News-Record.com

RALEIGH (AP) - Efforts to resolve major sticking points that are preventing a budget deal for North Carolina state government reached the top leaders of each chamber Tuesday.

House Speaker Joe Hackney and Senate leader Marc Basnight and their staff members met twice behind closed doors to discuss how to eliminate differences over education spending, construction projects and other items.

They left Tuesday night asking staff and fellow legislators to propose additional spending cuts to address a small downturn in revenue that Gov. Mike Easley has urged them to respond to in recent days.

"That is something that has to be done," said Basnight, D-Dare, in an interview. "There's going to be some significant changes (from) what we've seen."

The meetings at the top come after a week and a half of negotiating by House and Senate teams reached an impasse on several issues. Such meetings are historically a sign that a final budget deal isn't too far away.

Legislative leaders still hoped for a final agreement as early as Wednesday, with two required votes in each chamber completed by early Friday morning or early next week. But the additional cuts could make reaching that timeline more difficult.

The roughly $21 billion budget being worked out adjusts the second year of a two-year budget that the General Assembly passed last summer. So although the second fiscal year officially began Tuesday, state government continued to operate. Lawmakers did approve an abbreviated stopgap spending measure late Monday that was signed by Gov. Mike Easley.

On the actual budget, Easley has urged fellow Democrats to pull back on spending or tax breaks because revenues were $70 million less than expected as the fiscal year ended Monday.

"The budget has to be balanced. I can't sign an unbalanced budget," Easley told reporters at a news conference. "I don't think the rank-and-file members will vote for an unbalanced budget."

The governor has suggested that lawmakers drop tentative agreements to eliminate the gift tax and expand a refundable income tax credit to the working poor toward saving $45 million in additional spending in the new fiscal year.

Democratic lawmakers have been cool to his recommendations, arguing that the final budget still projects revenue growth for this fiscal year at a reasonable rate.

By late Tuesday, Basnight and Hackney acknowledged that their fiscal analysts also believe there's less money than previously believed, although they don't necessarily agree with Easley's estimates.

"We know the general ballpark of it," said Hackney, D-Orange, but it "ought not to be a big problem."

Hackney said he doesn't expect dramatic spending changes.

He believes the House and Senate will keep to a tentative agreement to spend $34 million more on preparing for thousands of additional students at University of North Carolina system campuses this fall. But he said that there may be less money than anticipated for More at Four, Easley's signature preschool initiative.

Easley, who is leaving office in January after two terms, dealt with a revenue shortfall earlier in his tenure that ultimately reached $1.6 billion in 2002. Easley said he would do everything he could so that his successor wouldn't face a budget crisis like he did due to poor planning and overspending.

"I'm not going to let the next governor walk into what I had to walk into," he said.

Easley has grated on legislative leaders since he began taking them to task last week on the revenue picture. Hackney said the General Assembly will create a sound spending plan.

"We know how to balance the budget and we don't need him to tell us" how, he said.