07/03/2008

By GARY D. ROBERTSON  / Associated Press

Democratic leaders at the Legislature wrapped up work on a $21.3 billion budget plan Thursday for the new fiscal year that delayed two tax breaks in order to please Gov. Mike Easley, who was worried about losing revenue in a slowing economy.

Save for tinkering with some technical language, House Speaker Joe Hackney and Senate leader Marc Basnight said a deal had been reached after two weeks of negotiations. The first of two required votes in each chamber could occur as early as Monday night.

"We made some tough decisions that had to be made," Basnight, D-Dare, told reporters.

Easley complained last week that the budget needed an additional $45 million in savings for the new year because tax collections were off by an estimated $70 million in May and June. So the chambers agreed to put off until 2010 the elimination of the state gift tax and the expansion of a refundable tax credit for the working poor.

Those delays saved $30 million. They also reduced projections for existing tax revenues for the coming year due to the slowing economy, according to Hackney and a spokesman for Basnight. Legislative leaders had been skeptical about the size of the needed cost savings demanded by Easley.

"We think the budget is balanced. We know it's balanced without any of that but we're trying to work with the governor's concerns," said Hackney, D-Orange. "We know that it's a time of economic uncertainty."

Easley budget adviser Dan Gerlach didn't immediately respond to the budget deal, saying the governor would have review the details.

A spokesman for Easley didn't immediately return a phone call seeking comment Thursday. Easley, a Democrat who leaves office in January, has never vetoed a state budget bill. Easley will have to decide whether the budget is unbalanced. He said this week he would not sign a budget that is not balanced.

"I believe he is going to be very happy at the end of the day we did all that we could possibly do to recognize his concerns and fulfill his wishes," Basnight said.

But the spending plan provided less than he sought for his signature More at Four preschool initiative — $30 million extra instead of the $45 million he wanted. And the chambers decided against a provision that would have given the governor power to use any surplus money toward raising teacher salaries beyond the average 3 percent raises to which the House and Senate agreed.

The new fiscal year began Tuesday, but state government continues to operate since the spending plan only adjusts the second year of a two-year budget passed last summer.

The spending plan provides more money for the public schools — $35 million for diesel fuel for school buses and $90 million for teacher performance bonuses — but less than the State Board of Education said was needed.

The bill also authorizes $857 million in borrowing over the next four years — more than either the House or Senate suggested in their versions of the budget approved last month.

But some of the borrowing will originate by essentially taking out new loans based on a portion of bonds that recently have been paid off. That should lessen the impact on how much the state pays in debt service.