“Starting point.” “Framework.” “Agreement on the big issues.” State Senate leader Phil Berger and House Speaker Destin Hall have come together on the semblance of a spending plan, but it’s not a fully fledged budget quite yet.
The deadline for passing a two-year budget came and went 10 months ago. Ever since, Berger and Hall have butted heads on key issues, including how quickly to cut the personal income tax rate, whether to fund a children’s hospital and how much to raise teachers’ salaries.
Senate Democratic Leader Sydney Batch has marked the budget delay with a clock outside her legislative office. In neon green, it broadcasts the number of days, hours and seconds since the July 1, 2025, deadline.
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After Berger and Hall announced their deal Tuesday afternoon, the clock kept ticking: 317 days without a budget.
Batch said she won’t believe there’s a real deal until she sees it in ink.
“Our caucus members are very frustrated … that, instead of dealing with the reality of where we are in the growing needs of the state, that (Republican leaders) are putting something forward that is glitter and candy to constituencies, to hope that they get their base out to vote,” she told reporters Wednesday.
In recent weeks, Hall and Berger teased a budget breakthrough. Tuesday, they emerged with the outline of a deal.
The personal income tax rate will continue to drop, but more gradually than scheduled. The children’s hospital will get some funding. Teachers will get raises, but they’ll be smaller than House Republicans and Democratic Gov. Josh Stein wanted. Lawmakers will put two constitutional amendments on the ballot: one to permanently cap the income tax rate at 3.5% and another authorizing the legislature to limit the amount by which local governments can raise property tax levies.
Hall and Berger said they hope to have a final budget to vote on by mid-June. Until then, some suspense remains.
Time is of the essence. North Carolinians are gearing up to vote in the November elections, and unless state leaders act fast, voters may not be so quick to forget and forgive the budget delay.
The amount of money was never the issue. Hall and Berger agreed last year on overall budget spending: $32.6 billion in the first year of the biennium and $33.3 billion in the second year.
From the beginning, the devil was in the details.
Budget for recovery, healthcare and innovation
First, the Senate wanted to include $725 million of Hurricane Helene recovery funding in the budget, while the House preferred to pass a separate recovery bill. The House ultimately won that battle when it became clear that lawmakers would not come to a budget deal by July.
Second, Berger was adamant that Hall stick to a 2023 deal he struck with then-House Speaker Tim Moore to spend $320 million to support a children’s hospital run by Duke Health and UNC Health in Apex. Moore has since moved on to the U.S. House of Representatives, replaced by Hall, who didn’t feel as compelled to grant the final $103.5 million for the project.
Hall told reporters last year that House Republicans questioned the need to support a new hospital in Wake County when rural areas could use that funding more.
Berger won on the children’s hospital issue. Under the new budget framework, Hall agreed to fulfill the state’s promise. The $208 million investment also includes money to support rural health through the NC Care Initiative, a joint venture by UNC Health and East Carolina University to offer struggling rural hospitals a lifeline.
Third, lawmakers disagreed over whether to take back $500 million in funding already appropriated to NC Innovation, a nonprofit that provides grant funding and support to university researchers to commercialize their work.
House leaders and Stein thought the money would be better spent elsewhere, while Berger wanted to invest even more into the program. They have still not made a decision on this issue.
Raises in the budget framework
Fourth, state lawmakers agreed that teachers need raises to avoid falling further behind North Carolina’s regional neighbors, but not on the exact amount.
According to a 2026 National Education Association report, North Carolina is ranked 43rd nationally in average teacher salary, at $60,000, and 38th in average starting pay, at $45,000.
The Senate proposed an average 3.3% pay raise over the course of the biennium and a $3,000 bonus, while the House suggested an average 8.7% raise, with special emphasis on early career teachers, who could receive up to a 22% raise.
Under the proposed budget framework, public school teachers would earn an average 8% raise, and a $500 to $1,000 bonus based on their years of service. If implemented, North Carolina’s average teacher starting pay would jump to $48,000, the highest in the South.
Berger said new revenue projections eased his concerns about higher teacher raises.
Still, the North Carolina Association of Educators is not pleased. In a statement, NCAE President Tamika Walker Kelly called the proposal “smoke and mirrors,” and said that considering a lack of back pay and the current affordability crisis, an 8% raise doesn’t go very far.
State employees would get an average 3% raise, with an additional bonus between $1,000 and $1,750 based on their salary. State retirees would receive a similar 2.5% cost of living adjustment.
North Carolina State Employees Association executive director Ardis Watkins said the proposed raises don’t keep up with the cost of living, or make up for “years of understaffing.”
Law enforcement would get significant pay increases, including 10% raises for probation and parole officers, 15% raises for correctional officers, 18% raises for state troopers and 20% raises for State Bureau of Investigation and Alcohol Law Enforcement officers. Local law enforcement would receive a $1,750 bonus, too.
The North Carolina Sheriffs’ Association said the raises will help with recruitment and retention efforts, while SBI director Chip Hawley said the funds “represent the trust” lawmakers have in special agents.
None of the raises would be retroactive.
Tax policy
Finally, and perhaps most importantly, the House and the Senate have struggled to find a compromise on tax policy. Since tax policy determines how much revenue state lawmakers have to work with, many of the other issues could not be solved until leaders struck a tax agreement.
In 2023, lawmakers agreed on a schedule to reduce the personal income tax rate from 4.75% to 2.49% between 2023 and 2030. The plan included certain revenue thresholds the state had to meet before cutting the tax rate in a given year.
Last year, a consensus revenue forecast estimated that the state would meet the trigger to cut the income tax rate from 3.99% to 3.49% in 2027, but barely miss the trigger to further drop the rate to 2.99% in 2028.
