Gov. Josh Stein took the holiday weekend to mull it over, but ultimately didn’t waste much time before signing the state budget into law Tuesday morning.
The deadline to pass the two-year spending plan was over a year ago, but legislative leaders House Speaker Destin Hall, R-Caldwell, and Senate President Phil Berger, R-Rockingham, refused to budge over tax policy for months.
In North Carolina, when lawmakers miss a budget deadline, the last budget’s recurring spending continues. However, that leaves teachers, state employees and law enforcement without raises, projects without funding and other needs unmet.
Throughout the fall and winter, they could not come to an agreement on how quickly to drop the personal income tax rate. Berger wanted to stick to a pre-arranged schedule, adopted in 2023, that would have reduced the income tax rate to 2.49% by 2029, if the state met certain revenue targets.
Hall wanted to raise those revenue targets to effectively pause reductions for a few years while the state dealt with rising inflation and economic uncertainty. That was a non-starter for the Senate, Berger told reporters last week.
“It was our view that that would prevent any further reductions in the income tax rates for North Carolinians, and they were not interested in having a conversation about anything in between,” he said. “We were finally able to get those conversations started this year, and we were able to get things done.”
The tax standstill held up everything else, since that policy decision determined how much revenue they’d have to pay for raises, projects and other priorities.
Ultimately, after Berger lost his primary election and the state budget office released a sunnier-than-expected May state revenue forecast, the pair settled on a new income tax reduction schedule. It would move more slowly than the 2023 plan, but still get North Carolina’s personal income tax rate down to 2.99% by 2033, with the opportunity to go all the way down to 2.49% if the state met certain revenue targets.
Berger told reporters this year’s budget is “better than some, worse than others.”
Stein seemed to agree. Before signing the budget, he outlined both positive and negative aspects of the spending plan.
“Having just celebrated America 250 this weekend, we remember that our democracy has always run on compromise for the common good,” he said. “And for these reasons, and because it delivers for North Carolinians in important ways, I support this budget.”
Bipartisan support and opposition
Nearly all Republicans and about half of Democratic lawmakers voted to approve the budget.
Rep. Amos Quick, D-Guilford, put it bluntly.
“I will vote for this budget, but I vote for it with the same enthusiasm as I have when I eat fast food for dinner,” he said. “And that’s not much, because most of the times when I eat fast food for dinner, it’s because I need to eat something, and a better option is not readily available.”
Quick said Democrats are not immune to criticism over the budget delay. With a looming election, lawmakers felt pressure to get a deal across the finish line.
Two Senate Republicans voted against the budget on the first vote. State Sens. Bobby Hanig, R-Currituck, and Norman Sanderson, R-Pamlico, took issue with a provision expanding tolls to all ferry routes along the coast. Local residents could buy a $150 annual commuter pass.
On the second vote, Hanig was absent, and Sanderson flipped to a yes vote.
Senate Minority Leader Sydney Batch, D-Wake, voted against the budget. She said it’s not a great or good budget, and that Senate Democrats were shut out of the process every step of the way.
She doesn’t blame members of her Democratic caucus for voting for it, though.
“What I would tell you is that many of my caucus members don’t believe that North Carolinians should go another day suffering for the failures of Republicans, and so therefore they voted for the only option that we were given,” she said.
House Republicans were more open to Democratic contributions, House Minority Leader Robert Reives, D-Chatham, said. He said the House’s original budget generally kept policy out of the spending plan, “recognized our revenue realities,” and served North Carolinians.
He’s less pleased with the final budget, but voted for it anyway.
“It’s easy for me to save your money,” Reives said. “It’s easy for me to say, ‘Man, I really need to put this money away. You don’t need it,’ and that’s basically what we’ve done.”
Stein’s pros and cons on budget
Many of Stein’s “big ticket recommendations” ended up in the final budget, he said.
The budget invests another $706 million toward Hurricane Helene recovery, much of it matching funds to unlock federal aid.
