Dan Gerlach is a smart guy. That's what everybody says about the recently appointed senior policy adviser to North Carolina Governor Mike Easley. Gerlach is especially sharp when it comes to taxes.

Easley has him working on budget issues. Nobody expects him to singlehandedly solve the state's serious budget problems, but Easley thought Gerlach's reputation would win him instant credibility in his new job.

That isn't necessarily happening. Gerlach's appointment has raised questions about whether his past will undermine his present stance as an honest broker.

For the past five years, Gerlach, 34, led a left-leaning nonprofit group called the North Carolina Budget and Tax Center, where he was a frequent critic of Easley's policies. The two feuded most dramatically over Easley's push for a state-run lottery. "My old role was easier because I could just say, 'Man, they shouldn't have done that,'" Gerlach says.

Now Gerlach is excited about positive action, but that prospect makes a lot of other people in the state nervous. "Gerlach's past statements indicate a bias against the friendly business climate that we have for banking in our state," complains Phil Kirk, president of the North Carolina Citizens for Business and Industry, the state's chamber of commerce. Gerlach's old allies on the left are equally worried that his voice will be muffled now that he's on the inside.

Meanwhile, all his erstwhile friends and foes are hoping that their interests will be served at a time when North Carolina's budget shortfall means that there will be a lot fewer winners in the state. Shortly after Gerlach started his new job earlier this year, the state projected a $900 million deficit. "That wouldn't be so astonishing," he says, "if we hadn't already made cuts and shifts worth $700 million and raised taxes by roughly $400 million."

Deficits are a sticking point in most state budgets this year, but a number of factors make North Carolina's as sticky as any. Easley was anticipating 15 percent growth in Medicaid spending over two years, but now that number is looking much closer to 20 percent. The state's rainy day fund has largely been eaten up by a literal rainy day-- Hurricane Floyd. And a huge chunk of the state's general fund goes to education, which Easley is protecting from cuts.

Gerlach agrees with Easley's education priority and also hopes that together they can modernize the state's 1930s-vintage tax structure. Gerlach will head two commissions, one on the state's tax system and one on efficiency in state government. He served last spring on an Easley commission that led to the demise of some $200 million in tax loopholes.

Last fall, when Easley's staff wanted to demonstrate the impact some tax proposals would have on working families with average incomes, they turned to Gerlach for modeling advice. That's why Easley wanted him on board. "Dan brings a fresh perspective to us at a time when we need creativity and innovation," says Fred Hartman, Easley's spokesman. "He is someone that all parties can rely on for fair analysis of the toughest issues."

Although some people in Raleigh wonder how fair Gerlach's analyses will be, Gerlach recognizes that, as a staff member, he'll have to subsume his own agenda if the governor decides to go a different way. Gerlach understands better than most of his old ideologically minded peers that politics is a sport of give and take. As he points out, before he moved to North Carolina he worked in the New York legislature. You can't find a better environment than that to learn the skills of insider compromise.