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Lawmakers spent most of their energy balancing service cuts against tax increases in one of the worst recessions in generations. The tough economic times didn't stop lawmakers from banning cigarette smoke from restaurants and bars, extending tax breaks to Apple Inc. and other businesses promising to create jobs, and bailing out the state-funded health insurance plan for its employees, retirees and teachers.

The legislature agreed last week on this year's state budget after rising unemployment, bankruptcies and struggling businesses caused the worst year-to-year decline in tax collections since at least 1970. The eventual $19 billion spending plan included about $2 billion in cuts, more than $1 billion in federal stimulus money, and nearly $1 billion in higher taxes and fees. More than 700 state workers were slated to lose their jobs.

Democrats who run the House and Senate said the taxes forestalled deeper cuts to education, social services and public health. More than half of North Carolina's annual budget is spent on education, from public school kindergarten through the university system.

"In the context of a severe recession, I feel like we've saved public education and its core mission in North Carolina from what could have been severe jeopardy," said House Speaker Joe Hackney, D-Orange.

Months earlier, the legislature bailed out the state-funded insurance plan for about 667,000 state employees, dependents and retirees. The $675-million, two-year bailout included higher deductibles and co-payments for state employees and hit dependent coverage with 9 percent higher premiums.

Businesses promising to create jobs at a time unemployment hit historic highs around 11 percent found doors to legislative leaders open and welcoming.

Apple Inc. got the change in tax laws that it wanted and announced the Catawba County town of Maiden as the likely site of a new $1 billion data center for iTunes, iPhone and other applications. The company can save about $46 million off its corporate income tax payments in the next decade.

Canadian paper company Domtar Corp. was offered a $9 million grant to convert production lines at its Martin County paper mill rather than choosing another of its plants for that work. Wilmington-area legislators were stymied in several attempts to block a proposed cement plant residents say would pump pollution into the coastal air and water. The plant came to North Carolina in part because of about $4.5 million in incentives.

The entertainment industry got a break when lawmakers raised a tax credit to 25 percent from 15 percent off spending in North Carolina by film and television production companies.

Insurance companies were granted certainty in sizing up potential hurricane losses. The industry was giving notice it could no longer accept unlimited liability for policies written by the state-created Beach Plan, which had liabilities of nearly $74 billion. Regulators feared insurers exiting the state would cause insurance costs to climb for all homeowners, so lawmakers passed a compromise to shore up the plan.

Insurers will give up $800 million of their accumulated contributions to the Beach Plan, but companies' payments after a disaster would be capped at another $1 billion. Reinsurance promised to push the Beach Plan's resources to about $2.4 billion. If a bad storm season pushed claims beyond that, every property insurance policies in the state would be hit with a surcharge of up to 10 percent until claims are paid by the Beach Plan are covered.

This year also saw several social and health issues become law.

A ban on smoking in restaurants and bars takes effect in January. The once-omnipotent cigarette industry kept the per-pack tax increase included in the budget to 10 cents.

Lawmakers passed anti-bullying legislation that specifically names gay and lesbian students as potential targets. The public school sex education curriculum was expanded to make it easier for parents to include their children in classes that discuss contraception along with abstinence. Death penalty prosecutions will have a new standard to make sure they are color blind; defense attorneys will be allowed to use statistical data to try proving racial bias skewed the decision to pursue a capital case.

"I think in all of those cases, people have been working on them for four to six years," Hackney said.

The major issue left undone was reforming a 50-year-old law allowing cities and towns to expand without the consent of adjoining property owners. North Carolina is one of a handful of states that allow municipal annexations that can force landowners into communities and taxes they don't want. Municipal leaders opposed changes, saying the annexation laws allows communities to counter suburban sprawl that sees middle-class residents and their tax revenues move outside municipal limits.

Lawmakers plan to return to Raleigh in May. Legislative leaders say a special commission that will study proposals to revamp the state's entire tax system will hold hearings around North Carolina this fall. Once the panel settles on recommendations, the General Assembly could be called into a special session to consider a blueprint to lower state taxes while also tapping services and other transactions now untaxed.

"We need to plunge into structural tax reform and see what we can do. I think that's work undone that we need to attack," Hackney said.