April 5, 2005 -- A huge budget deficit could derail two pieces of legislation introduced in North Carolina that offer tax credits to small businesses that provide health insurance to their employees, said business organizations in the state.

North Carolina faces the prospect of a budget shortfall of about $1.3 billion in the upcoming year, and the passage of either of the bills could add to that.

The state faces a tough choice between the two bills, both of which offer varying tax credits to small businesses but could add to the existing shortfall by $21.5 million or $204 million depending on which one is chosen.

"In a year where we are having some fiscal issues and a budget shortfall, we are cautiously optimistic about the bill's prospects in the legislature," said Marlowe Foster, director of the North Carolina Association of Health Plans, which counts health service companies like Cigna, in addition to pharmaceutical companies as its members.

More than 75% of businesses in North Carolina employ fewer than 10 workers. House Representative Hugh Holliman introduced a piece of legislation that would grant companies with 25 or fewer workers a maximum annual credit of $400 per employee. Another bill in the Senate, S364, introduced on March 3, 2005, by Senator Waltor H. Dalton, offers credits of $700 per worker or $1,300 per employee family for businesses with 15 employees or fewer.

"Being realistic in a year of budget crisis, Holliman's bill is the version that offers the benefits without too much burden on the state," said Gregg Thompson, North Carolina director of the National Federation of Independent Businesses (NFIB).

Offering affordable health insurance coverage to their workers has been the number one issue for small businesses nationwide, says the NFIB. A recent survey of its members by the organization showed that 95% of the respondents to a recent survey supported tax credits.

Offering tax credits would also help widen coverage, reduce risks and drive down the cost of premiums. It would also give employers an additional resource to draw upon for health insurance coverage, though it is not clear whether the tax credits would be enough to support insuring their employees, said Rolf Blizzard, director of governmental affairs for North Carolina Citizens for Business and Industry.