By GARY D. ROBERTSON
Associated Press Writer

RALEIGH, N.C. (AP) ó The General Assembly returned to work Wednesday for its two-year session, facing the state’s worst fiscal situation in a generation but hopeful they’ll be able to close budget gaps without broad tax increases.

The 170 members of the House and Senate took the oath of office shortly after the gavels fell at noon at the Legislative Building.

This year’s portion of the session is expected to be dominated by the state budget. New Gov. Beverly Perdue already ordered state agencies to cut up to 7 percent of their budget to close what could be a $2 billion budget shortfall this week. Lawmakers could have to close a $3 billion gap between revenues and expenses when they assemble their own spending plan for the fiscal year starting July 1.

“We face great challenges,” House Speaker Joe Hackney, re-elected to a second term to the chamber’s top post, told colleagues in his acceptance speech. “This is our time to do something worthy to be remembered.”
Lawmakers are averse to raising sales or income taxes like they did during the 1991 and 2001 budget crises.

But the breadth and depth of the recession across the nation has placed even seasoned legislative leaders into uncharted waters.

“It’s a daunting task, but we have a lot of experienced legislators in our caucus,” said Rep. Paul Luebke, D-Durham, sworn in to a 10th term Wednesday and a recent House Finance Committee co-chairman. “We certainly are looking to avoid the kinds of major taxes that we needed to raise in 2001.”

Democrats are still in charge of both chambers ó Republicans had a net gain of one seat in the November election. Hackney was re-elected on a party-line vote over House Minority Leader Paul Stam.

Sen. Marc Basnight, D-Dare, also was elected to a record ninth term as Senate leader. Senate Minority Leader Phil Berger, R-Rockingham, also was nominated for Basnight’s job but interrupted the roll-call vote and asked that Basnight be elected by acclamation.

Former Sen. Walter Dalton succeeded Perdue as lieutenant governor and presided over Senate debate.
North Carolina is in relatively better shape than surrounding states when it comes to its fiscal picture. The state has nearly $800 million in its rainy day reserve fund. And a federal stimulus package could help bridge the gap between spending cuts and new taxes or fees.

Basnight said “this session will focus on jobs, jobs and jobs” at a time when revenues were dwindling.
“We have to be careful, we have to be steady, and we have to have no errors,” Basnight said. “I would encourage you not to find your way out of this difficulty with cuts alone.”

Republicans have argued recently that the state could be better off if Democrats hadn’t increased spending by nearly 10 percent in 2006 and 2007.

“I think we need all 50 people in (the Senate) to come up with a solution,” said Sen. Eddie Goodall, R-Union. “It won’t be a time to go back and say, ‘I told you so.'”

The day was largely ceremonial, as fidgety children and grandchildren sat in chairs of new legislators on the House and Senate floor and lawmakers’ offices were filled with party platters to munch on during the day.

Former lawmakers shook hands with old friends, while first-termers got used to their new surroundings.

“Today’s it’s an exciting day,” said new Rep. Grey Mills, R-Iredell, who sat on the House floor with his wife. “It’s a new experience to me and I’m really looking forward to it. I know that we’ve got our challenges for us, but today’s just a day to celebrate.”