Governor talking options for state budget

RALEIGH It's an issue that could play out in the political campaigns this fall. Big mid-term elections are now nine weeks away and Republicans claim Democrats will raise taxes next year in the face of a huge budget hole.

However, Governor Perdue says no. She says she's going to cut taxes even if it shrinks government and slashes public sector jobs.

"Nobody likes to shed jobs," Perdue said. "Nobody likes to shed services, but in times of economic conflict, you have to do that and North Carolina will continue to do that until the economy recovers."

The budget storm is a $3 billion shortfall projected for state government 10 months from now, because federal stimulus money will run out and state revenues are not picking up, which means every segment of state government could be impacted.

"You can't just look at these individual components of the budget, like the university system or the community colleges or prisons, and just shut them down that's not a real option," said Elvin McLenaghan with NC Budget & Tax Center said.

So Perdue is now asking all state agencies to plan on cuts of as much as 15 percent.

"This just shows the unprecedented scale of the crisis we're in," McLenaghan said.

But to the distress of some liberals, Perdue is also signaling an end to taxes set to expire. Perdue says she will not recommend renewing a 1 percent increase in the sales tax.

"The tax expires June 30," Perdue said. "It is what it is. I believe we should try to cut to the core."

Labor Day usually marks the start of the political season, but Republicans sense a chance to win the state legislature for the first time in more than 100 years.

Earlier this week, they claimed Perdue would try to raise taxes after the election, just as she did after the '08 election. But now before the holiday, Perdue has staked out her own tax stance.

"Perdue right now is a liability for Democratic candidates across the state," said Tom Jensen with Public Policy Polling. "Her approval rating is only 30 percent. Majority of voters disapprove of her. So if she can do something to get voters to feel more charitably towards her, particularly on taxes, there's potential for that to lift up some of these Democratic candidates."

Perdue also wanted to keep from spending 5 percent of this year's budget, but her legal advisors said they did not think that was entirely legal.

So to get around that, they are looking at services to completely shut down to save money that way.

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