North Carolina lawmakers had a slow first day back to work on Tuesday after a six-month break. However, the second day of the new session promises to be more productive.
Legislative leaders said a long-sought agreement on Medicaid funding was essentially ironed out and ready for votes as early as Wednesday.
The bill will give the Department of Health and Human Services what they’ve been asking for since last summer — the final $319 million to fully fund the current Medicaid population. It will also add a series of other provisions “that hopefully will begin the process of trying to put some sort of constraints on how quickly Medicaid is growing,” Senate leader Phil Berger, R-Rockingham, told reporters.
[Subscribe for FREE to Carolina Public Press’ Daily, Weekend and Election 2026 newsletters.]
Last summer, lawmakers partially funded the Medicaid rebase, but the final portion was held up as a bargaining chip in ongoing budget negotiations.
Democratic Gov. Josh Stein threatened drastic measures if they couldn’t come to an agreement. They called his bluff, and in October, DHHS cut Medicaid provider rates. The cuts were later struck down in a series of court cases.
But lawmakers appear to be heeding DHHS’s second warning that the Medicaid program will not have enough funding to maintain operations if there’s no deal by May.
Since the end of the 2025 session, a legislative committee has been looking into potential fraud, waste and abuse in the Medicaid system. Costs have risen sharply in recent years, and they need to stem that, said House Speaker Destin Hall, R-Caldwell.
“It’s just not sustainable,” he said. “… At the end of the day, if it continues on, the debates about all these other issues we’re talking about are not going to matter because Medicaid is going to swamp it all out.”
Besides Medicaid, the state budget is the elephant in the room.
Budget may finally be on horizon in new session
Legislative leaders don’t want to jinx it, but a state budget agreement may also be coming soon.
Senate leader Berger hinted at the possibility of compromise in comments to reporters Tuesday.
“We’re not there yet,” he hedged. “We’re having conversations. They are substantive. They haven’t gotten us to an agreement yet, but we are continuing to talk, continuing to exchange ideas.”
Berger declined to get into the details of ongoing negotiations. Hall painted a brighter picture.
“I’m optimistic more so than I have been in the past, that we’re gonna get a budget done and a good budget done,” he told reporters.
North Carolina has gone without a biennial budget for nearly 10 months, after failing to pass one during last year’s legislative session. While lawmakers have approved “mini-budgets” taking care of some priorities, including funding for Medicaid, disaster recovery and additional DMV examiners, they haven’t settled on a comprehensive funding plan for the 2026 and 2027 fiscal years.
As a result, teacher, law enforcement and state employee salary and retirement pay has stagnated at levels set in the 2023 budget. Certain capital projects aren’t being funded. And major issues requiring funding to fix, like understaffing in youth detention centers, are at a standstill.
For months, Hall and Berger stalled over three issues: tax policy, a children’s hospital and salaries for educators, law enforcement and state employees.
North Carolina is on a predetermined path to reduce personal income tax rates from 4.25% in the 2025 fiscal year to 2.49% in 2029, as long as state revenue predictions meet certain thresholds, or triggers.
When budget talks began, the revenue forecast had the state meeting the revenue threshold to drop from 3.99% to 3.49% in 2027, but just missing the trigger to drop the income tax rate further to 2.99% in 2028.
The Senate’s proposed budget amended the revenue triggers to allow the state to continue dropping in 2028, regardless. It also added further quarter-percent drops in 2030 and 2031.
The House’s proposed budget, on the other hand, raised the revenue triggers in the name of inflation, effectively pausing the income tax rate drops for the immediate future.
“We’ve made a promise to voters of North Carolina and to the taxpayers of North Carolina, that if we hit certain targets, we’re going to reduce taxes,” Berger said. “… I think we’ve got to keep those promises. Now, whether or not it needs to be on the same pathway that currently exists or not? I think that’s subject to discussion.”
Another sticky point is a stand-alone children’s hospital that Berger and then-House Speaker Tim Moore agreed to fund back in 2023, but that Hall has been less eager to complete. The hospital has received some state funding, but Berger wants about $100 million more.
Hall said the question is how much more money the state needs to pay to make it a viable project.
He added that decisions on salaries will likely come easier after they figure out the tax policy issue, since that will determine how much tax revenue the state can expect to bring in.
Gov. Stein issued his own new budget proposal Tuesday, but it went largely ignored by Republicans.
Some of Stein’s asks — including halting scheduled cuts to the corporate and personal income tax rate — are nonstarters in the legislative building.
However, lawmakers may be willing to consider some other priorities, like moving North Carolina educators’ starting salaries toward the highest in the Southeast and considering removing some data center tax exemptions, Berger said.
Berger’s first day as a lame duck
While Berger lost his primary election to Rockingham Sheriff Sam Page, he plans to serve as leader until the end of session, he said.
He has no vote or say in his successor, he told reporters. He said the Republican caucus would make a decision on his replacement after the 2026 general election.
So far, three lawmakers have thrown their hat in the ring: State Sens. Ralph Hise, R-Mitchell, Todd Johnson, R-Union, and Michael Lee, R-New Hanover.
All serve in various leadership roles within the caucus. Hise and Lee are closer to Berger than Johnson, which could play a role in how they lead if chosen.
Berger said the message he took from his narrow primary loss is that “Democrats like to vote in some Republican primaries.”
While registered Democrats cannot vote in Republican primaries, unaffiliated voters can choose which ballot they vote.
Berger isn’t sure what comes after this session. But for the remainder of his time, he said he wants to do much of the same he’s done in his 15 years as majority leader.
“I would like to continue the progress that we’ve made over the years in making North Carolina the number one state for business and making North Carolina a competitive state in terms of tax climate and regulatory climate and continue to make progress in funding of education and the options that parents have,” he said.
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License. You may republish our stories for free, online or in print. Simply copy and paste the article contents from the box below. Note, some images and interactive features may not be included here.
