Tax Lines Drawn

Gov. Mike Easley and General Assembly leaders heard conflicting but stark messages Tuesday as they continued to seek solutions to the state’s worst budget crisis in at least a decade.

First, Easley’s top economic advisers warned that a combination of significant tax increases and spending cuts are unavoidable if the state is to balance its budget and keep its AAA bond rating.

Former state Treasurer Harlan Boyles gave Easley and legislative leaders a verbal spanking: “Governor, the day of reckoning is here. It’s time to make a decision. You don’t have the luxury of not doing what you have to do.”

Hours later, about 600 protesters fighting any tax hike swarmed the General Assembly chanting “No New Taxes,” and carrying signs such as the one brandished by a girl in a stroller: “Tax My Parents, and I Can’t Get a Puppy.”

No one was arrested, though several people were asked to leave the legislative gallery after shouting and tossing tea bags – to symbolize their anti-tax “Tar Heel Tea Party” – from the balcony to the House floor.

Despite the hubbub, state leaders appeared no closer to ending the ongoing budget crisis.

The 2001-02 fiscal year began July 1, but the legislature hasn’t passed a final budget. Separate Senate and House versions were based on overly optimistic revenue projections, and lawmakers now must plug a $167 million shortfall.

At a morning roundtable with economic advisers, Easley promised bold action. He said he’ll veto a budget that puts the state’s bond rating at risk. But he offered no specifics, and dashed away before reporters could ask for details.

Top advisers warned Easley and legislative leaders that the longer they wait, the more likely analysts are to drop the state’s AAA bond rating. Moody’s Investors Service warned recently that North Carolina is at risk of being downgraded because the state has little money saved for emergencies and has been slow to respond to the economic crunch.

A lower bond rating would force North Carolina to pay higher interest rates when it borrows, at a cost of about $150 million over the next 10 years.

Democratic House leaders propose a tax hike package totaling $1.1 billion over the next two years. But Speaker Jim Black isn’t sure he can get the plan through the contentious House, where Democrats hold a 62-58 advantage. Black is considering rolling the tax package into a budget compromise being crafted by House and Senate negotiators, rather than allowing House members to vote on it separately.

“We’re still negotiating on that,” Black said Tuesday, adding that the issue won’t come up for a vote this week.

The tax hikes will balance the budget, but they won’t completely address the bond raters’ worries, advisers said.

Rating agencies want the state to start rebuilding its emergency savings accounts, reduced to almost nothing in recent years. The raters also are expecting state leaders to show they’ve made a long-term commitment toward economic stability by restoring the state’s savings and ensuring that future budgets won’t result in similar shortfalls.

They’re not simply looking for Band-Aids.

“These aren’t Democrats. They’re not Republicans. They’re not conservatives, and they’re not liberals,” Treasurer Richard Moore told Easley. “They just look at the numbers.”

“The raters are looking for a structural balance, for a long-term plan,” said Bob High, state and local government director for the treasurer’s office. “Do we have a permanent funding source in place?”

After the briefing, Senate leader Marc Basnight, D-Dare, said a tax increase seems inevitable.

Though he said last week he doesn’t like the House’s proposal to increase income taxes on the wealthy, he said Tuesday that the Senate will back whatever the House sends over.

“I know we’ve got to have new revenue,” Basnight said. “We’re going to have to make some cuts, too. But most of our new spending has been in education. And I haven’t heard any constituents ask me to damage education.”

That wasn’t the kind of message the 600 or so protesters who rallied behind the General Assembly building wanted to hear. The crowd that gathered to chant and hear speeches from anti-tax legislators was enthusiastic, but not quite as large as organizers had planned.

Organizers with conservative groups such as the John Locke Foundation and Citizens for a Sound Economy had hoped to draw 1,000 people and keep the crowd focused on anti-tax chants and speeches until at least 6 p.m. But by 4:30, there were almost as many protesters inside watching the House and Senate work as were outside sweltering.

Still, their message was obvious.

“It is my money, it is my money, it is my money,” said Cabarrus County protester Janice Brenner. “Any questions?”

The crowd outside stayed peaceful, coming nowhere near the level of emotion or near-violence as at a similar anti-tax rally in Tennessee last month. That protest ended with participants throwing rocks.

But inside the legislature, visitors got rowdy after Black took a moment out of normal House activities to welcome them to the building and thank them for exercising their right to free speech.

Dick Carter, a Wilmington retiree, was kicked out of the House gallery moments later when he began shouting at Black.

“I wanted to tell him that I’m tired of this incredibly arrogant attitude they seem to have about our tax dollars – yours and mine,” he said. “I don’t care about political parties. I care about my pocketbook. I’m a North Carolina citizen, and I have a right to address the General Assembly.”