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Tuesday, August 21, 2001
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Carolina Dining Service
State & Nation
N.C. Budget Impasse Lingers
By Alex Kaplun
State & National Editor
Almost two months into the fiscal
year, state legislators are still struggling
to construct a state budget for the next
two years.
State legislators had hoped to have a
state budget in place by July 1, the
beginning of the fiscal year.
But competing budget proposals in
the Senate and House and disagree
ments over tax increase plans as well as
the need for significant budget cuts have
ground the process to a near halt.
While lawmakers continue to work
on the budget, the House has passed a
resolution allowing the government to
continue operating until Aug. 29.
No matter which plan is chosen by
the legislature, cuts might be made to
state agencies and the UNC system.
The UNC system has been largely
spared of the budget cuts - the Senate
proposal would trim the system budget
by $3 million, the House proposal by $7
million -but that could still change as
legislators continue to finalize the bud
get
But different tax increase proposals
have been at the center of the budget
delay.
House Democrats have proposed a
plan to increase the sales tax by a half
cent, increase the income tax on couples
making $200,000 or more and institute
State's AAA Bond Rating At Risk
By Jennifer Hagin
Assistant State & National Editor
Pressure on N.C. General Assembly
members to pass a fiscally sound budget
recently increased when members were
informed that North Carolina’s AAA
bond rating was in jeopardy.
Moody’s Investment Service, a cred
it rating agency, sent a letter to state offi
cials in July stating that recent econom
ic woes and budget difficulties could
result in a bond rating downgrade.
The AAA bond rating, which is the
highest possible, allows the state to borrow
money at a comparatively low interest
rate. A drop in the rating could increase
the interest rate the state is charged, cost
ing the state millions of dollars.
A downgrade in the state’s bond rat
ing also could hinder the University in
its effort to upgrade to a higher bond rat
ing. The University and the state have
separate bond ratings, but the state’s
bond rating affects the University’s
because the University is state funded.
Ray Murphy, Moody’s Investor’s
Service vice president, said the state’s
rating has a negative outlook but that
projection could change depending on
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a 6 percent sales tax on liquor. The plan
could generate $450 million in addi
tional revenue for the state.
Senate Democrats have called for a
one-cent sales tax increase, which would
generate about SBSO million in addi
tional revenue.
Democratic leaders have been strug
gling to build a consensus on a propos
al, while Republicans have remained in
staunch opposition to any tax increase
plan.
On Thursday night, Gov. Mike Easley
chimed in with his own plan to cover the
budget gap, which consisted of a com
promise between the two proposals.
Easley called for a one-cent sales tax
increase combined with several tax
credits. The governor’s plan would pro
duce S6OO million in additional revenue.
“I’m willing to accept any reasonable
plan that adopts the principles and pri
orities I have outlined tonight,” Easley
said in an eight-minute televised speech.
“However, I believe this plan combines
the best elements of the House and
Senate proposals. It’s a solution to end
ing our budget impasse and putting our
state back on the course of progress.”
Easley said that while he would accept
some cuts to the state budget, he would
not accept cuts that would be detrimental
to the state’s education system.
Easley’s proposal was followed by a
televised address by Senate Minority
Leader Patrick Ballantine, R-Carteret,
the outcome of budget negotiations. “We
are anxiously waiting for the completion
of the budget of the state,” Murphy said.
“At that point we’ll have a sense of
whether the rating is appropriate.”
Factors contributing to a lower bond
rating include the state’s debt burden,
fiscal health and economic outlook.
North Carolina faced a SBSO million
budget deficit during the last fiscal year
caused by economic slowdown and
damages from Hurricane Floyd. State
lawmakers are still struggling to con
struct a budget nearly two months into
the fiscal year.
The increased interest cost of a high
er rating could also be applied to the $3.1
billion higher education bond approved
by voters last November, which signifi
candy increased the state’s debt
But Deputy State Treasurer Bob High
said the potential credit downgrade is
not related to the increase in the state’s
debt created by the bond.
“Issuing debt does not cause a down
grade,” he said. “What the rating really
means is an independent analysis says
we’re not managing our finances as well
as we have in the past.”
But a potential downgrade of the
oaily (Ear Hrrl
and House Minority Leader Leo
Daughtry, R-Johnston.
Both Republican leaders decried'.
Easley’s plan to increase taxes and'
instead called for legislators to make
deeper cuts to the state budget.
“At a time when thousands are losing
jobs across our state and families are
struggling just to make ends meet the
last thing anyone needs to do is pay
more taxes,” Daughtry said.
Daughtry proposed a plan that would
ask the head of each state agency to cut
spending by three percent.
He added that he believes the state
has enough money to fund essential pro
grams if state funding is spent wisely.
“There is plenty of money if we
spend it wisely,” Daughtry said.
Sen. Howard Lee, D-Orange, who is
the chairman of the Senate
Appropriations committee, said it is dif
ficult to gauge what kind of an impact
Easley’s speech will have on the legisla
ture and the people of North Carolina.
Lee said budget negotiations will
resume this week, but he said he could
not predict when the budget stalemate
would come to an end.
He said, “We are certainly anxious to
finish up the budget process but I can’t
really predict when everything is going
to be completed.”
The State & National Editor can be
reached at stntdesk@unc.edu.
state’s bond rating could spill over to
affect state institutions, like UNC-sys
tem schools, each of which is given its
own bond rating.
UNC-Chapel Hill officials said the
University is poised to reach an AAA
bond rating, which could save the
University $1.2 million in interest fees.
Susan Fitzgerald, Moody’s Investor’s
Service senior vice president, said it is
possible for state universities to obtain a
higher bond rating than their support
ing state, especially when universities
have independence in their finances
and governing.
Two bond-rating institutions recendy
lowered Tennessee’s bond rating. When
the state’s rating lowered, Tennessee
State University’s rating followed suit.
UNC-CH Chancellor James Moeser
said the University does not have as
much autonomy compared to some
other state universities, meaning diat its
bond rating might be affected by the
state’s. “We are very much tied to the
state - 30 percent of our budget comes
from the state.”
The State & National Editor can be
reached at stntdesk.unc.edu.
altc Sailti Car Urrl
P.O. Box 3257, Chapel Hill. NC 27515
Katie Hunter, Editor, 962-4086
Advertising & Business, 962-1163
News, Features, Sports. 962-0245
© 2001 OTH Publishing Corp.
All rights reserved
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