Crowley: Tim Crowley
Vajda: Eszter Vajda
Henry: Johanna Henry
Lewis: Mitch Lewis
Easley: Governor Mike Easley
Luebke: Rep. Paul Luebke, [D] Co-Chair, Finance Committee
Wainwright: Rep. William Wainwright, [D] Co-Chair, Finance Committee
Kiser: Rep. Joe Kiser, [R] Minority Leader
Gillespie: Rep. Mitch Gillespie, [R] McDowell County
Blount: Ferrell Blount, N.C. GOP Chairman
Black: Rep. Jim Black, [D] Speaker of the House
Hackney: Rep. Joe Hackney, [D] Majority Leader
Dixon: Kate Dixon, Land for Tomorrow
Tyler: Stone Tyler, ID Theft Victim
Cooper: Roy Cooper, NC Attorney General
Buxton: J.B. Buxton, Governor's Sr. Education Advisor
King: Nicholas King, Principal, Clement Early College High School
Currie: Jessica Currie, Student, Clement Early College H.S.
Blust: Rep. John Blust, [R] Guilford County
F: Female
M: Male
Rice: David Rice, Winston-Salem Journal
Bolton: Kerra Bolton, Asheville Citizen Times

[BEGIN VIDEO CLIPS]

Crowley: Coming up, the House clears a $562 million tax package that could pave the way for a House budget next week. ID theft is on the rise; you won't believe this man's story of stolen identity. And lawmakers are buckling down on drunk drivers. Plus we will take a look at a program aimed at reducing drop-out rates in schools. That and more coming up next.

[THEME MUSIC]

Voiceover: This program was made possible by contributions to UNC-TV from viewers like you. Thank you.

[THEME MUSIC]

Crowley: Good evening; I'm Tim Crowley.

Vajda: And I'm Eszter Vajda. Thanks so much for joining us. The House passes a revenue package that will generate more than half a billion dollars; we have the details, plus, a proposal to borrow a billion dollars for land conservation.

Crowley: Also Johanna Henry details a case of stolen identity and how lawmakers are trying to deal with identity theft, plus a look at one program designed to reduce the high school dropout rate. But first, House budget writers release some of their plan.

Vajda: Some details of the House budget were unveiled Friday morning as the House gears up to debate the spending plan next week.

[BEGIN SEGMENT - HOUSE BUDGET]

Crowley: Here are some of the specifics we know. Under the House proposal, the public education budget would grow less than a half percent. House budget writers would add $30 million more for low-wealth schools and more than $22 million additional dollars for disadvantaged students; $9.4 million would pay for an additional 28,000 students at public schools and $4 million would bring more pilot projects online under the governor's Learn and Earn Initiative. Also in public education, vocational education would be cut by $13 million, equating to about 273 positions. The House would spend about $10.4 million less on seventh grade teachers basing the teacher/student ratio on 1 teacher per 22 students instead of 1 for 21. At the University level the House would earmark an additional $41.9 million to deal with more students at campuses and cut the campus budgets by two percent. At community colleges, $7.8 million would cover enrollment increases and tuition would go up by four percent.

Vajda: Over in Health and Human Services, the governor's More at Four pre-kindergarten program for at-risk four-year-olds would receive more than $16 million to add 3,200 new slots. Health Choice, the state's health insurance program for low-income children, would receive $14.7 million more to cover increased enrollment. And $15 million would be earmarked for grants going to counties with high numbers of Medicaid recipients. Health budget writers would freeze the rates for more providers to get for treating Medicaid clients and the House would increase co-pays for certain services like chiropractic care and non-emergency ER visits. Now the entire House is expected to take up the budget bill next week, and as a matter of full disclosure, more than 44% of UNC-TV's budget is appropriated by the General Assembly through the University of North Carolina General Administration budget. Tim?

Crowley: This week the North Carolina House also approved a $562 million revenue package, paving the way for House budget writers to finish the proposed spending plan. The plan would include extending a sales tax that was due to expire this year and raising other sales taxes. The biggest chunk of the House proposed revenue package would be the extension of a half-cent sales tax that was due to expire at the end of this month. It would bring in about $413 million dollars. The half-cent was originally approved in 2001 and re-upped in 2003. The income tax rate on the highest wage earners in the state would also be extended for another two years; the current rate is 8.25%; the governor and the Senate both proposed dropping that rate a half-percent. The plan would tie the repeal of the North Carolina estate tax to the repeal of the federal estate tax scheduled for 2010 instead of letting it expire. The package includes the raising of some sales taxes as part of a national streamline sales tax effort so that states can collect on purchases made over the Internet. As part of that, telecommunications and liquor sales taxes will go up from 6% to 7%, and satellite TV sales tax will go from 5% to 7%. Candy is currently exempt from sales tax, but the plan proposed to raise that to 7%. Extended warranties would also be taxed at 7% [House 1630]. The debate tended to be a traditional tax debate between the Democrats who hold control of the House and the Republicans in the minority. Democrats outlined their reasons for needing the money.

Luebke: The first reason why we need to do this today is because of the North Carolina economy. Our economy has not come back in 2005 in the way that we had hoped that it would. If you compare the economy of the 1980s and the 1990s after those recessions, we had great growth in both decades; we don't in this decade.

