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Raleigh News & Observer
As fiscal year closes today, nerves fray in House, Senate

By DAN KANE, Staff Writer

Come Friday, you might find that liter of Pepsi or those new sunglasses just a little cheaper. You can thank your feuding state lawmakers.

If the House and Senate are unable to resolve their differences on a stopgap spending plan by today the end of the fiscal year a temporary half-penny sales tax increase will expire. Along with it will go about $413 million that lawmakers had intended for schools, health care, public safety and other programs in a $17 billion state budget.

"You’d have to go back and make some cuts that none of us as Democrats would want to make," said House Speaker Jim Black of Mecklenburg County.

Black, Senate leader Marc Basnight and Gov. Mike Easley want to adopt a temporary spending plan called a continuing budget resolution. They say the measure, which would keep government running and extend the sales tax for three weeks as they resolve budget differences, should clear both chambers and get the governor’s signature today.

DAYS LEFT IN THE FISCAL YEAR 1 WHAT HAPPENED: A dispute over tax cuts caused House and Senate leaders to reject stopgap spending proposals late Tuesday that would have kept government running into July. They continued to negotiate a compromise measure Wednesday that also would keep in place a temporary half-penny increase on the sales tax. WHAT’S NEXT: Both chambers have to pass a stopgap spending measure today, and get it signed by Gov. Mike Easley, to keep government running past midnight. WHAT’S AT STAKE: Failing to extend the sales tax increase would cost the state $413 million. And if no spending measure is in place, Easley would have to figure out how to keep government running on an emergency basis.

But the events of the past few days have frazzled nerves, making the situation unpredictable.

House and Senate leaders first gave up on having a budget in place, and then got into a heated battle over tax cuts inserted into temporary spending measures. Senate leaders wanted to phase out a temporary half percentage point income tax on high earners, but House leaders would agree only if the sales tax, which falls more heavily on the poor, was cut as well. No deal.

It takes only a few votes to derail legislation in the House, and the tax cut battle left some Democrats there wary of any temporary spending measure.

Rep. Beverly Earle, a Charlotte Democrat who leads the Legislative Black Caucus, said some members had yet to commit to the leadership’s plan.

"We had some that would do it reluctantly, and we had some that said no," Earle said Wednesday. "So the suggestion was that we would sleep on it and deal with it in the morning."

Also at stake is $30 million the state estate tax would generate next year. That, too, is set to expire at the end of the day.

Lawmakers often have been to the brink of ending a fiscal year with no budget in place, but they kept government functioning with temporary spending measures. It’s gotten trickier this year because of the temporary taxes, and because the House and Senate have significant differences in their budget proposals.

"Often for a continuing budget resolution, they will leave the tough issues till later and just pass what it takes to continue budget operations," said Ran Coble, executive director of the nonpartisan N.C. Center for Public Policy Research. "But this time some of those big issues have seeped into the continuing resolution debate."

The debate got so heated that Wednesday morning, state Sen. David Hoyle, a Gaston County Democrat, said that he was prepared to let the temporary sales tax expire, and the Senate would prepare a budget that did not include the $413 million. But in the afternoon, Hoyle joined other lawmakers in saying the state couldn’t afford the revenue loss.

House rejects Senate plan

Hoyle has been the leading advocate in the Senate for phasing out the income tax on high earners. He said the 8.25 percent tax on those in the top income bracket is the Southeast’s highest, and it’s causing companies to bypass the state.

House Democrats say there’s little evidence for Hoyle’s claims. They note that several trade publications have ranked North Carolina high in recruiting business.

They also say it’s unfair to give the rich a tax break while continuing the sales tax. Senate leaders countered with a proposal that would eliminate or reduce income taxes for nearly 500,000 people. Those who had paid $125 or less would pay nothing, while those who had paid $126 to $250 would pay half what they had. The House rejected the proposal because it didn’t extend tax relief to everyone else.

‘Like a political game’

Easley has also proposed phasing out the income tax increase, but he has not entered the fray. One of his top advisers, Dan Gerlach, has been shuttling between House and Senate negotiators. The governor told The Associated Press on Wednesday that lawmakers should just focus on a measure that keeps government running.

His staff on Wednesday did not respond to a request for information as to how he would keep government running if no agreement is reached.

Coble said the wrangling is generating more public cynicism.

"It begins to look to the public like a political game between the chambers," he said. "They don’t understand that there are pretty substantial policy issues being debated."

Hoyle said if lawmakers reach a budget agreement within a month or two, most residents won’t be concerned.

"Outside the beltline, people don’t care so long as we don’t let the prisoners loose and turn off the lights," he said.

Staff writer Dan Kane can be reached at 829-4861 or dkane@newsobserver.com.

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This entry was posted on Thursday, June 30th, 2005 at 5:26 am and is filed under Daily News. You can follow any responses to this entry through the RSS 2.0 feed.