August 24, 2001

Here is the text of Gov. Mike Easley’s 
statewide television address:

Seven months ago, when I took office as your governor, I laid out my vision for North Carolina … a vision of progress and prosperity … a vision built on an unwavering commitment to education. But today we face a budget crisis that threatens all of our progress and tonight I want to tell you how we got here and how we can solve the problem.

In many ways, North Carolina has become the envy of the nation. For the first time in our history, North Carolina is becoming the yardstick by which the rest of America measures improvements in their public schools.

Our system of public school accountability is the model for the rest of the nation. Just last week, we learned that our students are making the greatest gains nationwide in math. In fact, North Carolina’s students are also making improvements in other basics, like reading, and we continue to close the “achievement gap” between low and high performing students.

These education gains are the result of your tax dollars invested in improving our public schools.

We have come so far, but now all our progress and hard work hangs in the balance. We are facing a financial crisis unlike any our state has seen in recent history.

The financial crisis first stems from the simple fact that during the past decade North Carolina cut taxes by more than one-point-five billion dollars – one of the largest overall tax cuts in the nation – while at the same time state spending increased. So, what happened is exactly what you'd expect, a budget deficit.

To make matters worse, Hurricanes Floyd and Fran brought unexpected devastation to many of our communities, costing the state nearly one billion dollars to help repair the damage and get victims back on their feet.

For a while, the state’s robust economy covered our financial problems. A good economy can hide a bad budget, but only for so long. In the last few years, North Carolina began spending its cash reserves – the state’s savings account - to make ends meet, instead of restoring integrity to the budget process. This has to change.

Now, due to North Carolina’s slowing economy, our growing budget deficit can no longer be hidden.

As a result, soon after I took office as governor, I found that our existing state budget was severely out of balance by almost a billion dollars.

I took immediate action to get the existing budget under control. I declared a financial emergency, instituted a hiring freeze, and made six hundred million dollars in cuts to state agencies.

The good news is: by making tough choices and taking quick action, we were able to fill the budget shortfall and North Carolina ended the last fiscal year with a balanced budget… but just barely.

The bad news is: we had to use our savings reserves, and the same kind of severe shortfalls are evident in the new legislative budget proposals. If we don’t correct the errors of the past, we'll face the same problem next year.

The nation’s financial experts have come to the same conclusion and put North Carolina on a “negative financial watch”. We must restore integrity to the state budget or lose our excellent bond rating. Losing our bond rating means we will have to spend even more tax money paying higher interest rates on the bonds we use to build roads and schools.

Too often action in the legislature stalls over disputes between those who think we must have spending cuts and those who think we must have tax increases. But the truth is we need both to fix this problem.

I am not willing to make deep cuts to our public schools and community colleges at a time when we need them the most. It’s wrong for our state and it’s wrong for our children.

I don’t believe in hiding from problems, but meeting the state’s challenges head on with honest solutions. That's why tonight I am offering a specific plan to solve our budget crisis. It’s a balanced package of spending cuts and revenue increases.

First, we must cut state spending by at least seven-hundred-and-fifty million dollars.

Secondly, I have identified over one-hundred-and-fifty million dollars in special interest loopholes that cannot be justified in our current economic environment.

Third, to provide the immediate revenue needed, I am proposing a one-cent increase in the state sales tax.

However, in order to assure that our working families do not bear an unfair share of the burden, I am strongly recommending that the legislature take three specific steps.

First, the lowest bracket of taxpaying families deserve an income tax credit or rebate.

Second, eliminate the marriage penalty tax that unnecessarily hurts working families.

And third, increase the child income tax credit.

These targeted tax fairness measures, combined with the homestead exemption for seniors I recently signed into law, will protect family pocketbooks while putting the state’s financial house in order.

This is a balanced budget plan that will protect our schools and our working families. It asks for one penny in sales tax in exchange for triple-targeted tax relief.

Finally, I am asking the legislature to give my administration the flexibility to cut government spending by amending the Executive Budget Act. This will allow my cabinet secretaries to better manage spending with all the bureaucratic red tape to make sure your tax dollars are well spent.

In the past weeks, state legislators have suggested various alternative proposals for solving the budget crisis. Let me be clear, I am willing to accept any reasonable plan that adopts the principals and priorities I have outlined tonight. However, I believe this plan combines the best elements of the House and Senate proposals. It is a solution to ending the budget impasse and putting our state back on the course of progress.

