Democratic Gov. Bev Perdue is butting heads with Republican leaders in the North Carolina General Assembly over her proposal to renew a “temporary” 1-cent sales tax hike enacted by lawmakers two years ago.
Perdue made the recommendation in her $19.9 billion spending plan, which partly relies on revenue that would be generated by keeping three-fourths of the current 1-cent hike in place.
That runs counter to a promise made by Democratic leaders to let the sales tax increases expire, leading to criticism from GOP leaders.
“We think that the governor and the Democratic members who ran on the promise to sunset those taxes should sunset those taxes,” said House Speaker Thom Tillis, a Republican from Mecklenburg County.
Perdue says renewing the tax increase is needed to prevent cuts to public school classrooms. North Carolina faces a projected $2.4 billion budget hole, down from a $3.7 billion gap forecast as recently as January.
Corporate Tax, Program Cuts
Another part of Perdue’s proposed budget would cut North Carolina’s corporate tax rate from the highest in the Southeast to the lowest in hopes of attracting new industry.
At the same time, Perdue staved off an attempt by the Republican-controlled legislature to divert funds from economic development accounts she uses to lure businesses to the state. The GOP wanted to use the money to help plug the budget hole.
Overall, Perdue’s budget cuts most state programs between 7 percent and 15 percent, consolidates 14 executive branch agencies into eight, and sets aside another $150 million for the state’s Rainy Day Fund.
In addition, it eliminates 10,000 state employee positions — only 3,000 of which are currently filled — and protects all state-funded public school teachers and teacher assistants from layoffs.
Perdue admitted that her budget wouldn’t make most people happy. “That’s what budgets are about,” she said.
Joseph Coletti, a budget analyst with the conservative John Locke Foundation, said that Perdue makes “a number of small decisions” right in her budget, but she needs to show more willingness to cut teachers who aren’t performing their duties adequately.
Deeper GOP Cuts
Now that Perdue has proposed a budget, it’s the General Assembly’s turn to formulate their version. Republicans control both chambers of the legislature for the first time since Reconstruction. They’re already planning to make much deeper cuts than Perdue has suggested — including reducing teacher positions.
Republicans have proposed an $18.3 billion spending target, $1.6 billion less than Perdue’s recommendation.
“We need to get our spending on the same level as revenue,” said Senate President Pro Tem Phil Berger, a Rockingham County Republican. “Folks have known this was coming, and I wish the previous majority had done more to prepare for this by reducing spending, but they didn’t. They depended on temporary fixes to inflate spending and to keep it at a high level.”
David N. Bass ([email protected]) is an associate editor for Carolina Journal.