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RALEIGH - When the snow started falling last week, Sen. Marc Basnight left his office here hoping to escape the inclement weather at his home in Manteo .

"The further I went east, the deeper it got," said the longtime Democratic leader who is once again expected to be the top official in his chamber. "The budget is akin to that to some degree. The further we go, the worse it seems to get."

But it will take more than shovels, rock salt and a couple of 40-degree days to clear away the state's budget mess. The General Assembly returns to town Wednesday, and legislators, lobbyists and staffers alike say the conversation will be dominated by the state's ailing budget.

"It certainly shapes up to be a challenging session for all of us," said House Speaker Joe Hackney, a Democrat who represents Orange and Chatham counties. "In my 28 years here, we've never had one like it."

It has been clear since October that North Carolina would not be immune from the souring national economy. While the state was one of the last to find itself mired in a budget emergency, Gov. Bev Perdue and lawmakers face a gap that could be as big as $3 billion in the $21.5 billion budget that expires June 30.

Cuts in spending at state agencies and drawing from the state's savings may help North Carolina weather the immediate storm.

Much harder may be crafting the state budget that takes over beginning July 1. While that's never an easy task, it is complicated this year by growing demands on state programs such as Medicaid - the health insurance program for the poor and disabled - at the same time taxes and fees are expected to generate less money.

Lawmakers insist they will avoid cuts to public education and public safety programs but are less clear on where they will get the money to keep up spending in those areas.

"Speaking of taxation, I do not believe there will be much conversation in that vein with the exception of cigarettes (and) alcohol," Basnight said.

Perdue, Basnight and other legislative leaders have said in the past two weeks that raising sales or income taxes would be unlikely. That is not to say increases in government fees and taxes are off the table.

Basnight has long lobbied to raise taxes on tobacco products and alcohol. Although such "sin taxes" are seen as politically safe for lawmakers, each industry has its defenders in the legislature. Lawmakers from Greensboro and Winston-Salem, for example, frequently find themselves defending the interest of hometown companies such as cigarette makers Lorillard and R.J. Reynolds.

"North Carolina has one of the highest beer taxes in the nation," said Sen. Phil Berger, a Rockingham County Republican and his party's leader in the Senate.

"In my district, raising the beer tax could cost jobs," Berger said, alluding to the Miller brewery in Eden.

Hackney , who like Basnight is a Democrat, was skeptical of tax increases - even on tobacco and alcohol - as well.

"I don't think our emphasis should be on taxes in this kind of economy," Hackney said.

Much of the state's transportation funding is handled in pots of money separate from the $21.5 billion general fund, but the news isn't any better there.

"Financially, we're in deep trouble," Transportation Secretary Gene Conti told a legislative oversight committee last week.

In particular, revenue from the taxes motorists pay when they fill their tanks has dropped, as has the money the state gets from fees for registrations and the like.

The state could lose more than $300 million per year over the next three years in those dedicated transportation revenues, Conti said.

To offset that, officials say motor vehicle fees may have to be raised in the short term and new ways of generating revenue - from tolls on interstates to a "miles-traveled" tax - might have to be examined.

"Until we've addressed the spending side, we should not look at raising revenue," Berger said, advocating for cuts in spending.

Like other Republican lawmakers, Berger said government growth has outpaced inflation and population growth in the state and that North Carolina would be better off if spending had been constrained over the past five years.

That's a notion Hackney and Basnight dispute, saying the state has spent money on education and other things that will help it emerge more quickly from its economic doldrums.

"To a large extent, when you criticize the growth of government you're criticizing the hiring of new teachers," Hackney said.

Still, he concedes that budget writers will have to look for places to trim.

Rep. Alma Adams , a Greensboro Democrat who served as a budget co-chairwoman last session, said she is aware of the need to find cuts.

"Really, I'm going to be focusing my attention on making sure these cuts and adjustments don't adversely impact people," Adams said.

There is a place, she said, for education, health care and even arts funding in a down economy.

Aside from finding cuts in the state budget, lawmakers say they will also look at closing tax loopholes, including one that lets shoppers avoid sales taxes when buying goods from out of state.

Hackney also said a planned federal stimulus package could be "a tremendous help." Although the U.S. Senate has yet to craft its proposal, the House version of the plan would give states money to help build roads, schools and other facilities.

It would also boost the amount of money the federal government pays toward Medicaid, one of the key pressure points in virtually every state budget.

Contact Mark Binker at (919) 832-5549 or mark.binker@news-record.com