Gov. Beverly Perdue's budget is not as drastic as some feared.

Her initial $21 billion proposal would raise taxes on smoking and drinking, cut as many as 268 state employees and shuffle more than 1,000 more, eliminate 20 smaller programs, close seven prisons and increase per-pupil spending. (N&O)

It also expands the Earned Income Tax Credit, makes bonuses to veterans tax-free, extends some business tax deductions and increases licensing and vital records fees. (N&O)

Legislative leaders say the plan is a good starting point, though they cautioned that tobacco and alcohol taxes as well as an accounting change may be a tough sell to lawmakers.

"I don't think you'll see a lot of differences with what she's proposed," said Senate leader Marc Basnight. (GN-R)

State employees are relieved the proposal avoids furloughs, pay cuts and massive layoffs. (Times-News) But tobacco and alcohol interests say the taxes would hurt their industries and put jobs at risk. (Times-News)

Politicians from the rural areas served by the seven prisons also object. (AP)

Gov. Beverly Perdue has given a taste of her budget.

In the past week, Perdue has declared she will increase per-pupil spending, boost pro-business initiatives, expand the Earned Income Tax Credit and spend more on parole and probation, among other things.

By far the largest promise so far was on education, though even there Perdue shied away from specifics. At a minimum, the governor could spend the same amount as this year and see per-pupil spending rise, thanks to an expected drop in the number of kindergarteners.

(That is a one-year quirk, however, caused by a change in state law that will push back at what age students start school.)

A rough estimate of the minimum spending on students Perdue has promised, then, would be about $8.1 billion, or about 38 percent of the current $21.5 billion budget.

The other spending she has promised so far totals $155.2 million, or less than one percent of the current budget.

After the jump, the math.

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Gov. Beverly Perdue has given a preview of her budget.

Speaking at an economic roundtable at UNC-Asheville this morning, Perdue promised new tax breaks for businesses and more spending for worker training, the Asheville Citizen-Times reports.

Among the tax breaks:

* Expanding the Earned Income Tax Credit from 5 to 6.5 percent. 

* Allowing small businesses to exempt some profits from taxes.

* Excluding initial stock investments in some startups from capital gains.

She also pledged to spend $50 million on sewer and water projects, $17 million on workforce preparedness, $7 million on "Main Street" projects in small towns, $5 million on green businesses and $2 million to a small business grant program. 

Perdue will formally present her budget Tuesday. 

Asheville reporter Jordan Schrader writes on his Capital Letters blog that Perdue did not say anything about "how she'll pay for it."

State Rep. Alma Adams will again chair the Legislative Black Caucus.

At a meeting on Dec. 4, the caucus unanimously re-elected the Greensboro Democrat to a second term as chairwoman, despite speculation that she may take a role in Gov.-elect Beverly Perdue's administration.

Sen. Malcolm Graham was also chosen as first vice chair; Rep. Earline Parmon, second vice chair; Rep. Annie Mobley, secretary; Sen. Tony Foriest, treasurer; Rep. Garland Pierce, caucus chaplain; and Sen. Floyd McKissick, parliamentarian.

According to a press release, the caucus' goal is to promote legislative policies "responsive to the needs of all North Carolinians, particularly African Americans." In recent years, it has played a role in passing the state's Earned Income Tax Credit, among other things.

In 2007, the caucus was criticized when it was revealed that relatives of five members received college scholarships from its foundation.

The caucus will now have 31 members, including newly elected Reps. Elmer Floyd of Fayetteville, Pearl Burris Floyd of Gaston County and Nick Mackey of Charlotte and Sen. Don Davis of Snow Hill. In 2007, it had just 28 members.

Burris Floyd will be the group's only Republican.

House Majority Leader Hugh Holliman said tonight that budget negotiators have reached agreement on tax breaks in the 2008-09 spending plan.

They include:

-- increasing the earned income tax credit for lower income families from 3.5 percent of the federal credit to 4.5 percent.