Wainwright: The relevant question for all of us to ask today is, will we be able to form education so that every child in North Carolina will be able to receive a quality education? That is the question. We campaigned on this issue. We've told our constituents we were for education. We told our constituents that each one of the children in North Carolina deserves a quality education. Now you have the opportunity to make good on the promise that you made to your constituents.

Crowley: Democrats say while the budget may be increasing, studies show per capita spending is actually going down. But Republicans frame the debate as runaway spending and scoffed at the statement from one finance chair that the package includes no tax increases.

Kiser: If you believe that this is not a tax increase, then there is some property in Boone, North Carolina that I'd like to sell you for ocean front property. Now, if you will take a look, when we streamline the sales tax, we bring in about $61 million. And I'll just use one example; where did that $61 million come from if it is not a tax increase?

Gillespie: As I hear the debate about House Bill 1630, I hear about all of the needs of the State of North Carolina, I hear about enrollment growth, I hear about education, I hear about public safety, I hear about roads, I hear about harming Health and Human Services, I hear also about how this state is growing and all of the other reasons that we must vote for this tax increase. But it is funny that one thing I never do hear about on this floor, a group that is never mentioned hardly about harming, and that is harming the taxpayers of North Carolina.

Crowley: The measure ended up passing on a party line vote. The finance package also included a continuing resolution allowing state government to operate at its current level if the fiscal ends without a new budget.

Vajda: Republicans in the House and Senate are upset that many of their bills did not make the crossover deadline and they blame a liberal Democratic leadership in both chambers for squashing their agenda. Members of the Grand Old Party say their bills have been ignored; those include a constitutional amendment to ban same-sex marriages, the Taxpayer Protection Act, and a twenty-four hour waiting period for abortions. Republican Party Chairman Ferrell Blount says the group plans to do all it can to regain power in both chambers.

Blount: A lot of citizens, voters across the State of North Carolina, who believe very strongly in the strong pro-family agenda that the Republican Party not only is offering now but has offered over the years, so you know, it is our job to obviously communicate that message.

Vajda: Republicans also say they have not been given the opportunity to give input on the budget. Forty-four Democrats and thirty-six Republicans make up the House Appropriations Committee; four Democrats and two Republicans act as co-chairs. Most Republicans are expected to vote against the House budget. Meanwhile, Speaker Black says if the tables were turned and Republicans were in the majority, they would be setting the rules. Black asked representatives from the other side of the aisle to work together with fellow Democrats.

Black: Be good soldiers and if it is a good idea, support it. We all should be working together to move North Carolina forward, improving education, improving health care, and having, you know, safe neighborhoods. We should work together on that. If your goal is to be disruptive and to make sure nothing happens then they are forming an alliance to do that, I guess.

Vajda: The revenue package is now in the hands of the Senate. Attorney General Roy Cooper says he is appreciative that the House's version of the budget included much-needed money for staff that the Senate's version did not. He says the State Bureau of Investigation only has one computer forensic technician, and that is causing a major backlog of cases. The House included funds for three more. Also, the bill adds six new positions for analysts to work on the thousands of DNA samples awaiting analysis and review, plus, 13 new agents to fight illegal drugs. In defense of the Senate's version, Senator Scott Thomas says the General Assembly actually increased funding for DNA analysis, response, and expansion of the SBI lab in the last budget but construction of the new wing hasn't even begun, causing inadequate space for more positions this time around.

Crowley: The governor's task force to reduce drunk driving has some sobering details. The bill lays out the punishments and penalties for those who are caught driving while intoxicated [House 1048]. The task force is made up of law enforcement officials, lawmakers, academics, and district attorneys. The bill includes more guidance on penalties judges should hand down in cases of a conviction and improve blood alcohol testing procedures. The standard for a DWI conviction is .08.

Hackney: North Carolina has been a leader in reducing DWI deaths. We've had strong legislation over the years, but this is yet another attempt to make a big dent in the deaths and the injuries from DWI in North Carolina.

Crowley: The bill now heads to the appropriations committee. In the next 25 years, North Carolina is expected to double in population. Each one of those years the state loses 100,000 acres to adjust to that growth. It is a startling statistic from a group called Land for Tomorrow and it has many land conservationists worried. That is why the group is asking the General Assembly to allot $200 million in bonds annually over the next five years for various environmental projects and to preserve a million acres of land. That includes protecting and preserving drinking water, working farms, state and local parks, as well as historic places. They say the land must be conserved for future generations.

Dixon: There is just so much development going on now which has brought so many good things to our state, but it is also changing some of the things that have made North Carolina such a special place. And so it is really important to save really critical places right now for future generations to enjoy.

Crowley: Some businesses have opposed similar environmental measures citing a big price tag for the changes, but the supporters say it is also about job conservation by attracting businesses because of good living conditions.

Vajda: Identity theft is the fastest growing crime in the country and in North Carolina, but an act in the House and Senate may help slow down criminals stealing your personal and credit information.

[BEGIN SEGMENT - IDENTITY THEFT]

Crowley: Johanna Henry joins us now. Johanna, are many consumers just learning about ID theft?

