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Lawmakers are about to tear into the state budget looking for $3.7 billion in cuts. That's roughly 20 percent of the state's $19 billion annual budget.

Where to trim the budget when there's nothing left 

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Lawmakers are about to tear into the state budget looking for $3.7 billion in cuts.

That's roughly 20 percent of the state's $19 billion annual budget. It's nearly 95 percent of the state's entire health and human services budget—an area Republican budget writers have said they plan to scrutinize for cuts.

It's about half of what the state kicks in for public education. It's $1.6 million more than the state spends on public safety.

It's tens of thousands of state jobs, and Republicans, in charge of the full state legislature for the first time since Reconstruction, and Gov. Bev Perdue have said massive layoffs are an option. Given that both sides have also said they want to avoid tax increases and employee furloughs—the furlough ordered last year proved unpopular and difficult to implement—layoffs seem almost certain.

Entire state programs may be eliminated, though if GOP leaders have specific ones targeted, they're not saying. Yet they repeat the same mantra, as does the governor. When it comes to cuts, they say everything is an option.

"Anyone who says a particular program is going to be cut, eliminated, they don't know what they're talking about," said state Sen. Richard Stevens, a Wake County Republican who will become a key budget writer as co-chair of the Senate Appropriations Committee. "Those decisions have not been made yet."

GOP leaders and the governor have said they'd like to avoid cuts to education, but it makes up 60 percent of the budget when you factor in K–12, university and community college funding. Already the state has lifted class size restrictions for grades 4–12 letting individual systems decide how many students to put in a room, though kindergarten-through-third grade classes can have no more than 24 students.

Perdue has said she'd like to protect those key grades and keep teacher's assistants in those rooms, but incoming Senate President Pro Tem Phil Berger, R-Rockingham, has said he doesn't know whether that will be possible. Other Republican leaders have agreed.

Perdue plans to release her budget plan in February. She has said repeatedly that she won't call for a tax increase to compensate for other revenues not in the budget this year. That includes roughly $1.6 billion in federal stimulus money that allowed the state to keep teachers and other state employees on the job this year. The state is also scheduled to lose another billion or so in temporary tax revenues. An extra penny sales tax and income tax surcharges for people who earn more than $100,000 annually were implemented two years ago as the state first dealt with the recession, but they end June 30 unless the Legislature votes to renew them.

GOP leaders in the House and Senate have said they won't do that, and the governor has said she doesn't plan to include them in her budget.

In the hopes of shrinking the expected $3.7 billion deficit, Perdue ordered a round of immediate cuts late last year, and Berger said this week that one of the Legislature's first priorities may be to give the governor "additional tools" to cut spending. State law doesn't allow the governor to order cuts in some areas without a budget emergency, which doesn't technically exist yet; the Legislature may ease that restriction, Berger said.

But as the new majority moves toward a cuts-only approach to the budget, some are calling for a moderated course, including tax increases, or at least a continuation of the temporary increases. N.C. Policy Watch, a left-leaning watchdog group that analyzes state policies and advocates on a range of issues, believes the layoffs needed to balance the budget on cuts alone would do serious harm to the state.

They wouldn't just mean fewer teachers, larger classes and a smaller safety net for the poor, Policy Watch Executive Director Chris Fitzsimon argues. They'd mean a reduction in government services at the very time more people will need them.

"It's not just individual jobs," Fitzsimon said. "It's the spending power of the people who have those jobs, and it's the services they need when they become unemployed."

If the state keeps the temporary taxes in place, Republicans could still make deep cuts promised on the campaign trail. But, Fitzimon said, "the very least they can do is not to cut taxes in the worst budget crisis that we've seen in a generation."

However, Berger and other Republican leaders reaffirmed this week that they plan to let those taxes expire and that they won't increase others. There is some wiggle room, though. For example, the state may change directions in its multiyear effort to ban Internet sweepstakes games and similar gambling machines, which have proved difficult to legislate out of existence. The governor's office recently pointed to revenue that could be made regulating the machines as a potential caveat to her no-new-taxes pledge. And Berger said Monday that if the state can't shut down the industry, it might look for "some other way to exercise control."

Berger and other Republicans have also said they'd like to rework the state's tax structure altogether, with the goal of lowering business taxes to ostensibly increase the flow of jobs into the state. Even though North Carolina repeatedly rates high on national reports—Forbes ranked it the third-best state for business in October, and Site Selection magazine named North Carolina No. 1 in business climate in November—Republican legislators argue that corporate taxes are too high.

State Sen. Bob Rucho, R-Mecklenburg, and incoming co-chair of the Senate's Finance Committee, said he plans to move toward a full overhaul, though it may not come this year. Particularly, more sales taxes and fewer business taxes will be evaluated, Rucho said.

Cuts, though, are the GOP's first priority, Berger said this week. Fitzsimon said that's easier to promise than to deliver.

It's one thing to review social services looking for cuts, which Stevens has said his committee will do. It's another to close a rape crisis center in a legislator's home town, Fitzsimon said.

Stevens said he's well aware of that. He represents Wake County, which, as the seat of state government, has the highest concentration of state employees in North Carolina. It's home to the state's largest university, N.C. State. Wake County has the largest public schools system in the state.

"We're going to be very careful," he said, "and very strategic."

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