By the time the first fireworks go off this Independence Day weekend, Gov. Josh Stein will have the long-awaited budget on his desk.
Lawmakers are supposed to pass a two-year budget in odd-numbered years, but they weren’t able to come to an agreement in 2025. That means North Carolina is still running on the last budget passed in 2023, more than 1,000 days ago.
As a result, state employees and teachers have gone without raises, construction projects are in a holding pattern, various priorities remain unmet and the state hasn’t fully adjusted to the current economic climate amid inflation and recent federal funding cuts.
For more than a year, Senate Leader Phil Berger, R-Rockingham, and House Speaker Destin Hall, R-Caldwell, butted heads over tax policy, teacher raises and funding for a children’s hospital.
While lawmakers passed a series of mini-budgets in 2025 to partially fund the state’s Medicaid program and address disaster recovery needs after Tropical Storm Helene and Tropical Depression Chantal, among other priorities, there was no comprehensive spending plan in sight.
This May, Berger and Hall finally came to a loose agreement on a few of the bigger issues remaining, including how quickly to reduce the personal income tax rate. There was no physical document, though, until Tuesday morning, when lawmakers dropped the 634-page budget.
Wednesday, the House and Senate voted to approve the budget with bipartisan 92-23 and 37-12 votes, respectively.
Thursday, they will make a third and final vote before sending it to Stein. Then, the governor will decide whether to sign, veto or allow the budget to take effect without his signature.
“This one’s been a long time coming, and it’s been a hard-fought battle, but when we started this session, we said that we got to have the right budget, not just any budget,” Hall said on Wednesday.
Big budget stuff: Taxes, salaries and cuts
In all, the budget outlines $34.4 billion in spending over the next year — about a billion more than in the House’s and Senate’s initial proposals. That billion dollars is set aside for future use.
Hall told reporters it’s intended to go toward the state’s rainy day fund and other state reserve funds, if not used for future legislative matters.
The budget replenishes the state’s rainy day fund, used in case of natural disasters or other emergencies, to the tune of $450 million. That brings the balance up to about $4.2 billion.
Rep. Dean Arp, R-Union, said years of conservative, fiscal discipline allow lawmakers to spend money while still putting a significant portion into reserves.
“This budget funds today’s challenge without mortgaging our children’s future and our grandchildren’s future,” he said.
Budget for taxes
As outlined in the spring, the budget restructures North Carolina’s personal income tax schedule.
Back in 2023, lawmakers made a plan to cut the income tax rate from 4.75% to 2.49% by 2030 through various “triggers,” revenue thresholds the state had to meet to cut the rate each year.
Amid inflation and federal uncertainty, Hall wanted to change the plan. The House’s original proposal would have effectively paused cuts by raising revenue thresholds high enough that the state wouldn’t reach them for a while. Berger, however, was adamant that they continue moving forward.
In the end, they found a compromise with a new schedule that would reduce the rate more slowly, based on years instead of revenue triggers. The income tax rate will drop from 3.99% to 3.49% in 2027, to 3.24% in 2030 and to 2.99% after 2032.
Beyond 2032, there’s still a possibility of lowering it all the way to 2.49%, if the state meets certain revenue thresholds.
“Our current tax rates, we felt were not in the best interest of us long term, so we renegotiated those to what we believe is a better and fairer and more equitable tax rate that reduces the tax rate, gives our citizens more of their hard-earned money back into pockets,” said Rep. Donny Lambeth, R-Forsyth.
There are also a few other tax provisions.
When data centers first located in North Carolina, lawmakers offered various tax exemptions as an incentive. They’re now rethinking that. The budget removes data centers’ sales tax exemption for electricity use, while keeping in place some other tax exemptions.
Rep. Pricey Harrison, D-Guilford, said it’s “past time” lawmakers did that. However, she wishes they also removed the sales tax exemption on data center equipment.
The budget also raises taxes on sports wagering operators’ wagering revenue from 18% to 23%, and taxes prediction market operators at 6% of sports-related trading fee revenue earned from North Carolina users.
In the bill, lawmakers allow counties to levy up to a half-percent sales tax to be exclusively used for public education, if a majority of voters agree in a referendum and the county does not already take advantage of a separate extra sales tax.
Salaries and vacant positions
One of the most important jobs of a state budget is to pay all the people who work for the government or one of its departments. That includes public school teachers, state employees and law enforcement.
Educators are getting an average 8% raise, based on years of experience. Much of the investment, however, is concentrated in the beginning years of teachers’ careers; the budget raises starting salaries to $48,000 before local supplements. It’s the largest average teacher raise since 2006, Hall said.