Berger and Hall had very different reactions to this information. Berger wanted to continue full steam ahead, and said he did not trust the revenue forecast. The Senate budget proposal eliminated the 2028 trigger so that the rate could continue to fall, and additional triggers were added in 2030 and 2031 to reduce the rate to 1.99%.
In contrast, Hall wanted to pause to wait out inflation and economic uncertainty. His House budget proposal significantly increased the revenue the state would have to bring in to meet triggers between 2027 and 2034.
According to Berger and Hall this week, they’ve scrapped the old schedule and opted for a new plan.
Under their new scheme, the income tax rate would drop from 3.99% this fiscal year to 3.49%, and stay there during the 2027-2029 tax years. Between 2030 to 2032, the rate would drop to 3.24%. In 2033 and 2034, it would fall to 2.99%. Beyond then, the rate could go as low as 2.49% if the state meets certain revenue triggers.
Constitutional amendments
The more gradual cuts are a victory for Hall, but Berger got something in the deal. The pair agreed to put two constitutional amendments on the ballot in November: one to permanently cap income tax rates at 3.5%, and another property tax levy limit that would bar local governments from raising rates above a certain amount, to be determined later.
The legislature doesn’t need a constitutional amendment to accomplish either of these policy goals, but it does act as a failsafe in case a future General Assembly has a different stance, said Western Carolina University political science professor Chris Cooper.
He said it’s likely that the amendment would succeed if put to voters this November, and unlikely that voters would agree to reverse a tax cut in the future.
“If the goal is permanence, this is the best way to achieve it,” he said.
Several groups, including the North Carolina Budget & Tax Center, expressed concerns about the income tax rate cap in the wake of the announcement.
It makes no sense to schedule income tax cuts into the future instead of taking care of it on an annual basis, said Alexandra Sirota, executive director of the North Carolina Budget & Tax Center.
Sometimes, the facts change, and the legislature needs to be nimble enough to adapt, she said.
“The federal government has shifted costs to the state budget, and costs to deliver current services are going up, and there’s an increased need for the state to be responsive to the affordability challenges that families are facing,” Sirota said. “Limiting the tools that we have to do that work of investment in the future of the state is not fiscally responsible.”
If the income tax rate cap is implemented, Sirota said future North Carolina leaders may be forced to raise sales taxes to generate the revenue for investments in healthcare, childcare and food assistance. Sales taxes are regressive taxes that disproportionately hurt lower-income individuals, she added.
Batch said the constitutional amendments “absolutely” are meant to drive up Republican turnout in the election. But that strategy might backfire, she added.
“You act like Democrats are sitting there saying, ‘I want to go ahead and pay at the highest tax rate ever,’” she said. “It’s going to drive everyone out.”
Still now, not everything is settled. Berger and Hall are considering pulling back some data center tax exemptions, but haven’t settled on the full scope. NC Innovation remains a thorn in their side. Berger said budget chairs will begin meeting to iron out the remaining issues and sort through proposed appropriations.
If they can’t come to agreements on their own, Hall and Berger will have the final say. Both expect the process to conclude around mid-June.
How will voters react?
There is no budget, Senate Democratic Leader Sydney Batch repeatedly emphasized while talking to reporters Wednesday. This announcement is merely an attempt to distract North Carolina voters with false hope, and it’s working, she said.
Batch thinks state Republicans are scared of losing to Democrats in November. Several recently released polls that found Democrats ahead in state contests lend credence to that fear.
Cooper at WCU said Hall and Berger are trying to “shape the narrative.”
“They’ve heard that the voters want a budget, and they are trying to supply some sort of an answer,” he said. “They believe that it’s politically better to say we’ve come to an agreement, even if all the details aren’t worked out.”
Catawba College political science professor Michael Bitzer said voters will likely forgive and forget if Republicans hammer out a deal soon. Even if they don’t pass a budget, average North Carolinians might be more motivated by other issues, like the president’s approval and the state of the economy, when they head to the polls.
Of course, that won’t stop state Democrats from campaigning on the issue, he added.
Sirota said voters’ reactions will depend on the final budget, and how well it addresses North Carolinians’ well-being and affordability issues. So far, it’s not looking promising, she said.
Berger and Hall both denied that the looming election put pressure on them to come to an agreement.
Hall said they have more data, and a better understanding of how much revenue is coming in, than they did during last year’s stalemate. That’s what helped them reach a deal, he said.
“Sometimes it just takes a while for folks to look at possible alternatives that help you bridge a gap, and I think we were able to do that,” Berger echoed.
Gov. Stein said that if the final budget includes “real salary increases,” it would be “welcome,” but shared concerns about the proposed income tax rate cap constitutional amendment in a social media post.
In North Carolina, the governor does not have a say on constitutional amendments, but Stein would be able to veto the budget, if he chooses to do so.
In that case, all eyes would be on former Democratic, now unaffiliated Mecklenburg Reps. Carla Cunnigham and Nasif Majeed, and Edgecombe County Democrat Rep. Shelly Willingham to either sustain or override the governor’s veto. Each of them has previously cast votes to override some of Stein’s vetoes and would be the crucial votes in the House to do that. None of these legislators responded to requests for comment on the budget framework.
Batch said her Democratic caucus hasn’t had conversations on how they will vote on the budget, since a budget does not exist.
But when it does come to a vote, Democrats may be backed into a corner, said Cooper at WCU. They could vote for a budget they dislike, but it’s more likely that they will try to fight it, he said.
“In some ways, this plays right in the Republicans’ hands, because every minute the Democrats are fighting against what is perceived as a tax cut is a good minute for the Republican Party,” he said.
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