NC lawmakers announce 'starting point' for a budget deal, after a year of negotiations

North Carolina lawmakers reached a deal on the broad strokes of a comprehensive state budget, ending a yearlong standoff over state spending priorities, legislative leaders said Tuesday.

The agreement includes raises for all state employees, including sizable bumps for teachers and law enforcement officers, and an accord on scheduled income tax cuts. 

“Our caucuses have the same general philosophy of wanting to make sure that we're paying people the right amounts in state government, but also continuing to deliver tax relief,” House Speaker Destin Hall said during a news conference at the state legislative building alongside Senate leader Phil Berger.  

It was a deal more than a year in the making. The House and Senate each passed budget proposals in March and April of 2025, but quickly ran into roadblocks that derailed negotiations. 

The initiatives discussed during the news conference Tuesday were some of the biggest hurdles. Now lawmakers plan to get to work on the finer points of a broader budget document. 

Pay raises were the centerpiece of the deal.

Under the agreement, all state employees would receive raises of at least 3%, which is less than the annual rate of inflation: 3.8% as of April, the federal government revealed Tuesday. Teachers would receive higher raises, averaging about 8%.

Some other state employees can also expect substantially larger average raises: 17.7% for Highway Patrol officers and 13% for other state law enforcement officers, 15.4% for prison workers and 10.1% for probation and parole officers.

Watch: NC Senate leader Phil Berger, House Speaker Destin Hall discuss budget deal

None of the raises would be retroactive for the current fiscal year; they would only begin in the next fiscal year, which starts in July. In the meantime, teachers and state employees would be given a one-time bonus for this year. The deal provides for $1,000 bonuses for those making more than $65,000 a year, and $1,750 for those making less.

The North Carolina Association of Educators, a teacher advocacy group, criticized the raises as being far below what’s needed to bring North Carolina’s average teacher pay in line with the rest of the country. The group also said the raises don’t make up for the billions of dollars Republican lawmakers have redirected to private school tuition vouchers, called opportunity scholarships.

Hall, R-Caldwell, said it’s possible to fund all types of education programs. “We want to fund education,” he said. “That includes opportunity scholarships — letting parents decide whether kids go to school — but at the same time, making sure you're taking care of the public schools, keeping them at the right market pay.”

Watch: North Carolina House Speaker Destin Hall discusses budget deal

The chambers were also in agreement on taxes, another key sticking point. Income tax cuts wouldn’t go into place as aggressively as fiscal conservatives in the Senate had wanted under the deal.

The state’s current income tax rate is 3.99%, down from 4.25% in 2025. The new budget deal would institute gradual decreases over the next few years until it hits 2.99% in 2033. The deal makes no changes to planned cuts to the corporate income tax rate, which is 2% now and set to hit 0% in 2030.

The Senate originally wanted to cut taxes more aggressively, while the original House plan would've paused tax cuts, at least temporarily, to fund higher raises. In addition to meeting in the middle on taxes, both chambers agreed in principle to put two anti-tax amendments on the ballot in November.

One is a property tax cap House Republicans could vote to approve as soon as this week. The other would prevent any future state legislature from ever raising income taxes above their current level of 3.99%. It would ultimately be up to voters to approve or deny those ideas. North Carolina voters already approved a similar income tax cap amendment in 2018, lowering the maximum rate from 10% to 7%.

Berger, R-Rockingham, said he wasn’t concerned about possibly forcing future legislature to enact major spending cuts if revenues dried up. He noted that state spending has increased by billions of dollars in recent years, even as Republicans have cut taxes. Taxable wages are increasing, and the population is growing.

“I have a lot of confidence that, even at the lower rates, you're going to see the growth in the economy basically account for those additional dollars,” he told WRAL on Tuesday.

Other details of the deal were expected to be released in the coming weeks.

“This is a starting point,” Berger said during the news conference. “There's still a lot that will need to be decided and discussed between the two chambers. But this agreement sets out a good framework for us to move forward.” 

Republicans need little to no Democratic support to pass a budget. Democratic Gov. Josh Stein said Tuesday that he opposes the idea of that constitutional amendment to prevent future tax increases, saying it “would put North Carolina in a financial straight jacket — but otherwise is encouraged that Republicans have finally reached a deal to pay state workers more.

“Today’s announcement is only a framework, but if the final budget actually includes real salary increases, it would be welcome,” Stein wrote in a statement.

In budget proposals passed last year, GOP leaders in the chambers agreed broadly that they wanted to cut taxes and give state workers raises. Each chamber also proposed eliminating vacant state jobs, raising public university tuition and cutting tens of millions of dollars from public universities to help fund their other priorities. But in those proposals, leaders disagreed over the level of all of those items, and more.

Senate Democratic leader Sydney Batch, D-Wake, was dismissive of the news of a budget deal. For months, a countdown clock outside her office has tracked how late the budget has become, since the start of the current fiscal year July 1.

"I am not about to give Republicans any credit for finally showing up to do the job they were elected to do after 316 days of delay and failure — especially when they still don't have a full plan, and especially when, yet again, no Democrats were invited to the table to help build one," she wrote in a statement.

WRAL first reported details of the negotiations over raises on Monday. And before lawmakers unveiled the finalized plans, Democratic leaders and advocates for state employees had begun to grumble about the deal.

Watch: NC Senate leader Phil Berger discusses budget deal

Ardis Watkins, executive director of the State Employees Association of North Carolina, said early Tuesday that the proposed increases would likely disappoint state employees because they aren’t enough to keep up with rising costs. 

She also warned that it could lead to more turnover in state agencies, which she predicts would lead to higher recruiting costs for the state. “It's a cycle,” Watkins told WRAL before the deal had been officially announced. “It's not fiscally responsible. It's not saving any taxpayer money."

House Minority Leader Robert Reives, D-Chatham, also criticized the proposed raise levels, citing rising inflation and increased health care costs for state employees.  

“Any pay raise that falls below inflation and the increased cost of the State Health Plan will effectively be a pay cut for employees who serve our state,” Reives said. 

North Carolina is the only state in the country without a new budget. If the budget agreement passes both houses of the General Assembly, it would then go to Stein, who can pass, veto or let the bill become law without his signature. If he were to veto the deal, Republicans would need help to override it; the Senate has a veto-proof majority, but the House is one seat shy of a supermajority.

Stein has laid out his own budget priorities — including substantial teacher pay raises that he’d pay for by slashing funding for a key GOP priority, private school tuition vouchers.

The legislature already reached a deal to fully fund the state’s Medicaid program, in near-unanimous votes last month. That program had been among the casualties of not having a new budget. 

In North Carolina, unlike in the federal government, there’s no government shutdown when a budget fails to pass. Instead, state programs continue operating at old levels of approved spending — which has caused some issues in a fast-growing state like North Carolina.

WRAL state government reporter Paul Specht and WRAL state government editor Jack Hagel contributed to this report.