It is not retroactive to 2025, though.
Law enforcement officers will receive raises, too. State Bureau of Investigations and Alcohol Law Enforcement will get the most, with average 20% raises, while correctional officers will get an average 15% raise and probation and parole officers will get an average 10% raise. All local law enforcement will receive a one-time $1,750 bonus.
“Backing our law enforcement means more than saying thank you,” Rep. Brenden Jones, R-Columbus, said. “It means making sure the people who protect our communities, patrol our roads, investigate crimes and keep order in our prisons know that North Carolina stands with them.”
State employees will get an across-the-board 3% raise, plus a $1,000 or $1,750 bonus depending on their income. Meanwhile, retirees get a one-time 2.5% cost of living supplement payment.
North Carolina State Employees Association Executive Director Ardis Watkins said the raise doesn’t even keep up with inflation, much less make up for a year without a raise.
“If N.C. is being run like a business, it is a business in terrible financial shape,” Watkins said in a statement. “Cutting the workforce, shutting workers out from any raise only to follow it with peanuts. This is what a business does when it’s in trouble.”
Hall said the House would have liked to give retirees more, but they had to compromise.
“COLA just costs a lot of money, because of just the huge sum that the state’s paying out to its retirees,” he said. “I think it makes sense to do that at some point.”
Finally, the budget cuts hundreds of vacant positions in the Department of Adult Corrections, which has experienced widespread staffing shortages. The department will have to cut up to half of its vacant positions, excluding healthcare-related roles. These cuts won’t impact anyone’s employment, but they will limit the number of people the department can hire in the future.
Helene
North Carolina has caught up with the federal government on Tropical Storm Helene recovery funding, Hall told reporters.
Tropical Storm Helene hit North Carolina in September 2024, lawmakers have passed a series of recovery packages totalling over $2.1 billion. They’ve been hesitant to risk granting money that could eventually be provided by the federal government instead, but the federal government has moved slowly.
So, they tend to wait for the federal government to take action, then respond in turn. After this budget’s investment, North Carolina has caught up with the federal government on Helene recovery funding, Hall told reporters.
The state budget returns $151 million in previously appropriated but unused funds to the state Helene fund, and also appropriates $706 million in new funding for various needs.
A majority of the funding, $450 million, is required state match funding to draw down federal aid from the Federal Emergency Management Agency (FEMA) for public assistance, hazard mitigation and US Army Corps of Engineers help.
The state dedicates $30 million for continued private road and bridge repairs, while implementing policy to streamline design and engineering processes for those projects.
Local governments, and specifically volunteer fire departments, will be able to apply for grants to get part of a $65 million pot of money for infrastructure needs ineligible for FEMA relief. Madison County is singled out for local government help, and will get $27 million for infrastructure needs. The local government cashflow loan program is also replenished to the tune of $20 million.
Housing is an ongoing project in Western North Carolina. The budget dedicates $40 million to a temporary relocation assistance program for certain people to use while waiting for a long-term solution. It also grants $35 million to active disaster volunteer groups repairing and rebuilding homes.
Other Helene recovery money will go toward a dam safety grant program, landslide mapping efforts, tourism development and efforts to reduce wildfire risk.
It may not be the end of Helene funding.
Hall said after recent talks with US Rep. Tim Moore and US Sens. Ted Budd and Thom Tillis, he’s confident that North Carolina will soon receive “a large, large amount of funds down to continue on with Helene relief.”
Medicaid, SNAP and healthcare
After federal cuts to Medicaid and SNAP, the state has to fill the gap.
Earlier this year, lawmakers fully funded the Medicaid rebase, or the amount of money required to continue funding current recipients. They did so reluctantly.
In a series of legislative meetings, they expressed concern about skyrocketing costs, particularly for applied behavioral analysis therapy, a treatment for patients with autism.
They discussed ways to reduce waste, fraud and abuse within the program. Now, the budget includes money to strengthen oversight and use enhanced data analytics technology to root out waste. It also funds continued Medicaid expansion.
According to Rep. Tim Reeder, R-Pitt, the budget funds 32 positions and allocates $15 million to help take on the additional work of implementing Medicaid work requirements and eligibility redeterminations.
The budget maintains Supplemental Nutrition Assistance Program funding after the federal government changed the amount of administrative costs states are required to pay. There’s funding to improve county SNAP operations through extra Department of Health and Human Services support positions and technology enhancements.