It gives teachers the largest starting raise in nearly a half century, bringing starting pay to $48,000, while providing an overall average 8% raise to all teachers, the largest since 2006. It “embraces ideas that work” in education, like expanding science of reading programs, providing school safety grants, promoting advanced teaching roles and establishing apprenticeship programs, Stein said.
State law enforcement also got significant, double-digit raises. That will help solve staffing shortages, Stein said.
Lawmakers agreed to fully fund the Medicaid rebase — the amount of money it takes to keep the same amount of people on the rolls considering increasing costs — and restarted the state’s Healthy Opportunities Pilot, a program that gives beneficiaries access to healthy food, transportation and stable housing.
There are “meaningful investments” in community colleges, the Division of Motor Vehicles, childcare and summer food programs, Stein said.
Finally, the budget removes a data center sales tax exemption on electricity costs that Stein previously recommended.
“These are real wins worthy of celebration and worthy of my signature,” he said.
However, the budget has a dark side for Stein. It shifts or removes scores of governor appointments to various boards and commissions, giving them to the legislature or Republican-held Council of State offices instead.
Hall wasn’t coy about Republican lawmakers’ motivations behind the change.
“Look it’s no secret, obviously, on policy matters we often disagree with the governor,” he told reporters.
Stein called the changes “unconstitutional and petty.” It’s possible that he could sue over the provisions, but in recent instances, North Carolina courts have ruled that executive power is shared among all Council of State members, not just the governor.
The governor also emphasized that while the raises for teachers, law enforcement and state employees are appreciated, they’re a first step.
First of all, they’re not retroactive, so they only apply to the second year of the biennium. Certain teachers, law enforcement and state employees will get small one-time bonuses instead.
State employee raises, which average 3%, don’t keep up with inflation, while veteran teachers get the short end of the stick, Stein said. The substantial law enforcement raises still place North Carolina in the bottom ten nationally on pay, he added.
Southeast Regional Teacher of the Year Hannah Moon spoke at the signing. She said there comes a point where passion is not enough.
“While this budget is a step in the right direction for public schools, there’s still a lot of work to be done,” she said. “While the $1,000 bonus looks really good on paper, North Carolina teachers spend about $1,400 of their own money on school supplies every year.”
Department of Adult Corrections Secretary Leslie Dismukes said a 15% average raise for correctional officers will help them recruit amidst a critical staffing shortage, during which they haven’t had the funds to adequately pay officers, fix prisons or rehabilitate inmates.
“Over the course of this budget cycle, our agency has lost more correctional officers than we have hired, while the prison population has grown by more than 1,000 people, decreasing our ability to run safe prisons,” she said.
Stein takes issue with continuing to reduce the income tax rate for individuals and corporations at a time when he thinks the state needs to bring in more revenue. He doesn’t agree with the continued funding for Opportunity Scholarships that allow students to earn scholarships to attend nonpublic schools.
Finally, he opposes a provision related to a now-abandoned I-77 South Express Lanes project, which would have expanded the highway through Charlotte with toll lanes.
The budget would require local municipalities who supported the project in 2024 to pay back the Department of Transportation about $60 million in already-spent planning and design investments. Municipalities can avoid this by changing their minds on the project within 90 days. But until they pay, they will not get funding for other transportation projects.
State Rep. Brandon Lofton, D-Mecklenburg said the move sets a “dangerous precedent.”
“You had a situation where our city council and our local government officials heard strong feedback from the community,” he said. “There are concerns, and they acted based on that feedback, so now we’re going to retroactively go back and penalize our city council and other governments that ability to listen to what they heard from their constituents?”
After the signing, Berger released a statement touting the past decade of Republican fiscal policy, which he said allowed them to both cut taxes and fund citizens’ needs.
“For over 15 years, Republicans in the General Assembly have meticulously crafted budgets to rein in the runaway spending Democrats were dependent on,” Berger wrote.”After decades of fiscal recklessness, Republicans right-sized state government and sent billions of dollars back to residents in the form of regular personal income tax cuts and reforms.”
Lawmakers shouldn’t get out of practice; they will have to restart the next two-year budget process in a matter of months if they want to meet the June 2027 deadline.
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