School is already starting in communities throughout our state. Nearly one-point–three million schoolchildren are arriving at the schoolhouse door in search of a quality education. They deserve more than an overcrowded classroom and an underpaid teacher. We must continue investing in our children—it’s just starting to pay off.

So tonight, I urge our legislators to do the right thing for North Carolina. This isn't about Democrats and Republicans; it's about children, seniors and working families. This is why I am urging the state House and Senate and both parties to pass a balanced budget.

Any state can make progress in good times. But it's the great states that can make progress in tough times.


Here is the text of House Minority Leader Leo Daughtry’s 
response to Gov. Easley’s televised address:

You have heard Governor Easley try to convince us that we need to pay more taxes. Well over a billion dollars in more taxes for the next two years. He has told us that without a tax increase, education and critical services will suffer. He's told us that the state's bond rating has been jeopardized.

I'm here tonight to tell you the truth.

How many of you have ever opened your paycheck and thought "What in the world is the government doing with my money?"

Let's think of the state's budget as if it were your family's budget. The family checkbook should balance every month. There are essential services you must provide to each family member. This probably includes your house, clothes and food, transportation, medical care, and maybe a summer vacation. If there's money left over at the end of the month, you can save for a rainy day, college education for your children, or your retirement.

We all have to live within our means. You don't go out and buy a new car, you don't go out to eat every night, and you don't take every penny out of your savings account or cash in your retirement.

Our state is like a family with an out-of-control spending problem.

Over the past years, the Democrats have gone crazy spending your money. They've added new program after new program. They have depleted the rainy day fund.

They have refused to cut back, jeopardizing essential services. There have been warning signs, but the Democrat-led legislature has been cooking the books to continue their spending binge

We all agree that our state's budget is in a crisis.

But at a time when thousands arc losing jobs across our state, and at a time when so many families are struggling just to make ends meet -- the last thing anyone needs is to pay more taxes.

Democrats have tried to raise taxes behind closed doors without taking a vote. Their proposals are full of political smoke and mirrors. The people of this state deserve better.

We don't have to abandon our commitment to education, to the sick, to the elderly, to the mentally ill, or to the disabled. We can continue to protect our environment. We can ensure that our criminal justice system works properly.

There is plenty of money if we spend it wisely. But we can't afford $22,000 for a chandelier, or $21,000 to replace a two-year-old portrait of former Governor Hunt, or a quarter of a million of dollars to dredge what might have been Blackbeard's ship. The list goes on and on. Taxpayers will not stand for continued wasteful spending.

The solution we're heard from Governor Easley is to raise taxes. I'd like to propose a better solution tonight.

Let's ask each agency head to reduce spending by just 3%. I trust those in charge of the day-to-day operation of our state to evaluate their programs. Let's give them the flexibility and authority to make reductions to make each agency work at maximum efficiency. That would save us in the neighborhood of 450 million dollars, enough to get us out of this current mess and on the road to financial solvency. It's the right thing to do. It's a move towards controlling growth of our state government, which is completely out of hand.

 We are already the highest taxed state in the Southeast. Increasing the size of our government and raising taxes is not the answer. Three percent reduction in spending will send a message to the bonding companies that North Carolina is well run and living within its means.

Let's do the right thing. It can be done. It's time to do it. Let's all get back to work making our state the greatest place on earth to call home.


Here is the response by the state Department of Public Instruction
to Rep. Dughtry’s proposal for a 3 percent cut in education spending:

State Superintendent Mike Ward and State Board of Education Chairman Phil Kirk are growing increasingly alarmed by the state budget impasse and by proposals by some legislators to make additional cuts to public schools. The latest proposed cut is equivalent to cutting state

funds for 39,100 students. They are urging legislators to find resources to fund the state's needs, including continuing school progress.
 
Ward and Kirk said the state's schools are leading the nation in progress and are on the way to leading in overall performance. They are concerned that the state's budget problems will halt the continuous improvement of our schools.
 
The state budget is so important to public schools because the state provides approximately 70 percent of all the funds for schools. A 3 percent budget cut to schools, as proposed this week, would be $177.6 million from the Public School Fund or the equivalent of state funds ($4,542 per child) for 39,100 students. To put these funds in perspective, this amount equals roughly 4,300 teachers or 9,600 teacher assistants or increasing class size by two students in every classroom
in this state.
 
A 3 percent cut would mean a $1.2 million cut to the Department of Public Instruction, an agency that already has seen its staff cut in half. This cut would severely impact DPI's ability to assist local school systems in school improvement efforts.
 