Additionally, the state will provide $5 million in matching funds to draw down $60 million in federal funding for SUN Bucks, a summer food assistance program for students.
In other healthcare news, the budget increases childcare subsidy rates and creates a statewide rate floor using $100 million of federal grant money.
Also, A newly established Child Welfare Escalation Team will support county Department of Social Service officers, provide more reviews of abuse and neglect reports and expand training for employees to better identify and respond to abuse and neglect.
Education
Nearly half of all budget spending is dedicated to education, including public schools, community colleges and the University of North Carolina’s various campuses and programs.
There are also quite a few policy changes.
The budget establishes a pilot program to reduce chronic absenteeism through early intervention in several counties, repeals TeachNC and changes the formula the State Board of Education uses to allocate funds for limited English proficiency students to include all English learners, not just those under a certain proficiency level.
It expands an early literacy screener, which identifies students who may need extra reading support, from just grades K-3 to grades 4 and 5 and dedicates $13.8 million for middle school literacy professional development.
“We are in this reading crisis,” said Rep. Tricia Cotham, R-Mecklenburg. “It’s at every level. It starts very young, but we can’t give up on our kids.”
Mathematics remains a legislative focus, with money set aside for a universal math screener at low-performing schools, training for middle school math teachers, development of a standard curriculum for K-8 students and participation in a program designed to increase the number of college-ready high schoolers using a Khan Academy artificial intelligence tutoring program.
In the budget, lawmakers say they’ve identified $35.7 million in savings from students enrolled in private schools using Opportunity Scholarship funds in the past two academic years.
Since the state does not have to pay for their public education, and per-pupil funding tends to be greater than an Opportunity Scholarship award, there may be some savings, depending on tuition and household income.
Those identified savings will be reinvested into math curriculum, literacy professional development and bonuses for school nutrition and custodial staff.
Justice and public safety
In September 2025, lawmakers passed Iryna’s Law, a wide-ranging criminal law bill in response to the fatal stabbing of Ukrainian refugee Iryna Zarutska on Charlotte’s public transit system.
It included various reforms requiring more work for judicial officers. The budget adds funding for 10 new criminal attorneys to address the higher caseload, as well as for 18 assistant district attorneys.
The bill also provides $30 million for school safety grants. It funds 24 additional State Bureau of Investigation positions to address drug crimes, violations of vapor product laws and other issues.
Under the budget, the Department of Transportation and State Bureau of Investigation could use automatic license plate readers.
Children’s hospital and NC Innovation
One sticking point of budget talks was whether to continue funding a new children’s hospital in the Triangle.
Berger said legislative leaders agreed to fund the project in 2023, and needed to finish the job, while Hall wasn’t convinced the need for another Triangle hospital justified the state’s investment.
Berger won’t get as much as he wanted, but the budget does include $208.5 million to help build the behavioral health hospital. Hall said he’s still unsure whether the project is viable.
Another area of disagreement was over NC Innovation, a nonprofit that provides grants to university researchers to commercialize their work. While lawmakers originally gave NC Innovation $500 million in the 2023 budget, Hall and Berger disagreed over whether to give the program more money or claw it back.
In the end, they settled on taking back the $500 million for other purposes.
“Ultimately we didn’t use the capital from that in this budget, and so it’s just sort of left on the table for future legislatures to deal with,” Hall said.
Other budget loose ends
The State Board of Elections got a few wins in the final budget.
Lawmakers provided $15 million toward the total overhaul of the State Election Information Management System, (SEIMS), a longstanding priority for the agency. They gave the first $15 million toward the $60 million project in one of last year’s mini-budgets.
There’s enough agency funding to pay for about 14 new employees, too.
Visitors to coastal North Carolina may soon encounter tolls when they take ferries. The budget requires the Department of Transportation to establish tolls for all ferries. Local residents would be able to buy yearly commuter passes for $150.
The state will invest $133.9 million into the JetZero economic development project at Piedmont Triad International Airport.
The Division of Motor Vehicles will see a few changes. They’ll develop an electronic vehicle registration system to eventually eliminate the need for physical registration cards or renewal stickers. Driver license examiners’ starting salaries will increase, four new drivers’ license offices will open and 30 additional oversight positions will become available.
Throughout a lengthy debate in the House, Democrats asked whether the year-long wait was worth it.
For Rep. Terry Brown, D-Mecklenburg, the answer is a resounding no.
While lawmakers stalled, life went on for North Carolinians facing rising costs, Democrats said. Teachers, law enforcement and public employees went without raises, and will not get them retroactively.
“This budget is a year late and an investment short,” he said.
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