In North Carolina, budget deadline finds lawmakers at odds over surplus.

ATLANTA -- The North Carolina legislature is still at odds over a spending package of about $10 billion for fiscal 1995, as lawmakers continue to argue over how to allocate a budget surplus approaching $1 billion.

Also on the front burner in Raleigh, just three days before the close of fiscal 1994, is legislation to end the state's intangibles tax.

The Senate was expected yesterday evening to reject the House's version of spending for fiscal 1995, according to David Crotts, senior analyst and economist for the Legislative Fiscal Office.

Crotts said the House's approach would add about $928 million to $9.02 billion appropriated for the upcoming fiscal year approved last year as part of the state's 1994-96 biennial spending plan. The Senate's plan, he said, would augment the original fiscal 1995 budget by about $800 million.

"From the House side, the budget debate emphasizes the need for more education spending, while the Senate is stressing fiscal conservatism," said Crotts.

He said the expected impasse would prompt lawmakers to set up a conference committee to work out differences before the new fiscal year begins.

Last Tuesday, the House passed a budget that includes larger raises for state employees and more funds for new education spending but less money for construction projects than the Senate's.

Neither plan, however, would allocate money to authorize new bonding, said Crotts.

The House plan would give all state workers a 4% permanent raise and a $480 one-time bonus. Teachers with more than three years' experience would get a total of 8% in raises, while those with less would get 5%.

Representatives approved $55.8 million of added funding for the state's Basic Education Plan. This would permit hiring of a total of 1,252 teachers and teachers' aides, among a number of improvements in schools.

The senators' plan, which was passed June 2, would permit a 4% permanent raise and an additional 1% bonus for teachers and state workers. The senators did not approve additional funding for the Basic Education Plan.

The Senate's plan allocates $160.5 million of cash for construction projects while the House would lay out $123.9 million.

Senators have also allocated $28 million to cover repeal of the state's intangibles tax on stocks, bonds, and other investments. The funding bill is dependent on passage of the budget.

The intangibles tax is currently 25 cents per $100 of stocks, bonds, and some accounts receivable. The tax must be paid if a taxpayer holds $6,000 or more of eligible investments. Only five other states have a similar tax.

Elimination of the tax would be partially offset by a 1% surcharge on interest payments from bank deposits.

Another version of the intangibles tax repeal, which remains in the Senate Finance Committee, would raise the threshold on applicable assets to $40,000.

Other proposed tax cuts are unlikely to receive final approval, legislative aides said yesterday.

One proposal, which remains in the Senate Finance Committee, would cut the corporate income tax to 7% from 7.75%, costing the state $95 million a year. Another proposal, currently before the House Finance Committee, would reduce the sales tax on food by two percentage points, costing the state $160 million.

The lawmakers' consideration of how to spend the expected surplus comes a year after they appropriated a total of $18.25 billion for the biennium beginning July 1, 1993.

Of the total, $9.23 billion was allocated for the 1994 fiscal year and $9.02 billion for fiscal 1995. Lawmakers traditionally meet in regular session the spring before the beginning of the second fiscal year of a biennium to fine-tune the appropriations originally decided a year earlier.

The expected $974.1 million surplus is the result of $451.3 million of recurring surplus, from higher-than-expected tax collections due to an expanding state economy, and $522.8 million of nonrecurring revenues, mostly from a windfall in federal money for treating poor patients at the state's four mental hospitals.

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