Click here to read the full budget proposal
Perdue has been struggling with red ink and declining tax revenues since she took office.
Her proposal closes a cumulative budget gap of $6.4 billion over two years, with the estimated shortfall totaling $3.4 billion in financial year 2009-10 and $3 billion in 2010-11.
In the budget outline, Perdue's office said the proposal cuts spending by $1.3 billion and uses federal recovery monies to support education and other "mission-critical services."
Perdue said she will not raise broad based taxes, but does want a so-called sin tax on tobacco and alcohol. She's calling for an increase in the cigarette tax from 35 cents per pack to $1.35 and a 5 percent tax surcharge on alcohol
She called both luxury items and pointed to the tremendous burden on the state's health care system caused by cigarette smoking.
Perdue does not have the power to write the state budget. The Legislature will review her plan as it approves its own budget by this summer and sends it to Perdue's desk for her signature.
Perdue says while she wants to take a knife to some parts of the budget. She wants to protect others. She said her priorities are: growing North Carolina's economy, public education, keeping higher education affordable, protecting citizens, keeping the community safe, making government more accountable, and fiscal responsibility.
She wasn’t to cut state spending on public schools by a little over 3 percent, but she wants to pump in federal stimulus money so schools would see a net increase in spending.
Community colleges would also get a small increase as would the University of North Carolina system.
Other departments would see cuts, including the Department of Corrections and the state mental health system.
Republicans have criticized Perdue's budget, particularly the cigarette tax. Some said there are many other ways to deal with the budget gap besides raising taxes, pointing to recommendations they have made to cut inefficient programs and intercepting other funds.
"The reason we have a revenue problem is that people don't have money," House Minority Leader Paul Stam, R-Wake. "This is the worst year to raise tax rates."
North Carolina remains one of the country's leading tobacco producers and thousands still work in the industry. But, reduced demand for tobacco and changing views on smoking and health have led the Legislature to pass more smoking restrictions.
To grow the economy, Perdue proposed that small businesses with profits of less than $100,000 to be exempt the first $25,000 of net income from state tax, with the amount lowering to the first $15,000 for business making between $100,000 and $200,000.
The state's version of the earned income tax credit also would be increased starting with 2010 tax returns.
Perdue also would seek a "caregiver tax credit" to benefit people who take care of aging family members, along with the creation of a sales tax holiday for people who purchase equipment that helps conserve water, according to the budget document.
State employees and teachers would receive no longevity pay increase for the next two years, saving $170 million annually for the state. Non-teachers would receive additional leave instead of longevity pay.
After Governor Perdue released details of her budget, Senate Republican Leader Phil Berger issued a statement.
"I cannot support Governor Perdue's budget recommendations. To increase taxes and create an entirely new tax as she proposes will further damage our economy and cost jobs. Elected officials should be concerned about protecting the budgets of North Carolina's families; this budget protects entrenched political and special interests," he said. "The substantial use of one time money to cover recurring obligations does not deal with fiscal matters in a responsible way. It puts off dealing with years of overspending by Democrats which is a substantial cause of the current problem."