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State tax collections $70 million lower than expected

By Gary D. Robertson
Associated Press
RALEIGH ó House and Senate budget-writers got an unpleasant surprise from Gov. Mike Easley on Thursday when he told them state government will collect about $70 million less than expected in the waning days of this fiscal year.
The news, attributed by Easley to lower-than-anticipated sales and income taxes collected over the past several weeks, won’t make it any easier for Democratic negotiators to reach a budget deal for the new fiscal year that begins Tuesday.
The two chambers were still working late Thursday on how much extra to pay for school bus fuel, public school teacher performance bonuses and the More at Four preschool initiative.
“We understand that this information makes your job, and ours, more difficult,” Easley said in a letter to legislative leaders.
Tax credits, breaks
But lawmakers had made progress by Thursday evening, reaching tentative deals on several portions of the expected $21 billion budget, but not including education and capital spending, said House Majority Leader Hugh Holliman, D-Davidson. A tentative deal also was reached Thursday on several tax credits and tax breaks totaling roughly $50 million, Holliman and a key Senate leader said.
“We did a lot with what we had,” said Sen. David Hoyle, D-Gaston.
Last month, Easley’s budget office and economists for the Legislature agreed that state government would collect $151 million above the tax collections needed to meet the state’s obligations for the year ending June 30. But the actual revenue led Easley’s budget office to downgrade the projections, said Dan Gerlach, Easley’s budget adviser.
Less money in this year’s budget means less money to carry over to pay for next year’s budget.
However, the $70 million revenue reduction is still less than one-third of 1 percent of the spending plan that ultimately will be approved.
“That’s not that big a deal when you have $21 billion,” said Rep. Jim Crawford, D-Granville, one of the House’s chief negotiators.
More of same ahead?
Easley also suggested that lawmakers should plan for less tax revenue than previously projected next year, based on the lower collections this year.
Despite the news, legislative leaders sounded optimistic later in the day that they could get a final spending plan to Easley’s desk for his signature before July 4.
“My distinct impression is the differences over there are not highly substantive,” said House Speaker Joe Hackney, D-Orange.
There’s not as much urgency as in odd-numbered year to get a bill to Easley before the new year. The Legislature approved a two-year budget last year, so government will continue to operate without a new deal.
“The lights stay on, the wheels go along,” said Senate Majority Leader Tony Rand, D-Cumberland. “If we can get it done in two or three days that would be all right.”
Under the tax agreement, the state would expand a refundable tax credit for the working poor approved last year and extend a credit for small businesses that provide health insurance to employees ó both items sought by the House. Another House provision agreed to would provide property tax relief for some military veterans made disabled while serving, Holliman said.
In exchange, legislators agreed to Senate legislation to phase out the gift tax and provide sales tax relief to several niche industries, including artisan bakeries, Hoyle said. A sales tax holiday on energy-efficient products also would occur, he said.
Since other lawmakers were sent home for the weekend, it will be Monday night at the earliest before a final budget could receive the first of two required votes in the chamber.
The sixth floor of the Legislative Office Building, where the wheeling-and-dealing on the budget occurs, was bustling late Thursday as House and Senate Democrats shuttled between rooms to discuss competing offers. Legislative staff members brought in coffee and Krispy Kreme doughnuts after 10 p.m., a sign that work probably would continue deep into the night.
Behind closed doors
Negotiating teams had held open meetings late last week and early this week, but most of the work in recent days has been done behind closed doors.
Lawmakers argue that budget discussions aren’t open meetings when the House or Senate teams are meeting separately, because there’s no negotiating going on.
Rand defended leaving the public out of one private meeting between the House and Senate on Thursday morning on the sixth floor because he said it had nothing to do with the negotiations.
“We were just hearing a report from staff,” he told reporters. “If it’s related to the budget, you’re welcome to come in.”

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