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NC Drops Cig. Tax Plans [06/30-8]

Excerpts from: Senate drops cigarette, beer tax plans

By David Rice Journal Now [6/27/03]

Legislature's deadline looms for completing state budget

• Senate drops cigarette, beer tax plans
Legislature's deadline looms for completing state budget
• Head of School of the Arts warns of faculty, staff cuts

• N.C. General Assembly

• N.C. School of the Arts

RALEIGH

Leaders in the N.C. Senate gave up yesterday on their proposal to raise taxes on cigarettes and alcohol, setting the stage for legislators to haggle through the weekend to complete a $14.7 billion budget before the new fiscal year starts Tuesday.

But Senate leaders were angry with Gov. Mike Easley for siding with House members who insisted on no new taxes in the state budget, and they promptly exacted revenge by gutting the expansion of two of Easley's pet programs. A Senate proposal offered yesterday contained none of the $8.6 million that Easley has wanted to expand the More at Four pre-kindergarten program, nor the $25 million he requested to continue reducing class sizes in second grade.

Senate leaders had pushed for the additional 'sin' taxes - an increase of 25 cents on each pack of cigarettes and 5 cents on each can of beer - to help ease a looming shortfall in 2004-05, the second year of the state's biennial budget.

Leaders in the House, which is evenly divided between Republicans and Democrats, continued to say that the chamber doesn't have the votes to raise taxes. Easley sided with the House on Wednesday when he said that the state could balance its budget without additional taxes.

'I think the governor spoke pretty clearly yesterday that he did not want any more revenue increases,' said Senate President Pro Tem Marc Basnight. 'He plainly said he had a (spending) cap in place and that we busted the cap with $326 million in cigarette and alcohol taxes.'

But Basnight was just as clearly disappointed, saying that legislators will face another enormous budget gap for 2004-05, when $510 million in federal aid that the state stands to get in 2003-04 will disappear.

'It's depressing when you can't fund (school) enrollment, and do the things to promote economic development in this state and to clean our waterways more,' Basnight said.

'It leaves a big hole, yeah, next year. It's more than we can responsibly fill,' he said. 'That's what we'll have to live with. We do not like it. We do not believe in it. We do not believe it makes for a better state.'

Senate Majority Leader Tony Rand, normally an ally of Easley, said that legislators can't afford the expansion of Easley's pre-kindergarten and class-size reduction programs without additional tax dollars.

'There's no money,' Rand said. 'We figure we're somewhere between $500 million and $700 million short the second year. The first rule of holes is when you find yourself in one, quit digging.'

Dan Gerlach, a budget adviser to Easley, said he is confident that legislators will restore the cuts in coming days.

'It says there are a lot of people who are tired and frustrated. I think, at the end of the day, we're going to have a balanced budget that protects the classroom,' Gerlach said. 'The Senate's offer is not balanced and does not protect the classroom.'

Officials at R.J. Reynolds Tobacco Co., which has seen at least 26 states raise cigarette taxes over the past two years, were pleased with the Senate's capitulation yesterday.

'There are about 15 states that this year have chosen not to raise excise taxes in order to deal with the budget. So North Carolina is consistent with the decision that it's made,' said Tommy Payne, a senior vice president at Reynolds.

'Smokers are already paying the excise tax, the sales tax and the huge settlement payments from the (1998) state litigation,' Payne said. 'In 2002 alone, smokers paid$8 billion in settlement payments to the states.'

Activists from the American Lung Association criticized legislators who say they can't support higher cigarette taxes because they signed a no-tax pledge last year.

Health advocates contend that a 75-cent increase in the state's cigarette tax - which at 5 cents a pack is the third-lowest in the nation - would reduce teen-age smoking by 17.5 percent.

Jim Goodmon, the president of Capitol Broadcasting Co. in Raleigh and a passionate tobacco opponent, said that the cigarette tax is one that taxpayers can easily avoid.

'This is a user fee. You don't smoke, you don't pay it,' he said. 'It's not like the income tax.'

Goodmon said that legislators should at least put a cigarette tax to a vote.

'The health of the people of the state is more important than a no-tax pledge,' he said. 'We're going to take pressure off the budget by reducing health costs, and we're going to raise new revenue.'

Legislators, meanwhile, are under pressure to finish work on the budget by midnight Monday, when sales and income taxes that together raise $384 million a year are scheduled to expire.

Both taxes would be extended under budget plans adopted by the House and Senate.

House members voted overwhelmingly last week not to extend the taxes separately from the rest of the budget, saying that the move would remove any incentive for legislators to finish the entire budget in time for the start of the fiscal year.

Basnight told Senate members to be prepared to work Friday, Saturday and possibly Sunday to complete the budget.

House Speaker Richard Morgan, a Republican, said that the House could meet Friday, Saturday and Monday to finish the budget, or possibly Saturday, Sunday and Monday.

'I think everybody's got the message that we need to have a budget, and I think it's going to happen,' said Rep. Jim Crawford, D-Granville, a co-chairman of the House budget committee.

• David Rice can be reached in Raleigh at (919) 833-9056 or at drice@wsjournal.com