RALEIGH (AP) ó Gov. Beverly Perdue’s budget proposal unveiled Tuesday would seek a dollar-per-pack increase in North Carolina’s cigarette tax and higher alcohol taxes to help narrow the state’s $3.4 billion budget gap for the coming year.
Perdue’s plan also would seek to reduce spending by $1.3 billion each of the next two years and reduce the state’s overall work force by more than 1,030 positions in the fiscal year starting July 1. That doesn’t include potential job losses in the public schools and university system, which would have more flexibility in making their own cuts.
“As families and businesses across our state are tightening their belts to make ends meet, government must do the same. But, in the process, we must not neglect the state’s most pressing needs,” Perdue said in a letter given to lawmakers as part of the budget.
The extra money and spending cuts attempt to deal with the state’s worst fiscal conditions in a generation. The Legislature will review the plan as it approves its own budget by this summer and sends it to Perdue’s desk for her signature.
Perdue would increase the cigarette tax from 35 cents per pack to $1.35 and seek a 5 percent tax surcharge on alcohol. The nearly $21 billion budget for the year starting July 1 would raise $508 million from the two proposed tax increases, the budget document said. Perdue also wants to raise a licensing fee on “professionals” from $50 to $200 to raise another $27 million.
The higher cigarette tax, if approved, would make North Carolina’s rate the 20th highest in the country, compared to the current 45th, according to Perdue’s budget. The cigarette tax was just 5 cents a pack until the Legislature agreed in 2005 to raise it over two years.
It also would further crumble what otherwise has been North Carolina’s special relationship with the tobacco industry.
“We might as well go ahead and get an ax and bring that business to its knees, which is what we would be doing,” said Democratic Sen. Linda Garrou, one of the Senate’s chief budget-writers. She represents Winston-Salem, the headquarters of cigarette maker Reynolds American.
Legislative Republicans criticized the tax proposals, saying there are many other ways to deal with the budget gap besides raising taxes, pointing to recommendations they have made to cut inefficient programs and intercepting other funds.
“The reason we have a revenue problem is that people don’t have money,” House Minority Leader Paul Stam, R-Wake. “This is the worst year to raise tax rates.”
North Carolina remains the country’s leading flue-cured tobacco state and its revenues and jobs helped build the state for much of the 20th century. But reduced demand for the leaf and changing views on smoking and health have led the Legislature to pass more smoking restrictions.
Perdue’s office promoted what few highlights could be found in an otherwise awful financial year for the state. Her proposal avoids broad-based tax increases ó alcohol and cigarettes are targeted ó issues no new debt and eliminates more than 20 outdated or duplicative programs.
The budget proposal also wants businesses with profits of less than $100,000 to be exempt the first $25,000 of net income from state tax, with the amount lowering to the first $15,000 for business making between $100,000 and $200,000. The state’s version of the earned income tax credit also would be increased starting with 2010 tax returns.
Perdue also would seek a “caregiver tax credit” to benefit people who take care of aging family members, along with the creation of a sales tax holiday for people who purchase equipment that helps conserve water, according to the budget document.
Perdue said Monday her budget would attempt to protect core services such as education and help create and retain jobs.
The new governor, who wrote several state spending plans while a Senate budget-writer in the 1990s, said she would raise overall spending for state education by $350 million over the next two years, led by a 2.5 percent increase for the K-12 schools. Federal stimulus money will help with the increase.
The budget document said he wold use $1.7 billion in federal stimulus money to help narrow next year’s budget gap and $1.2 billion to close the gap for the year beginning July 1, 2010.
State employees and teachers would receive no longevity pay increase for the next two years, saving $170 million annually for the state. Non-teachers would receive additional leave instead of longevity pay.