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More on
the story:
 What's
in the House tax package?
What's
NCCBI's position on the tax package?
Easley fires 278 state
workers to help with budget crunch
Senate
Democrats criticize tax package
advanced by House leadership; GOP still
says major spending cuts alone will work
The
early momentum for a $440.4 million tax package cobbled
together by House Democrats as the solution to the state’s
budget dilemma dissipated amid complaints from the Senate
leadership that the House plan will hurt the state in the long
run. As the Democrats squabbled over which taxes to raise,
Republicans in the legislature continued to assert that
government cuts alone can pull back spending in line with
existing revenues.
Early in the week it appeared that momentum was building
behind the House tax package as the best way to balance the
two-year budget and save North Carolina’s endangered Triple
A credit rating. The main components of the plan are a
half-cent local option sales tax and higher income taxes on
the wealthy. The only question then seemed to be whether House
Speaker Jim Black would put the package on the floor for an up
or down vote or just give it to his fellow Democrats in the
House and Senate budget conference to roll into the two-year
spending plan the chambers would vote on.
But Senate Democrats said Thursday that they oppose the House
plan and instead called for a 1-cent increase in the sales tax
– which is the plan that NCCBI advanced several weeks ago.
The Senate leaders say they particularly dislike a higher
income tax on the wealthy.
As the budget negotiators left Raleigh for the weekend, it was
unclear whether the Democrats could easily find common ground
and even less clear if Republicans in the legislature – who
continue to assert that spending cuts alone are the answer –
can be persuaded to accept any resolution that includes higher
taxes.
But the process can’t seriously get underway until the
Democrats reach agreement. Rep. David Redwine (D-Brunswick),
co-chairman of the House Appropriations Committee, was quoted
by the Raleigh paper as saying the budget negotiations are
"stuck in the mud up to the axles."
Senate President Pro Tem Marc Basnight said some senators are
worried that a soak-the-rich income tax hike would harm the
state’s industrial recruitment efforts. Sen. David Hoyle
(D-Gaston) is among those having doubts about the proposed
higher income tax rate for wealthy individuals. "It would
be the most anti-economic development thing we could do,"
he told the News & Observer.
The conferees now are concentrating on how to balance the
budget for the second year of the biennium. The $460 million
in additional revenue the House tax package would produce in
fiscal 2002-03 will fall short of the task, according to Sen.
Fountain Odom (D-Mecklenburg), co-chair of the Senate Finance
Committee. After earmarking funds to replenish the state's
rainy day fund and for the repair and renovation of state
buildings and giving moderate raises to state employees, the
House budget comes up $300 million to $700 million short,
depending on the size of the raise for state employees and how
much goes into the rainy day fund.
But a 1-cent hike in the sales tax would generate more than
$850 million – enough to balance the two-year budget, refill
the rainy day fund and cover raises for state workers, some
Senate negotiators said.
The House tax package emerged from that chamber’s Finance
Committee on July 25 with all Democrats for it and all
Republicans opposed, except for GOP Rep. Monroe Buchanan
(R-Mitchell). On Wednesday, the House GOP Caucus punished
Buchanan for siding with the Democrats by expelling him from
the caucus.
The conservatives’ opposition to higher taxes continued
building and reached fever pitch Tuesday when 600 or so
protestors staged an anti-tax “tea party” at the
legislature. A few protestors had to be removed from the
gallery after they chanted slogans and threw tea bags onto the
House floor below.
Much of the conservatives’ ire has been directed at NCCBI
over its support for an increase in the sales tax as a way to
save North Carolina’s Triple A credit rating. Senate
Republicans previously castigated NCCBI for this position (see
July 13 Bulletin, page 11). House Republicans, with five
notable exceptions, followed suit with a July 25
harshly-worded letter that described NCCBI’s position as
“ludicrous.” The five GOP House members who didn’t sign
the letter are Reps. Wilma Sherrill of Asheville, David Miner
of Cary, Richard Morgan of Eagle Springs, Bill Hiatt of Mt.
Airy and Rick Eddins of Raleigh. The later two were absent
from the legislature when the letter was circulated.
