the second year of two-year spending plan approved last session, recommending healthy pay raises for state workers and teachers and boosts for programs shortchanged during leaner times this decade.

An improving economy has given lawmakers room to suggest trimming the sales and individual income taxes passed in 2001 as a temporary way to make up for falling collections. The taxes have been extended twice to expire by the end of 2007.

Under the Senate proposal, the sales tax would fall by a quarter-penny Jan. 1, reducing the amount most citizens pay from 7 percent to 6.75 percent. The Senate also wants to cut the individual income tax rate for the highest wage earners from 8.25 percent to 8 percent in January.

The proposal suggests cutting the sales tax by another quarter-penny and the income tax to 7.75 percent by the end of next year.

The bill also suggests capping the gasoline tax at the current level of 29.9 cents a gallon.

"I don't think you cannot afford the tax cuts. I believe you have to make certain cuts," said Senate leader Marc Basnight, D-Dare.

Senate Republicans, in a preview of Wednesday's floor debate, said the package spends too much and doesn't give enough tax relief. Senate Republican Leader Phil Berger, R-Rockingham, suggested that lawmakers return some of the surplus to taxpayers through a one-time rebate.

The bill would spend more than $700 million on average 8 percent pay raises for public school teachers, 6 percent raises for university workers and community college faculty and 5 percent raises for most other state employees. The university and community college employees also would get a one-time 2 percent bonus.

The Senate sets aside $105 million in new spending to improve community crisis services for the mentally ill, add more local psychiatrists and expand treatment centers for alcohol abusers and the developmentally disabled. The state also would borrow to build replacements for psychiatric hospitals in Goldsboro and Morganton. A portion of the state's excise tax on alcohol would be dedicated to a mental health trust fund.

The Senate budget also would raise the minimum wage by $1 per hour to $6.15 and repeal a requirement approved last year that requires all kindergartners to receive a comprehensive eye exam.

The state would be able hire 100 literacy coaches to help improve reading comprehension among middle-schoolers, a provision sought by Easley. But the Senate declined to honor Easley's request for $42 million for poor school districts, instead agreeing to eliminate $44.3 million in spending cuts for all local school districts ordered annually since 2003.

The proposal recommends hiring 90 new prosecutors, 16 District Court judges and 75 deputy court clerks to help a clogged court system that fell behind earlier this decade.

Preparing for a possible economic slowdown, the Senate budget that begins July 1 predicts revenue growth of 3.2 percent, down from the original 5.2 percent.

Elaine Mejia with the liberal-leaning N.C. Budget and Tax Center said she supports much of the spending proposed by the Senate, but said the budget could lead to trouble if the economy turns south, medical costs continue to rise and tax reforms aren't considered.

If that happens, she said, Mejia said, "they will be facing another budget shortfall next year and beyond."