Henry: Tim and Eszter, this crime has exploded in the last several years but it is not a new sin. According to Proverbs, a good name is rather to be chosen than great riches, and the man you are about to meet should know; he lost both his money and his name. Stone Tyler's nightmare began seven years ago when he started receiving credit statements for things he didn't buy. Then one day he was pulled over for a traffic violation and the officer informed him he was in big trouble.

Tyler: He was like, "Do you know you have some warrants out for your arrest?" And I was like, "Oh, no way." He said, "Yes, there are some warrants out for your arrest and I'm going to have to take you in."

Henry: So Tyler spent the night in the Nash County jail with no idea why he was there. Finally he asked to see his mug shot from previous crimes. Tyler saw the face of the man who had stolen his identification, a relative's boyfriend. But even after his night in jail, the nightmare didn't end. Tyler applied for jobs, jobs he landed until the background check.

Tyler: They would tell me, "We are going to do your background check. If everything comes out fine, the job is yours." They would call me back and say, "We're sorry but your background check didn't come out quite right and we are unable to give you this position."

Henry: He got kicked out of his apartment for a marijuana charge, one he didn't have. Colleges refused to admit him after seeing his rap sheet, the one belonging to his evil twin. Tyler has spent $74,000 of his own money trying to get back his identity.

And I bet at the beginning a lot of people didn't believe you.

Tyler: No, they didn't. It took a lot of pushing and I went from Nash County then I went to Franklin County; everybody kept sending me to different counties and no one would listen or help me.

Cooper: It is costing everyday people their good names and their reputations that they've worked all of their lives to build up.

Henry: So Attorney General Roy Cooper worked with the General Assembly on legislation to help protect consumers. You've seen the headlines recently, employees for Wachovia and Bank of America illegally sold information from nearly 700,000 customers. Just this week records for Citigroup loan customers were lost while in the hands of UPS. It seems another hit each week. Not to mention the 300,000 cases of identity theft in North Carolina last year alone.

F: And because once in a while I give my Social Security number over the phone without thinking.

M: It is so significant to me that I've joined the crowd of people who shred everything as it comes across my desk.

F: I would shred mail and even receipts, debit card receipts, even if they just had the last four digits of your card number.

Cooper: The Social Security number is the crowbar for an identity thief. We know that with that Social Security number, criminals can go out and set up credit cards, can borrow money, can buy automobiles, can get insurance for those automobiles and people would never know it.

Henry: Most people have learned to closely guard their financial information, like a PIN number. But there is another number you may not be so worried about that a criminal can use to get exactly what he wants. So the Identity Theft Protection Act of 2005 requires government and business to hold your numbers a little closer to the vest. Among other things, it allows consumers to put a freeze on their credit report so no one can take out a line of credit in their name. It requires businesses to destroy personal information before they throw it away. Any banker business with a security breach must notify customers their information has been compromised. It allows victims of identity theft to file a police report where they live, the suspect lives, or any place having to do with the crime. And finally it tightens the net around using Social Security numbers as identification by business and government.

Cooper: Jury lists in courtrooms that have the Social Security number by it, we've seen state summer camps that would collect the kids' Social Security number before going to the camp. None of those things are necessary. We need to stop it. We've seen businesses be careless with people's personal financial information. We see businesses that, I don't want to call it laziness, but they would take a Social Security number and just begin using it for their ID system because they knew it was a unique number and then they didn't have to go through the trouble of setting up software and setting up an individual ID number. This legislation says no, you can't do that any more.

Henry: For example, we picked up this credit card application at a discount retailer. It asks for your name, driver's license number, date of birth, and Social Security number. Once you hand this over, your ID numbers are no longer secret.

Tyler: That's life, right there.

Henry: Stone Tyler now has a new name, even a new birth certificate. He is working on his degree and trying to build back his credit. But Tyler says his life will no longer be the same.

Tyler: Now like a book or anything that has my name on it, when I'm finished with it I will tear the cover off of it, I will block my name off my medication, my allergy medicine, I will scrape my name off it, I will make sure you cannot get any information. Too much information is put on stuff these days, too much information.

Henry: Meanwhile Tyler waits to face in court the man using his birth name. Tyler doesn't use it much anymore.

Tyler: I could not buy a pair of shoes on credit if I wanted to with that name.

Henry: I spoke with an expert in ID theft at the Wake County Sheriff's Department. He said be wary of Internet auction sites, especially if they ask for payment through Western Union. Also, check your credit rating regularly, it may be the first sign that something is wrong, and file a police report and a report with the Federal Trade Commission as soon as you become a victim. Back to you.

Vajda: All right, Johanna thanks. According to the State Department of Public Instruction, the dropout rate for North Carolina high school students rose slightly in the 2003-2004 school year. Governor Mike Easley wants to expand a pilot program that gives students the opportunity to gain a community college degree or two years of college credit while attending high school. Mitch Lewis has more on the Learn and Earn Initiative.

[BEGIN SEGMENT - LEARN AND EARN INITIATIVE]

Easley: Too many of our ninth graders are still not completing high school on time. As the economy changes, our schools must change, too. We must raise our high school graduate rate dramatically and quickly.