Many schools across the state have already started for the year. Commitments have been made for employment contracts, instructional materials and equipment. These commitments leave superintendents with very little discretion to cut resources. In addition, local county commissioners have already approved school budgets for 2001-02. Ninety percent of state school funding is used for salaries of school employees.
 
State Superintendent Mike Ward said the proposal for additional cuts would be devastating to the state's efforts to recruit and retain quality teachers, improve student performance and ensure safe and orderly schools. He said, "Our citizens have made it clear that they want better schools. Legislators too have said that past low performance by North Carolina students was unacceptable. We took them seriously and have been continuously raising standards and improving schools. Money matters. If we reduce funds, it will hurt classrooms and cut at the heart of education progress."
 
Phil Kirk, chairman of the State Board and president of North Carolina Citizens for Business and Industry, echoes Ward's views. "The State Board is determined to carry through on our commitment to make our public schools second to none. Talk of cutting schools is affecting morale at a time when we need teachers and others to go the extra mile to help children reach and exceed grade level. We can say goodbye to the national recognition we've been enjoying if funds are cut to schools."
 
Just two weeks ago, President George Bush, U.S. Secretary of Education Rod Paige, USA Today and other national and state leaders lauded North Carolina's public school progress. The praise for North Carolina came upon the release of the National Assessment of Educational

Progress mathematics results for all states. North Carolina's fourth and eighth graders topped the national and Southeast average scores on NAEP, the Nation's Report Card.
 
The Legislature already has agreed to cut millions from the Public School Fund ($45 million in the House budget and $31 million in the Senate budget) and $2.8 or $3.8 million from the Department of Public Instruction.


The community colleges had this response to Rep. Daughtry’s proposal:

"The North Carolina Community College System could neither withstand nor absorb the impact of a three-percent across-the-board reduction to the 59 institutions and the System Office," said System President H. Martin Lancaster Friday morning. He spoke in reaction to suggestions made last night by Republican leaders in the General Assembly.  

"At a time when North Carolina's economy is suffering from the loss of jobs in textile and furniture manufacturing, a suppressed technology sector, and a decline in farming, the Community College System is the first line of recovery for those working adults losing jobs," Lancaster said. 

President Lancaster noted preliminary registrations for the fall semester indicate that enrollments are at an all-time high, as the recent avalanche of layoffs and plant closings has sent displaced workers back to school.

Lancaster said the dollar loss to the colleges would be about $18.5 million but emphasized the fact that the impact in human capital, faculty and instructional support staff would be far greater. 

He said estimates show that 392 full-time faculty and professional staff would lose their jobs.  These are the people who teach the more than 760,000 students enrolling in North Carolina's community colleges, and their colleagues who provide counseling, financial aid support, and job placement, including services to workers who have just lost their jobs. 

Reductions in the System Office budget, while smaller in actual dollars, would have significant impact across the state. The System Office provides technical and financial support to the colleges. Such activities as new and expanding industry support, information technology, and similar critical functions would be severely curtailed. 

"It is the absolutely worst time to consider reducing community college budgets", Lancaster further noted. "College presidents, faulty and staff do not yet have a final operating budget for 2001-02, yet are currently scrambling to hire professionals and identify instructional space to meet the enrollment crunch. To undercut this effort with budget reductions at this time would send the worst kind of message."

Specific results of a three percent across-the-board reduction:

Significant reduction in the number of qualified personnel by the elimination of faculty and staff positions. 

Increased workloads and less schedule flexibility for remaining faculty and staff, resulting in a higher student/teacher ration and decreased support for student advising, learning centers and computer labs.

Less effective teaching due to limited purchases of instructional supplies, materials and equipment.

Elimination of classes and reductions in the number of sections offered would leave students with fewer choices, prevent them from completing degree requirements, and ultimately delay graduation.

Enrollment declines will be inevitable because colleges will be unable to meet the needs of students currently enrolled, nor will they be able to continue student services, recruitment and outreach programs.

Reduction in workforce programs that meet the needs of the local community will forestall the opportunity for skills enhancement and re-training for the un- and under-employed. 

Disabled and handicapped learners will be deprived of services that help them achieve the highest quality of life possible by the reduction in compensatory education programs.

The start up and expansion of programs will be hopeless.

Reduction in High School Student Programs will hamper the progress of high school students into job training and higher education.

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