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RALEIGH (AP) — Gov. Beverly Perdue's first budget as North Carolina's chief executive could put hundreds of state and university employees out of work and would boost alcohol and cigarette taxes to help narrow a $3.4 billion budget gap.

Her nearly $21 billion budget for next year, released Tuesday, is $360 million less overall than this year's budget, despite inserting $1.7 billion of federal stimulus money to ease one of the worst shortfalls in decades.

Her tax changes — including a $1-per-pack increase on cigarettes and a 5 percent surcharge on all alcohol purchases — would raise $580 million more next year and $710 million in fiscal year 2010-11.

"The challenges we face in North Carolina are unprecedented in modern times," Perdue, a Democrat, told reporters. But she added that policy makers "cannot neglect or ignore the state's more pressing needs."

Democratic legislative leaders called the plan a good start. But they said passing a tobacco increase would be difficult, the cuts are either too deep or not deep enough and the plan leaves little cash to deal with a prolonged bad economy.

"There's no room for error," said House Speaker Joe Hackney, D-Orange.

Perdue would reduce state spending by $1.3 billion each of the next two years. While health and human services and corrections agencies take the biggest hits, almost all state departments would face significant cuts. Public education would take $511 million in combined reductions, although that pain would be eased by stimulus funds.

"The choices are hard," Perdue said. She voiced regret that the plan doesn't do more for schools.

The overall state government work force would fall by 1,034 positions in the fiscal year starting July 1.

Perdue recommended closing seven prisons, saving $100 million by freezing Medicaid reimbursement rates for doctors and hospitals, holding back $150 million in agency money earmarked for salaries and eliminating more than 20 programs.

"That's not chump change," Perdue said.

Although hundreds of state jobs that Perdue targets are vacant and Correction Department workers affected by prison closings likely would be reassigned, about 270 employees could be thrown out of work altogether, State Budget Director Charlie Perusse said.

And the job losses don't include expected reductions in the public schools and university system, which would have more flexibility in making their own cuts.

"This, I think, may be the biggest problem in the proposed education budget, and if enacted, could result in the loss of hundreds of jobs across the university," UNC system President Erskine Bowles said.

Perdue would increase the cigarette tax from 35 cents per pack to $1.35, making North Carolina's tax the 20th highest in the nation, compared to the current rank of 45th, her office says. The cigarette tax was just 5 cents a pack until the Legislature agreed in 2005 to raise it over two years.

The budget also could further erode North Carolina's special relationship with the tobacco industry, which still creates tens of thousands of jobs in the state.

"We might as well go ahead and get an ax and bring that business to its knees, which is what we would be doing," said Democratic Sen. Linda Garrou, one of the Senate's chief budget-writers. She represents Winston-Salem, headquarters of cigarette maker Reynolds American. Company spokesman Tommy Payne called the proposal "outrageous."

Perdue said she didn't believe the higher cigarette costs would devastate the tobacco industry. And anti-tobacco advocates praised the move.

Dean Plunkett with the North Carolina Beer and Wine Wholesalers Association said the higher alcohol tax was wrong. He said the budget hole doesn't need "to be filled by the responsible consumers of our products."

The $508 million raised from tobacco and alcohol increases starting Sept. 1 also would include a tax on tobacco products other than cigarettes. Perdue also wants to raise a licensing fee on "professionals" from $50 to $200 and raise other fees to generate another $27 million.

Legislative Republicans said there are other ways to deal with the budget gap besides raising taxes. They have previously recommended cutting inefficient programs and using money from other state pots.

"The reason we have a revenue problem is that people don't have money," House Minority Leader Paul Stam, R-Wake. "This is the worst year to raise tax rates."

While teachers would receive an average 1.8 percent pay increase under Perdue's budget, other state employees would receive no pay raise. Non-teachers would receive additional leave instead of longevity pay.

"Gov. Perdue's budget is the least evil out of all the choices that could be made, which include mass layoffs or mass furloughs," said State Employees Association of North Carolina.