Lewis: The comments Governor Easley made during his State of the State address in February on improving high school graduate rates have resulted in the development of a rather unique curriculum. These high school students in Durham are the first participants in a program designed to accelerate their education. They attend the Josephine Dobbs Clement Early College High School at North Carolina Central University. The Early College High School is part of Governor Easley's Learn and Earn education initiative.

Buxton: This is a new concept of high school and it is a very exciting concept and it is one that we are really needing across the country. What a learn and earn high school is is an early college high school, it is a five-year program. And it says to students, "You go to a school, high school, which sits on a community college or university campus. You give us five years and we are going to get you not just a high school diploma at the end of those five years, we are going to get you an AA degree, if you are at a community college, or two years of college credit on a university campus.

Lewis: Buxton believes that the learn and earn concept of students gaining community college or university credits while in high school will help reduce the number of high school dropouts.

Buxton: If you look at the percentage of our high school graduates who go on to higher education, we are top five in the country. We do a better job than about any other state, really, over the last four or five years in sending our high school graduates on to college. And that is critical in this economy that they continue to pursue education. Unfortunately when you look at our high school graduation rate, we are in the low 30s. So what is happening is we are taking a very good system of higher education and not making it accessible enough to a population who needs to get there.

Lewis: Dr. Nicholas King, principal at Josephine Dobbs Clement Early College High School, says even though students will decrease their time in getting a higher education, they must be dedicated to working hard.

King: We focus a lot of our time on concepts like critical reading and critical thinking skills, critical writing, and so we believe that our students will be immensely prepared to be first-rate college students. And so we believe that every single one of them that completes this program will be well suited to move forward and be very strong, very successful college students. And not only be college students but certainly be college completers and students who turn out to be very strong candidates for graduate school and professional school.

Lewis: The school also exposes students to more than just classroom curriculum.

Buxton: One other thing that is very different about this program, not only will these students be in class, but they are also going to be actively working in the industries they are trying to move into. So you go over to Durham and N.C. Central is partnered with the Durham public schools; those students are working in the biotech industry and making relevant what they are doing in the classroom with where they are going after high school.

Lewis: Freshman Jessica Currie says it is that kind of variety that lead her to enroll in the early college high school. She has plans of becoming a pediatrician.

Currie: It has been very helpful because it makes me know, it makes me realize that college is not going to be easy and these accelerated classes will help me, better prepare me for college so I will succeed in college.

Lewis: Principal King hopes that the program will convince the students to continue their education at North Carolina Central University.

King: Certainly we believe that these students will have developed an affinity for this university after spending four years here, and that many of them will decide to continue their educations at this institution. That certainly is a part of the plan, if you will. But certainly students will have a choice; our students will have the opportunity to apply and enroll at any institution across the United States. But we certainly do hope that many of them will chose to remain at this institution.

Lewis: The Josephine Dobbs Clement Early College High School is one of five sites currently in operation, ten more are set to launch this fall. Those affiliated with the Learn and Earn Initiative say although the schools are different from traditional high schools, there are plans for the early college high schools to work in conjunction with regular high schools.

Buxton: We are going to use these Learn and Earn high schools, along with the governor's effort with the Gates Foundation, to create small schools focused on emerging industries, schools within schools that give students a little bit more rigor, smallness to build those relationships but also relevance. Create some new high school options that better serve kids for whom the traditional model doesn't work as well, increase that high school graduation rate and then continue our national leadership in sending our high school graduates on to college.

Lewis: Enrollment at each of the early college high schools is limited to one hundred students. Jessica Currie says the schools different approach is a great opportunity for those who really want to advance their education.

Currie: I would recommend this school to people who are going to be determined to be successful and really love challenges and love work and don't get in this school just because you feel forced to. Go to this school because you really want to and that you get to thrive on the work and that you want to succeed. Only go here if you are going to do your work and be sincere about doing your work.

Lewis: Governor Mike Easley hopes that the Learn and Earn Initiative will create a win-win situation, not only as an incentive for students to stay in school, but also a catalyst to improve the state's economy.

Easley: Students can then see the connection between the courses they take and the jobs that they want, and it makes school relevant to them and they don't drop out. If we keep their interest, we will keep them in school. And soon the best educated workforce in America will be found within the borders of this state.

Vajda: The House plans to include about $4 million for Learn and Earn.

Crowley: The House approved a bill that would extend the half-cent sales tax and would continue the income tax rate for the state's highest earners. Some say the revenue is necessary to fill a gap in the budget. Critics say money can be cut in other areas of the government. Eszter sits down with two lawmakers with opposing views of how government should work.

[BEGIN SEGMENT - TAX REVENUES]

Vajda: Representative Paul Luebke, Representative John Blust, thanks so much for being here. Let me start with you, Representative Luebke. In this extension bill, there is an extension of the half-penny sales tax and an extension of income tax on the top wage earners, but there are also some streamline taxes on such things as candy, cable, and other services. Now, a few people on the floor said that this is not a tax increase on the people of North Carolina. Can you explain, is it a tax increase?

