CONCORD, N.H. (AP) -New Hampshire is hoping to shore up its sagging budget by attracting smokers from other states to buy cigarettes at relatively bargain prices.

The House voted 190-120 Wednesday to delay a proposed 25-cent cigarette tax hike in hopes residents from other states, especially Massachusetts, will stock up on New Hampshire smokes. The House rejected a move to kill the tax increase altogether.

The Senate next considers the proposal.

If New Hampshire doesn’t get $50 million from cigarette sales between July 1 and Oct. 1, the state’s $1.08 tax will go up a quarter.

The state’s grocers and convenience stores had told the House they could sell more packs without a tax hike. Massachusetts is considering raising its $1.51 per pack tax by $1. Massachusetts also has a 5 percent sales tax which New Hampshire retailers say makes that state’s total price unattractive compared to New Hampshire’s prices.

Gov. John Lynch proposed the increase as part of his overall plan to deal with a possible $180 million revenue shortfall in the two-year $10.3 billion state budget. He also proposed cutting spending $125 million and borrowing $80 million to pay the state’s share of school construction costs that currently is paid with cash.

Lynch sought and got 28-cent cigarette tax increases toward spending in each of the past two budgets.

The House rejected the borrowing proposal and only made some of the cuts.

The House also modified Lynch’s proposal to cut a discount given to wine retailers. Instead of cutting the 20 percent discount in half, the House proposes exempting wine boutique shops and leaving the discount as is for retailers with beer and wine licenses who sell no more than $350,000 annually.

The judicial and legislative branches also would be asked to make cuts – $2.6 million and $1.5 million respectively.

Lawmakers did not like Lynch’s proposed borrowing, but agreed the school construction aid program – which was begun in 1955 – should be studied to see if it should be overhauled.

In February, Lynch won lawmakers’ support to freeze most hiring, equipment purchases and out-of-state travel paid with general tax revenue until July 2009. The hiring freeze does not apply to direct care, custodial care or law enforcement positions. Agencies can ask the governor to grant exemptions.

Lynch also has ordered state agencies with surpluses to return the extra money to the general fund to help ease the shortfall.

The cuts did not include layoffs.

Last month, Lynch is expanded the freeze on purchases of equipment and other commodities – with the exception of food, drugs, medical supplies and other items needed in an emergency.

Republican critics have said Lynch and Democrats in the Legislature ignored warnings that the budget was just too large.

But Lynch insists New Hampshire is in a better position than many states dealing with similar problems. He points out that the state’s rainy day savings account has grown from $17 million in 2005 to $89 million. The state also has a $33 million surplus from the last budget. He has asked lawmakers to set the surplus aside for emergencies.

AP-ES-05-14-08 1744EDT

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