By GARY D. ROBERTSON
Associated Press Writer
RALEIGH (AP) ó State House and Senate leaders resumed work Monday on hammering out a budget for the new fiscal year that begins Tuesday, with negotiators still skeptical about Gov. Mike Easleyís call to roll back proposed tax breaks and state employee raises.
Easley said fellow Democrats should find extra cost savings because the economic climate is slightly worse than expected. But the lawmakers said itís not any more dire than several weeks ago.
ěI donít have any idea why heís doing this, except to create a little aggravation,î said Rep. Mickey Michaux, D-Durham, senior co-chairman of the House Appropriations Committee.
Michaux and his Senate counterpart, Sen. Linda Garrou, D-Forsyth, both said they were working toward completing a budget deal and presenting it to Easley later this week, after two required votes in each chamber.
The governor warned legislators twice publicly over the weekend that the Legislature needs to account for $70 million less revenue than projected at the close of this fiscal year. He said that lawmakers should cancel the agreed-to elimination of the stateís gift tax and expansion of an earned income tax credit for the working poor.
He also urged them to consider adjusting pay raises for rank-and-file state employees to save another $25 million.
Easley believes the lower revenue picture should cause lawmakers to look for an additional $45 million in savings from a $21 billion plan for the new fiscal year, which continues through June 2009.
Michaux acknowledged the past two months havenít been solid financially for the state, but that doesnít mean the revenue projections for the coming year ó about a 3.5 percent increase ó create an unbalanced budget.
Easley has several options to tap into money to cover any shortfall, Garrou and Michaux said. Both chambers have agreed to set aside $100 million for the state building repair fund. Easley can use money not spent by state agencies, delay employ hiring or tap into a reserve fund of about $800 million.
Easley, who is leaving office in January, has never vetoed a budget bill. He could let it become law without his signature.
The governor said the proposed gift tax elimination benefits the stateís wealthiest citizens, while an increase in the earned income tax credit would only give low-income workers on average an extra 32 cents a week.
And legislators should give state employees who arenít teachers an across-the-board 3 percent raise, rather than the House and Senate plan of either a 2.75 percent raise or $1,100, whichever is greater.
At the same time, Easley is trying to get budget language approved that would give him authority to raise salaries of teachers even further should there be a surplus before this fall. The Senate put the idea in its version of the budget, but now Democrats there are less attached to it since Easleyís recent call for frugality.
ěItís curious to me if the governor doesnít think weíre going to have the money why he would want to keep that provision in the budget,î Garrou said.
The two chambers still were working on differences in education and construction spending.
ěWe hope that we will be able to quickly resolve the remaining parts,î said Senate Majority Leader Tony Rand, D-Cumberland.
The House wants Speaker Joe Hackney, D-Orange, and Senate leader Marc Basnight, D-Dare, to intervene and resolve few but significant issues with the Senate, Michaux said. The two chambers canít decide how much to spend on University of North Carolina system enrollment this fall or whether to require some across-the-board system cuts.
They had reached some agreements, including giving $90 million to performance bonuses for public school teachers and $35 million to pay for diesel fuel for school buses, according to Michaux.
According to Easley budget adviser Dan Gerlach, one tentative agreement reached by the House and Senate would require the state Medicaid program to find cost savings without requiring a 30 percent reduction to the Community Support program, a mental health initiative that provides non-medical care for patients living at home.
State government will continue to operate without a budget bill passed because a two-year budget was approved last summer. The House and Senate are making adjustments to the budgetís second year. The Legislature approved a bill late Monday that allows federal money to be distributed for health and housing grants while the negotiations continue.