Luebke: Well, let me explain it this way. This bill is about meeting the basic needs of the people of North Carolina in terms of education, health care, including Medicaid, and public safety. And so we needed to move in general the bill forward in order to move on the budget as quickly as possible. The streamline portion is extremely important because right now we are losing several hundred million dollars in sales tax revenues from people who buy on the Internet. And when they buy on the Internet, although they are supposed to pay use tax, the overwhelming majority does not do so. The streamline tax agreement, the National Streamline Tax Agreement, calls for retailers in the future, Internet retailers, to be submitting the tax dollars to us. In exchange for that, we have to have standardized rates. And what we are doing is standardizing the rates at 7%.

Vajda: Representative Blust, schools are bursting at the seams. North Carolina is growing. Many are without medical health care. How do you propose to pay for those services, if not from the residents of North Carolina?

Blust: Well, the residents of North Carolina are already being taxed extensively, even without this bill to pay for all of those things. I asked during committee David Crotts, our fiscal analyst, what would be the difference that we will take in without this bill for the next fiscal year over this fiscal year and he said an additional billion. And I think an additional billion will be enough to do the job. We need to go back and prioritize and use some of the ideas that many of us have been trumpeting here for several terms. The majority leader on the floor said, "You other people on the other side that oppose this just don't have any ideas for how to take care of this budget and we could do many things. For example, do you know all the agency budgets are padded in that they budget for far more positions than they ever intend to fill knowing that then whey they don't pay salary with those, they can move that money and do other things that aren't budgeted. That needs to be looked at. There is the money we are sending through to non-profits, a lot of that is unaccounted for; we don't even know where it has gone. There have been some scandals that arose out of this and I think that points up to what we need to do. We have to give this present revenue far more scrutiny than we are doing at this time. And that is what the Republicans would like to do; sit down and let's scrub this budget line by line and only fund those things absolutely necessary to provide the essential services of this state and let's not go back to the taxpayers for more until we've done our work.

Vajda: Representative Luebke, why not look at some of those structured issues?

Luebke: Well, we are looking at those issues and we have a very lean budget. According to the U.S. Census Bureau, we will be spending $300 less per capita in North Carolina when we adjust for inflation and we adjust for population growth. We are one of the fastest growing states in the country. We are spending $300 less per capita in this year's budget than five years ago, so all of the talk about more spending, more spending, more spending does not deal with the reality that we do have population growth and we do have needs that are related. There is no mention by my friend Mr. Blust of the $60,000 plus manufacturing jobs lost, 1,200 lost this week in Thomasville, last week in Durham 250 at IBM. Every time we have losses like that we increase the need for our community colleges. And we've put together a very lean budget, but we are also putting together a budget that meets the needs of the people, and that means community colleges, that means enrollment growth K-12, it means enrollment growth in our UNC system. Not to speak of the increasing needs of the people for Medicaid, the high cost of prescription drugs. We are meeting those needs. There is no free lunch and my friend Representative Blust would have you believe we can provide all of those necessary services and not have to provide any additional revenue to provide the additional services. It is simply not possible.

Blust: Well, I would reply to that. My friend Representative Luebke makes it sound like we have this meager amount of money available unless we pass this bill asking for the taxpayers to ante up more. We are going to have over $17 billion without this bill. We think on our side that you can fund the schools, the enrollment growth in the schools, the Medicaid that we ought to do, and all these other things through $17 billion if we budgeted it right. Every household has to go through these kind of decisions almost every day of every year as to what is a priority and what is a frill. You know a business, if they don't hold costs in line, they go out of business because there is a competitor that you can go down the street and buy the product or service from them. North Carolina state government doesn't have competition in most of the things we do; they elect us as a board of directors to try to oversee the cost savings ourselves and we've just simply dropped that ball. Year after year I hear the same rhetoric every year, "Oh, this is just such a tight budget." And then they zoom them through, they do it in some back room with a few people getting to make all the key decisions. They run it through so quick. Then we find out later that, oh, this, this, and this was in it that become big stories throughout the year. For example, last year we found that there was a discretionary fund of $20 million; that is significant money. The other thing that surprises me is they even fight reforms on the process so that we can slow it down, have a right to offer some amendments, take everyone's ideas, and at least have a day to look at the final budget. Now who in North Carolina would not think we ought to take a day to look at the final budget?

Vajda: Now, Representative Luebke, before you answer that, I just want to make sure, Representative Blust, are you saying that the Democrats are sabotaging this budget?

Blust: I don't want to use the word sabotage because it is their own budget, it is just power here in the General Assembly is horded and it is coveted. And it is concentrated in a few and they don't want to bring all of the people's representatives into the process in an open way like the people's business ought to be done. There are 120 House members. There are a lot of good ideas out there that just, from day one, don't even get considered. And we are just saying now, five years into this structural problem, it is time for the current leadership to say, "Hey, maybe we do need some help. Our approach hasn't worked. Let's try something new."

Vajda: Okay, Representative Luebke.

Luebke: All right. I want to say first of all, this is the declining, a U.S. Census Bureau report, it shows the decline from $2,100 to $1,800 per capita in inflation-adjusted dollars showing the growth in our state. That is showing us that we are in fact doing a tighter and tighter budget and that is a reality. That is number one.

Blust: Will counsel let me see his exhibit?

Luebke: That is number one. Number two, he talks about a budget that he says there has been no debate on. There is no budget that has been presented yet to the House and he knows well from his years in the House that we always have multiple amendments on the budget and that the opportunity for debate is good just as there has been good opportunity for debate on this revenue bill.