-- a repeal of the state gift tax.

-- a property tax homestead exemption for fully disabled veterans.

-- an extension of a tax credit for small businesses that provide health insurance to employees.

-- a variety of small business tax fairness measures.

The package provides a combined $50 million in tax breaks.

Update: State Sen. David Hoyle said tonight that legislative leaders have agreed to three other tax breaks:

-- a sales tax holiday for energy efficient products.

-- exempting some bakeries from sales tax.

-- reducing the tax on industrial machinery refurbishers.

Chelsea Clinton dived into specific programs her mother has proposed.

After a brief introduction at the Young Democrats convention today, the former first daughter began answering audience questions on a variety of topics.

She earned loud applause from the audience when she said that Hillary Clinton has proposed eliminating the Free Application for Federal Student Aid form, which college applicants must fill out in order to receive college aid, in favor of a checkbox on your tax form.

Among other things, she said that Clinton would forgive student loans for people who work in public service jobs, create universal health insurance, end the war in Iraq, expand the AmeriCorps program, reinstate the estate tax for people with assets of more than $7 million, make school lunch programs available year-round, reform food stamps and tie the Earned Income Tax Credit to inflation.

In response to a question about seating the Florida and Michigan delegates, Clinton said that the former has an "unfortunate" history of not counting votes.

"I wish that I were standing here after seven years of President Gore," she said.

Sen. Fred Smith said the state budget is "non-sustainable."

The Clayton Republican, who is running for the Republican nomination for governor, told Dome that he supported the Senate's proposal because spending did not increase as much and it would have ended two temporary taxes.

But he said the final version of the budget had too much spending and not enough tax cutting.

"When they found out they had more money, they spent every dollar of it," he said. "That is clearly not sustainable for our state."

He said the Earned Income Tax Credit is "nothing but a welfare program." He said reducing the sales tax rate would have done more to help the poor.

Earlier: Bill Graham calls the budget "irresponsible;" Bob Orr calls it "smoke and mirrors;" Richard Moore likes budget, but not debt; Beverly Perdue praises its new tax credit; 

Beverly Perdue likes the budget.

The lieutenant governor, a likely candidate for the Democratic nomination for governor, said in an e-mail to Dome that she supports the budget's spending on education.

"Education is the clear winner in this budget and that's the way it should be," she said in a statement. "There are tremendous 21st century challenges and we must keep meeting those by investing in our teachers, students and classrooms."

She also praised the creation of a state Earned Income Tax Credit, a Green Business Fund and a long-term care tax credit.

Her staff pointed out that Perdue supported the EITC in May of 2006.

Clarification: Perdue supported the credit earlier than previously noted.

Richard Moore likes other parts of the budget.

A spokeswoman for the state treasurer said in an e-mail to Dome that he believes the $20.6 billion budget "reflects the right priorities for the state."

In particular, she said he was pleased with the $45 million repayment to the retirement system from money borrowed in 2001 and a 2.2 percent cost of living increase for retirees.

"He also believes the decision to include the Earned Income Tax Credit was a smart policy move to complement the recent increase in the state's minimum wage," wrote spokeswoman Sara Lang.

She also reiterated his concern about non-voted debt.

Bob Orr says the state budget is "smoke and mirrors."

On his More from Orr blog, the candidate for the Republican nomination echoes House Minority Leader Paul Stam's argument that increasing lottery payouts cancels out the new Earned Income Tax Credit:

(W)e're going to increase payouts and winners in the lottery scratch off games to increase participation, so you can anticipate that the State's coffers will be getting lots of dollars back from those same beneficiaries in the form of lottery losings.

He also criticizes the legislature for taking some sales tax revenue back in exchange for reliving counties of Medicaid responsibility, giving counties the right to levy a transfer tax if the public approves and spending more than any of the previous versions of the budget.

However, he praises pay raises for teachers and state employees and money spent on More at Four, dropout prevention and reducing class size.