The North Carolina House of Representatives passed its version of the budget Wednesday evening. With 27 Democrats joining Republican legislators in approval, it enjoyed far more bipartisan support than the state Senate’s version, passed last month.
The House budget overall spending is the same as the Senate’s: $32.6 billion in the 2025-26 fiscal year and $33.2 million in the 2026-27 fiscal year. North Carolina operates on a two-year budget. These are 5.8% and 2.1% year-over-year budget increases, respectively.
According to analysis from the left-leaning North Carolina Budget & Tax Center, this represents the lowest level of spending compared to the size of the state’s economy in 50 years.
But while the chambers may be aligned on topline spending, several significant changes in the House proposal will require negotiation with the Senate before any budget can win final approval.
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The House budget walks back some of the Senate’s proposed tax policy changes, transfers NCInnovation’s $500 million endowment to the Helene Disaster Recovery Fund and takes a new approach to vacant positions.
During a Tuesday budget presser, House Appropriations leaders highlighted the bill’s focus on state employee raises and commitment to addressing government waste.
Republican Rep. Brenden Jones, R-Columbus, called it a “serious, conservative, people-focused budget.”
House Speaker Destin Hall, R-Caldwell, said he’s proud of the investment the budget makes in working families.
“We continue to give that tax relief while also making sure we’re investing in this state’s most important asset, which we believe are its people,” Hall said.
State employee raises, vacancies and cuts
The House’s proposed teacher raises would make North Carolina teachers the highest paid in the Southeast, said Rep. Erin Paré, R-Wake.
It raises teacher base starting pay to nearly $50,000 by the end of the biennium. It also includes across-the-board raises, which will increase average teacher pay by 6.4% in the first year of the biennium and an additional 8.7% the second year.
The proposal creates bonuses for eligible advanced course and career and technical education teachers.
State employees are included in the compensation increases. They will receive a 2.5% across-the-board raise in the first year of the biennium.
Paré outlined the House’s strategy for retaining hard-to-fill positions in state government: cutting funding for 20% of about 3,000 vacant positions and repurposing a portion of that money for additional pay for other positions.
Many of these targeted positions have been vacant for months or years, Paré said.
The vacant position strategy is part of a House budget that takes “a hard look at government waste,” Jones said Tuesday.
“We estimated over $10 million in unaccountable DEI spending and cut bureaucracy,” he said. “And the dividends that provides and delivers for this budget, that money is now going where it belongs — into classrooms, into the communities and disaster recovery.”
Among the eliminated programs: Office of Health Equity, Office of Historically Underutilized Businesses, Minority Male Success Initiative and the Environmental Justice Program.
Unlike the Senate budget proposal, the House does not include a Division of Value, Accountability and Efficiency (DAVE) program to be helmed by State Auditor Dave Boliek. The Senate’s proposed program would mirror Elon Musk’s federal cost-cutting DOGE program by looking into potential state agency wasteful spending.
The House also reinstates the Senate’s eliminated Innocence Commission, which reviews felony convictions, while renaming it to the North Carolina Postconviction Review Commission.
House budget bill’s tax policy
Perhaps the most significant disagreement between the House and Senate lies within tax policy. While the Senate wants to move more quickly toward zero on the personal income tax rate, the House prefers a more incremental approach.
Under current law, the state needs to meet specific revenue “triggers” in order to drop the income tax rate another half percent each fiscal year. The current income tax rate is 4.25% and is scheduled to drop to 3.99% in 2026.
Based on February’s Consensus Revenue Forecast, produced by the Office of the State Budget and Management, North Carolina met the revenue threshold for the first year of the biennium, but missed it by less than $100 million the second year. This means that the state is free to further drop the rate another half percent to 3.49% in 2027, but current law would force a pause in 2028.
Despite missing the rate reduction “trigger,” the Senate budget would move ahead with a drop from the scheduled drop to 2.99% in 2028, leave the next trigger from 2.99 to 2.49% in place for 2029 and add two 0.25% drops the two following years.
In contrast, the House raises revenue thresholds significantly between 2027 and 2034, effectively pausing income tax rate reductions for now.
The bill includes several other tax policy changes. One would allow North Carolinians to deduct up to $5,000 in tips from their income taxes. Another would reestablish a back-to-school sales tax holiday the first weekend in August beginning in 2026.
Helene recovery in the House budget
The House proposal mandates the return of $500 million in previously appropriated state funds to NCInnovation, and reallocates them to the Hurricane Helene Disaster Recovery Fund.
The House proposal does not appropriate any of this reserve money. However, the chamber presented a Hurricane Helene relief package Wednesday afternoon that does appropriate $465 million from the Helene fund for various purposes.
The bill returns the state’s rainy day fund to $4.75 billion, where it was before Hurricane Helene hit Western North Carolina.
A tale of two budgets
Reactions to the House budget proposal poured in this week from lawmakers, Gov. Josh Stein and advocacy groups. Most compared the proposal to the state Senate version, passed in mid-April.
While many House Democrats voted for the bill, all but four of their nearly 50 proposed budget amendments failed.
They included proposals to allow state funding to contribute to bike and pedestrian improvement projects, banning a drop in corporate income tax rate in years the personal income tax rate does not drop and removing the ability to hire partisan political appointees on the new State Board of Elections.
Rep. Bryan Cohn, D-Granville, said the House budget “reads like a love letter to functioning government,” compared to the state Senate’s budget, while raising alarms about elimination of vacant correctional officer positions, in an op-ed.
House Democratic Leader Robert Reives, D-Chatham, gave Republicans kudos for getting “closer” to Gov. Stein’s budget proposals on teacher pay and tax policy in a statement. However, he highlighted concerns with continued investment in private school vouchers, cuts to public services and potentially negative impacts on clean air and water efforts.
While acknowledging that the House budget isn’t “perfect,” Stein also signaled support for the bill in a statement.
“Importantly, the House budget cuts taxes for working families while recognizing that North Carolina is a growing state and reduces personal income tax rates after this year only when the economy is growing,” Stein said.
The Senate budget, on the other hand, contains a “fiscally irresponsible revenue scheme” that would reduce income taxes more quickly, he added.
Not everyone is willing to dismiss the state Senate’s version. The libertarian-minded John Locke Foundation’s president, Donald Bryson, said the Senate budget “reflects a more responsible and limited view of government, while the House proposal takes bold steps to correct past mistakes in spending.”
Bryson would like the final budget to include a bit from both: the Senate’s tax policy and House’s elimination of vacant jobs, for example.
The North Carolina Budget & Tax Center thinks the House proposal still goes too far on tax cuts “for corporations and the rich” by continuing to lower the corporate tax rate to 2% and excluding Stein’s proposed working families tax credit.
The budget will go into conference committee after a short legislative session break. There, select leaders from each chamber will negotiate on a final proposal for members to vote on in both chambers.
While a distance exists between the Senate and House proposals, particularly on tax policy, Hall isn’t concerned about reaching a deal.
“I think if either side, either the Senate or us, are unwilling to compromise on anything, then we probably won’t have a comprehensive budget,” he said.
“But you know what? I’ve been through this. This is my fifth term now, and I’ve seen the chambers be far apart on given issues, and we’ve typically been able to resolve it.”
If both chambers pass a compromise bill, the budget will be sent to Stein, who may sign, veto or allow the budget to become law without his signature.
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