Vajda: Why weren't there any amendments allowed on this bill?

Luebke: Well, there were amendments in committee and we wrote the bill in such a way as to say exactly on the floor every item that was in the bill. And let me say also about the importance of the bill. From the perspective of those of us who supported the bill, one of the most important things was that we asked of people, couples making more than $200,000, that they continue to pay their fair share in terms of the increased tax. The grave majority of us, 99% of us, are not affected by that income tax burden, that extra tax on the very high income people. We think it is crucial if we continue the half-cent sales tax that we also continue the higher bracket on people making more than $200,000. It is a fairness issue and I think it is critical for what we have done in terms of fairness to the people of North Carolina; tax them fairly and provide fair services.

Vajda: Representative Blust, would you like to respond to that?

Blust: Let me respond to this and the process that I believe you are witnessing for the first time. And I think you've seen it very clearly. This bill comes out, we get told on the floor on Tuesday that this bill, that we are going to have a committee meeting that wasn't scheduled on the calendar. The bill wasn't scheduled so that all of the public has notice of what we are doing. That is the reason for a calendar. It is not just for us legislators, it is for the public to be able to have input and try to influence their government. So we go in at 2:30, we sit around for 15 minutes because the bill wasn't ready, then in little over an hour it is done and it is done in a way that we are not going to allow amendments on the floor. We had 30 people present at that meeting; there might be 90 other people in this House that have some ideas on this that they ought to be able to read the bill carefully and be able to offer some amendments that there might be a different way. Instead somebody got together in a back room and said, "Here is our package; take it or leave it."

Vajda: Now Representative Blust, in all fairness, when the Republicans have the majority, isn't that the same game that is played?

Blust: I was not here then. I have heard that they did some of this same type thing and I don't like it, no matter who does it; it is not right, it is not what the people sent us here for.

Vajda: Representative Luebke.

Luebke: Representative Blust, I chaired that meeting; you were in that meeting. You had an opportunity to speak multiple times. Other members of the committee, Republican and Democrat, chose to remain silent. We were willing to go on as long as needed to debate the issues there in the committee and I think everyone had a fair shot. You had your amendment. Several other people had amendments. We debated the bill extensively. And the bill is going forward and you've shown that you are not interested in more revenue, no matter how many hours of debate we would have on the bill.

Vajda: Well, let's go away from the process and go back to this bill and the taxes. Representative Blust, are there any taxes that you do support?

Blust: I can support the line that says you've still got to say what your use tax is if you buy something on Amazon or online, but other than that I don't support anything because I already think that we are taking more than enough from North Carolinians right now under current law to do the job we have to do if we do it right. That is a fundamental difference, I think, between Representative Luebke, myself, the Democrats and the Republicans is we feel that we've just got to budget wiser. And I would say this, I am not going to support additional revenue from the people who get up every day, go to work and earn the money, until I can look them in the eye and say, "We are giving you a full dollar's value in education, public safety, environmental protection, health care," some legitimate function for each dollar we are taking now. And I don't think we are doing that and I don't think anybody in North Carolina would say, "Yes, you are giving me full dollar's value. Government is efficient, it is running well." Let me reply to this.

Vajda: Hold on. Representative Luebke, go ahead.

Luebke: Let me just say that all of us as legislators need to look people of the district in the eye and say, "We have provided for your public schools, we have provided for the community colleges, we have provided universities, we have dealt with the problem with Medicaid costs so that you or your relatives can be adequately taken care of." These are all of the issues that you have to look people in the eye. There is some mythology going on out here that somehow these are not real. Crotts, our senior economist, said at the same meeting, "We have a $1 billion dollar deficit. We raise $562 million in this bill." That means we are still coming up short. It is why my chart is right showing that actually our budget per capita is getting smaller year by year. We are fighting to do well by the people of North Carolina in terms of meeting their needs for public safety, health care, and education.

Vajda: Representative Blust?

Blust: Well, this is from the N.C. Justice Center, a far-left organization, it would probably be skewering you for not raising taxes enough now.

Luebke: Excuse me, Representative Blust.

Blust: I have similar data from another source that says our per capita is going up, in fact it is going to be over 4,000 for the first time. Now, as far as the needs, that is a smoke screen. We can meet the legitimate needs from present revenue. We just have to get rid of some of the things we shouldn't be doing. And we have to do things more efficiently in delivering our product. Every business has had to do that; state government, we keep adding. Now, are you denying that there is not unfilled positions in there that are put in with no intention of every being filled so that the money can be moved?

Luebke: What I am saying is that the U.S. Census Bureau reports on the expenditures that are done per capita adjusted for inflation and population growth and it shows that in North Carolina we are spending 14% less per capita than we did five years ago. That is from the Census Bureau data. And so all of the other rhetoric that you have about, "Oh, we are not looking at the budget tightly," and this and that, it is simply not supported by the facts. The facts are that we look tightly at this budget; we are ratcheting back services to people. And I am troubled by the fact that, for example, we don't do more for state employees. I am troubled by the fact that the family health care part of the state health plan is so incredibly expensive. I am troubled by the fact that we are not able to do more to help the counties with Medicaid assistance where they are having to pay their share, especially that hurts especially the poor counties. These are all things that we are aspiring to do. You cannot fix those kinds of problems for the people of the state and not have some revenue.