NCCBI Chairman Gordon Myers of Asheville responded to the GOP
criticism in a July 30 letter to House Minority Leader Leo
Daughtry. Myers said NCCBI’s position in favor of some
higher taxes “did not come without careful deliberation from
our executive committee, which includes a diverse group of
business leaders from across the state, and a mix of Democrats
and Republicans. We put politics aside to determine what was
the most responsible solution to the current budget crisis –
and we do consider this a crisis.”
With the slowing economy producing lower-than-predicted growth
in state revenues, and with sharply higher costs for Medicaid
and other essential state services – notably the public
schools struggling with sharp increases in enrollment –
Myers said the legislature didn’t have many choices.
“Major cuts have already been made in public schools,
universities, health and human services and other state
programs and agencies. The business community does not want to
see our programs and services gutted. Even with additional
revenue, the legislature is going to have to make more
reductions in state spending because of the lower revenue
projections and more difficult decisions are going to have to
be made. Without competitive programs and services, like
schools and roads, we cannot recruit and retain businesses and
industries in North Carolina.” Read
the full text of Myers’ letter.
NCCBI Phil Kirk made the same arguments when he testified
before the House Finance Committee just before it voted the
tax package out. Describing the association’s support for an
increase in the sales tax, Kirk said “I believe our
Executive Committee was moved to support increased revenues
primarily because of our concern about losing our Triple A
bond rating. North Carolina has had a Triple A bond rating
longer than any other state in the country and 25 percent of
all local governments in the country who have a Triple A
rating are in our state. This is something to be proud of and
something we need to protect. If the state’s bond rating is
lowered, it will cost state and local governments millions of
dollars. But it’s more than dollars. Industrial recruiters
use this distinction to help sell our state.”
NCCBI also issued a call for a government efficiency study
that could identify ways the state can operate more
productively and eliminate any remaining unnecessary spending.
In a July 27 letter to Gov. Mike Easley, Senate President Pro
Tem Marc Basnight and House Speaker Jim Black, NCCBI said
“we see the need for a comprehensive review of all aspects
of government, including our education systems.”
The letter went on to say: “We have aggressively supported
additional revenues for the state through the closing of
loopholes and an increase in the sales tax because of the
budgetary crisis we are in at the present time. However, this
support for increased revenues will be received much better by
our 2300 members and the taxpayers in general if they are
convinced that unnecessary spending has been eliminated and
that government is functioning in an efficient, cost-effective
way. That’s why NCCBI is lending its support to an
efficiency study commission to look at every aspect of
spending. There should be no ‘sacred cows.’ ” Read
the full text of that letter.
More support for the House tax package developed Tuesday when
Easley, Basnight, Black, State Treasurer Richard Moore and
other state officials held a press conference to urge quick
action on the budget. Easley echoed NCCBI’s position when he
declared that “Senator Basnight and Representative Black
will not pass a budget that puts our bond rating in jeopardy.
I will not sign a budget that puts our bond rating in
jeopardy.”
Former state Treasurer Harlan Boyles also attended the
governor’s press conference and declared that “the day of
reckoning is here. It’s time to make a decision. (Gov.
Easley) and the legislature do not have the option of not
making the tough decision.”
One big question that remained is whether the House Democratic
leadership will put the tax package on the floor for an up or
down vote or will simply hand it to the House-Senate budget
conference committee, which would then roll it into a
compromise spending plan that both chambers would vote on. If
Black takes the later course, legislators would have to vote
on the budget as a package, and not on the tax package as a
separate item. However, there were questions about the
constitutionality and whether or not these provisions could be
incorporated into the budget bill and still comply with Senate
and House rules.
“The House is striving for a balanced, equitable approach
that addresses the budget crisis without jeopardizing
education or unfairly burdening working families,” Gov.
Easley said. “Working together – Democrats and
Republicans, I am confident that we can see our way through
these tough budget times and move North Carolina forward. With
the House proposal, and some additional steps to reduce
government spending, we can preserve the fiscal integrity of
the state and continue making real progress. A slowing economy
has set us back, but it will not keep us down.”
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