- Associated Press - Monday, May 18, 2015

RALEIGH, N.C. (AP) - The North Carolina House wants to spend $1.1 billion more on state government next year under a draft budget proposal released Monday, which seeks to raise teacher and state employee salaries while setting aside more money for reserves and economic incentives.

The two-year plan written by House Republicans would spend almost $22.2 billion in the fiscal year starting July 1, which compares to the $21.1 billion in the current year’s plan finalized last summer by the General Assembly.

The first of three committees reviewing the budget approved key sections of the proposal - but barely - Monday evening after many Republicans voted against the finance package within it. Some were unhappy with several tax breaks and extended incentives for particular industries.

“It’s a Christmas tree of tax credits,” said Rep. Jeff Collins, R-Nash, who opposed the package that still passed the House Finance Committee by a vote of 19-16.

The full measure was expected on the House floor for two required votes later in the week. The Senate will likely pass its own plan in June, setting up negotiations to get a final compromise to McCrory’s desk.

The 5 percent year-over-year increase originates in large part from a much-improved revenue forecast. State economists are projecting a $400 million surplus this fiscal year and another $835 million more revenues than anticipated through mid-2017. The extra cash allows lawmakers to do more than GOP Gov. Pat McCrory’s budget proposal released in March, when a shortfall was still anticipated.

Rep. Nelson Dollar, R-Wake, senior chairman of the House Appropriations Committee, said the percentage in spending growth over the two years in the budget was very close to a combination of projected inflation and population growth.

“I think it’s very responsible,” Dollar told reporters, adding that the budget is designed “to address our most critical needs” in education, Medicaid and court improvements.

When asked whether the bill was in jeopardy after the finance committee vote, Dollar said: “I think we’ll be in good shape as this bill moves forward.”

While $200 million each would go into state reserves for emergencies and for repairing government buildings, House GOP leaders are going on a bit of a post-Great Recession spending spree.

The plan proposes $420 million more on salaries and benefits, buoyed by 2 percent raises for nearly all state employees and government retirees. Teacher pay based on years of experience also would go up 2 percent in most cases, although salaries for the least experienced would go up more than 6 percent, in keeping with the promise to raise minimum salaries from $33,000 to $35,000. There’s also a previously announced pilot to give large supplements to teachers in local school leadership positions.

Still, Rep. Paul Luebke, D-Durham, said the bill didn’t go far enough to address education funding. Democrats have complained about recent GOP tax cuts. “Revenue is needed in order to fund our public schools adequately,” Luebke said.

House leaders located more money than McCrory sought on two key economic development investments. The House wants to give $60 million annually for the next two years to a grant program for film production companies. McCrory offered $10 million. The film grant program replaced a tax credit program that Republicans allowed to expire last year after complaints it was too costly.

A new venture capital program proposed by McCrory to help launch new inventions would get $40 million next year in the House program. McCrory wanted $30 million over two years. And both the governor and House agree on bringing back a tax credit for those who repair historic buildings.

The state chapter of the conservative Americans for Prosperity urged House Finance Committee members to oppose the budget bill, saying too many targeted tax incentives set to expire are being extended.

Committee amendments narrowly failed that would have forced renewable energy tax credits to expire sooner than the budget directed. The budget would extend solar credits through 2017 and other renewable energy options through 2019.

There are no broad income or sales tax increases in the plan. It would restore an income tax deduction for medical expenses that was repealed in the 2013 tax overhaul law. A divided finance committee approved an amendment that removed a restriction on the deduction to tax filers 65 and over, raising the cost of restoring the deduction to $54 million.

The budget would raise Division of Motor Vehicles fees by 50 percent. An eight-year driver’s license renewal would cost $48, up from $32, and an annual vehicle registration would be $42, compared with $28 today. The state gasoline tax, which already fell 1.5 cents per gallon in April to 36 cents would fall further to 33 cents. But diesel fuel would remain at 36 cents.

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