Vajda: Representative Blust?

Blust: Well, here is this fallacy. They start from the trough of the recession with their figures. If you are going to have accurate figures, you have got to smooth them out over a longer period of time than that, but that is an old statistical trick that is used to try and show something that isn't there. Now, if you are concerned about not meeting some of these needs, let's tell some of the higher-ups that let's not put the pork in for your home district until we've met some of these needs. There are a lot of things in that budget that aren't absolutely essential, and I think a lot of North Carolinians are straining at the bit for taxes. We've had the layoffs and I might add, a lot of the layoffs of which he speaks have come since we started our tax raising in 2001. And I think there might be a cause and effect there, there might be a reason why North Carolina lags the national economy because we've gone the route, we are the only state that raised taxes three years in a row; now this will be four out of five. And it is time to take a different approach. And I just don't think you can honestly say that we sit here and we go through these budgets in detail and we take everybody's idea. You brought a prop; here is the Freedom Budget 2005, put out by the John Locke Foundation that has just hundreds of ideas. Now, I don't endorse them all but many of them are workable, that we could easily save a billion dollars without hurting anyone in our budget, giving the state employees a greater raise, if we give up some of the things we don't need to do. And that is all we are saying is don't go back to the unemployed textile worker and say, "You are going to pay higher sales tax," when we haven't scrubbed our own budget.

Luebke: The sales tax is first of all an extension. It is an extension temporarily because I hope we will be able to pull that sales tax down. I know how much it is, that the sales tax is not the best way to raise revenue and income tax is a fair way to raise revenue, which is why we have both pieces in there. But when we are in the situation we are, we are funding basic needs. The pork, that is nice rhetoric for you to use, and to suggest somehow that because we raised revenue in the last few years because we were in a recession, that that is why we lost manufacturing jobs is ridiculous. We have lost manufacturing jobs because of the movement of jobs to China, other parts of Asia, the Caribbean, that is why we've lost jobs. Every North Carolinian knows that is why our industry is in such trouble in terms of textiles and furniture and even IBM in terms of the high tech areas where we are losing jobs. And when you lose jobs, you lose income tax revenues. And we are doing the best we can in terms of the package, including that streamline package so that we will get in the future those monies from people who are buying on the Internet and are not now paying sales tax.

Vajda: Representative Luebke, a question about the bill structurally. Why wasn't the cigarette tax included in that, and will it be included in the budget?

Luebke: Ah yes, there is an expectation that we put the cigarette tax in. What we did with the bill that we have had this week is we have responded to those issues where the Democrats had reached a consensus and we are continuing debate about the cigarette tax about how it needs to go. I think everyone, I think even Representative Blust, recognizes that it is a public health hazard, smoking, and we are just trying to decide how high we need to go in order to meet the needs that are still not filled with this budget. This is, with the $1 billion deficit as I mentioned, $560 million, $2 million doesn't take you there. So we need to raise more money and the cigarette tax will be the centerpiece of that additional money that we raise.

Vajda: Representative Blust, final question for you?

Blust: This is year after year, we've now, this is the third round of some of these temporary taxes. It is the same rhetoric every year, it is the same type budget every year, and there is never an attempt. Pork isn't just a phrase. How is it that there is something in the Senate budget for just about every community college of some senator who is higher up? I wonder why they pick those particular community colleges to put some of these programs at, and I'm just saying we've got to stop and go the other way. The taxpayers are hurting. We have raised the cost of doing business in North Carolina to be much higher than our surrounding states and the economic opportunities are going to the other states and we are losing revenue because of it. If we grew our economy, there would be more income tax at the same rate, there would be more sales tax at the same old rate, and we would grow our way out of this problem and our policies are self-defeating.

Vajda: Representative Blust, Representative Luebke, I am looking forward to more debate on the budget. This was certainly great and thank you for being here.

Luebke: Thank you for having me.

Crowley: Senators will take up the legislation next.

Vajda: For more analysis on how the revenue package will unfold, Tim sits down with two members of the Capital Press Corps.

[BEGIN ANALYSIS SEGMENT]

Crowley: David Rice with the Winston-Salem Journal, Kerra Bolton with the Asheville Citizen Times, thanks for joining us today. David, first to you, the House comes out with its version of a finance package this week totaling a little more than $560 million in the first year but doesn't include the cigarette tax. How difficult was this package to broker for the Democratic leadership?

Rice: Well, it sort of underscores in some respects the Groundhog Day nature of this session. You know, if it is getting close to June 30^th, it must be time to renew the temporary taxes. You know, I don't want to say everyone, but most of these members have seen these taxes before; it is sort of the path of least resistance. They can argue that they are not raising any new taxes, that they are continuing existing taxes, although that begs the question why they have to vote on it. And the Republicans did their duty as far as, you know, rightfully pointing out that these were intended originally to be temporary taxes and they are extending them once again. I think this was the easiest route as far as renewing these taxes to get two-thirds of the money that they will probably need for the budget.

Crowley: Kerra, at least one of the finance chairs on the floor said that this had no new taxes, or no tax increase in it, is that actually the case?

Bolton: Well, it depends on what "increase" is. I mean, it depends on how you define an increase and so, yes, if you are a consumer and you are going to be paying more for some of those consumer taxes than you did before to conform with the Streamline Sales Agreement, then it is a tax increase. But if you've been paying the same state sales tax of 7%, you are going to continue to pay that. It just was supposed to expire this year. Going back to what David said, the problem I think House leaders are having this year is that there isn't that sense of urgency after, you know, 2001 where after 9/11 or even 2003 where we acknowledge that the economy didn't recover as fast as we had hoped. And this year we don't have that sense of urgency. And I don't think people have the sense of urgency that state programs are going to be cut unless these taxes are either maintained, continued, or raised. And I think that may cause some problems down the road when you get to the 2006 election year.

Crowley: David, we did see Republicans sticking together, at least on this issue, where in the past couple of years under the co-speakership there is at least a few Republican votes even for a tax package.

Rice: Yeah, I mean, it was remarkable that they actually acted like they were on the same team for a change. And there wasn't the in-fighting that we've grown accustomed to, actually, over the past two or three years among the Republicans. I think with the tax vote with the vote last week on minimum wage and what almost was a vote on the death penalty moratorium, these are sort of red meat, galvanizing issues for the Republicans and they do seem to be coalescing or congealing around some of those issues more than we've seen them in a couple of years. And they readily acknowledge that. With the budget vote coming next week, though, we will see how far that goes. I do think that they are expecting or hoping that a few Republicans will vote for the budget and then there may be, the in-fighting may return; we'll see.

Bolton: Well, I think the Republicans have finally realized that when they fight it benefits the Democrats. And they are starting to caucus again, and we usually think of those caucuses as a joke. But now they really seem to be coalescing around a particular agenda and I think we may see that as, again, the 2006 election brings a chance for them to win the House, and I think that they've all got that goal in mind.

Crowley: We didn't see a cigarette tax as part of this package. David, what is in store for that and why did they kind of separate that issue out?

Rice: Well, that would definitely be a tax increase and there is no hiding that. And it would probably be safer to bury it in the budget or you know, to combine it with teacher and state employee pay raises. If we can back up to why it was separated, where the other part of the revenue package was separated from the budget, I think there is some, I am not sure I should call it "genius," but there is some real smart strategy there because by doing that Jim Black lets the Republicans vote against these taxes, which they feel they need to because of fear of the primary if nothing else. And then some of them might be able to come back and vote for the budget when they take it up. And that in turn helps inoculate Jim Black against having anyone holding hostage for minimum wage or a higher cigarette tax or no cigarette tax within the Democratic caucus. You know, they have 63 members, they have a clear majority, but I think Jim Black is painfully aware of 2001 when he was held hostage by eight members of the Democratic caucus, and I think he is trying seal himself off against that. So I think separating these votes makes a certain amount of strategic sense for him. But it remains to be seen how many Republicans will vote for the budget. And for them it raises questions that again might come up in a primary; how could all of you vote against the tax package and then turn around and vote for the spending that that tax package supports. And that would raise some questions about whether they are two-faced or hypocritical or what have you.

Crowley: At least on one part of the package the personal income tax of the highest level, the governor wanted to phase that down a half percent. Kerra, have you got any gauge about how the Senate may take this House package now that it is in their hands?

Bolton: Well, I am not quite sure how they'll take that tax package. I think there will be some horse trading that will happen, of course, in the natural course of the budget process. I think that, you know, there may be some resistance from the liberal ring of not only the Senate Democrats but the House Democrats when it comes time to concur, to agree on the total state budget. So, there may be some problems there if they drop that tax for the high income earners and leave all of the consumer packages. I mean, they've got to get reelected, too, and I think that what we've been seeing of course for the past almost decade is that it has moved toward the center. But I think it may hurt some of the liberal Democrats in both the House and Senate.

Crowley: Was the biggest difference in the two packages, between the House and Senate, just the cigarette part, David?

Rice: Well, there is the cigarette tax, there is the removal of the high income tax bracket which I do think is pretty important to folks in the Senate. And I think you see more ideological extremes in the House and the membership just by virtue of having smaller districts. So, liberals in particular can insist, you know, if you are going to stick it to working folks with the sales tax, then we want the rich folks to get stuck, too. And then the Senate was also pretty adamant about repealing the, or lowering the corporate income tax. So, those are the principle differences. The cigarette tax accounted for about $200 million and that's the main difference between the two.

Crowley: Go ahead, Kerra.

Bolton: I just wanted to say I want to make it clear, I mean, I don't think that the differences with the liberals in both chambers are going to make all that much of a difference. I think at the end of the day they are all going to go onboard with whatever compromise budget happens.

Crowley: Okay. David Rice with the Winston-Salem Journal, Kerra Bolton with the Asheville Citizen Times, thanks for joining us this week.

Vajda: If you have any comments on any of the stories we aired or have issues you want to cover, you want us to cover that is, call our comment line at 919-549-7830 or email us at legweek@unctv.org.

Crowley: That is going to do it for our show tonight. Make sure you tune in next week for the latest news from the General Assembly. I'm Tim Crowley.

Vajda: And I'm Eszter Vajda. Have a terrific weekend, everyone.

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