NC lawmakers unveil long-awaited state budget with tax cuts, raises for state employees

North Carolina lawmakers, who have been at odds for more than a year over state spending priorities, released a long-awaited new state budget Tuesday. They now aim to approve the spending plan this week.  

The document, which was mostly finalized over the weekend after more than a year of negotiations, leaves intact the framework leaders of the state House and Senate agreed to in May that promises raises for all state employees, including sizable bumps for teachers and law enforcement officers. It also makes good on announced plans to trim income taxes.

At more than $34 billion, it’s the largest spending plan in state history — which Republican legislative leaders believe should be an endorsement of their tax-cutting strategies, which continue on in this new budget. The plan also contains some cost-cutting measures, such as the elimination of hundreds of state jobs. Proponents hope that by mostly targeting long-vacant jobs, they can effect savings without harming the current operations of the state.

“Our state’s fiscal health remains in great shape,” state Senate leader Phil Berger said in a statement. “This is a responsible spending plan that takes aim at bureaucratic bloat without endangering core services.”

The State Employees Association of North Carolina, which lobbies on behalf of state workers, strongly disputed that rosy view and pointed to the relatively small raises most state workers will receive.

“Legislators love to tell us how well North Carolina’s economy is doing, but this budget looks like the work of a state that's struggling,” the group’s Executive Director Ardis Watkins wrote. “State employees got no raise last year, while their healthcare costs went up dramatically.  This year, most will only get 3% — which doesn’t keep pace with inflation for this year much less makes up for last year.”

The budget also contains hundreds of millions of dollars for some big-ticket projects, such as a new children’s hospital in Apex, UNC-Chapel Hill’s Carolina North campus and Poe Hall on N.C. State University’s campus.

But it won’t include some big-ticket items, such as a mechanism to fund a Major League Baseball stadium in support of a possible expansion bid in Raleigh. 

The lack of a new budget has meant no raises for state workers, no new funding for state construction projects ranging from highways to universities, and uncertainty for many other programs.

Lawmakers previously announced the broad strokes of their agreement in May. But Berger, R-Rockingham, and House Speaker Destin Hall, R-Caldwell, have spent the past few weeks negotiating lingering disputes over budget priorities.

“This budget invests in the people of North Carolina,” Hall said in a statement. “It delivers historic raises, keeps taxes low, strengthens public safety, and protects taxpayer dollars by making targeted investments to crack down on waste, fraud, and abuse.” 

North Carolina is the only state that hasn’t passed a comprehensive budget for the fiscal year that ends Tuesday. Since the state operates on two-year budget cycles, the lack of a 2025 budget has meant that many state agencies have been operating under spending levels approved in 2023. 

The GOP-led House and Senate would still have to vote on the deal before sending it to Democratic Gov. Josh Stein for his consideration. Once approved, Stein would have 10 days to sign it, veto it or let it become law without his signature. 

Stein was announcing a new executive order on healthcare when the budget was made public. He told reporters there it was still too soon for him to say whether he’d veto it. There are some pieces of the spending plan Stein supports, although he had wanted to see lawmakers focus more on mental health, education and public safety, and less on the tax cuts and private school tuition vouchers that Republicans have prioritized.

“We’re going to be reviewing it incredibly closely in the coming days, but what we want is for the state to pass a budget that invests in our people,” Stein said Tuesday.

If he were to veto the Republican-led plan, lawmakers could be faced with additional negotiations if they can’t find the votes to override the veto. Republicans hold a veto-proof supermajority in the Senate, but not the House, although they’ve so far been able to override nearly all of Stein’s vetoes.

Here are some highlights of what’s in the budget, and what’s not. 

Raises for teachers, state workers. Most state workers would receive a 3% raise, lower than the rate of inflation in the past 12 months. State employees in prison or law enforcement jobs would get larger raises, ranging from 10.1% to 17.7% depending on their job. Teachers would get raises averaging 8%, with veteran teachers receiving less and early career teachers getting more. None of the raises would be retroactive for the current fiscal year; they would only begin in the next fiscal year, which starts Wednesday.

Bonuses for state workers, local cops.  In an attempt to make up for the past year's lack of raises, teachers and state employees would also be given a one-time bonus: State employees would receive a $1,000 bonus for those making more than $65,000 a year, and $1,750 for those making less. Teachers and assistant principals would receive a $500 if they have less than 16 years of experience, and $1,000 if more experienced. It also gives a $1,750 bonus to every local law enforcement officer in the state, even though they’re not state employees. All those bonuses are set to be delivered in mid- to late-October, the budget says.

State Health Plan boost. The budget injects several billion dollars into the State Health Plan, just ahead of a meeting the plan’s leadership is holding in July to possibly approve new premium hikes. State Treasurer Brad Briner didn’t say the money would stop the need for new premium hikes, but he did say the hikes would be much larger if this money isn’t approved. “If legislators had not made this additional investment, totaling nearly $4 billion, it could have meant increased premiums by as much as $38 per member per month,” Briner, a Republican, wrote in a news release.

Job cuts, job creation. The budget also adds new staffing in some agencies, notably beefing up the State Bureau of Investigation, the State Auditor and the Department of Justice. But it slashes hundreds of jobs in other agencies, particularly corrections, agriculture and health. When all are added and subtracted, the state will have 755 fewer full-time employees on the books, freeing up money that had been set aside for those salaries in case someone was hired.

K-12 changes. Dozens of changes to K-12 education are in the new proposed state budget. The proposal includes a host of changes related to improving math instruction. It also would ban schools from serving what have become known as “meals of shame” — alternative meals to kids with too much meal debt. Typically, those kids get served only fruit and vegetables and no protein-based entree. The proposal has so much more related to free period products, teacher licensure and a new way to challenge books that critics believe are inappropriate in some way. 

Income tax cuts. Berger and Hall have agreed to lower the income tax rate from 3.99% to 3.49%, and also promote a new constitutional amendment that would ban future legislatures from ever raising taxes above that limit. The lawmakers had sparred over whether to keep scheduled income tax cuts in place. The state’s revenues are growing, so lawmakers think they’ll be able to balance the new raises — plus higher costs, driven by inflation, for construction and other government needs — with the new tax cuts. The budget would also set up a system of future tax cuts that could drop the income tax rate as low as 2.49% by 2034, as long as state revenues continue hitting certain trigger levels.

Closing tax loopholes. The budget would close certain tax loopholes and exemptions for data centers and nonprofits, including some hospitals. The provisions could save the state tens of millions of dollars annually, possibly more.

No baseball. Lawmakers excluded a framework for a $1.7-billion Raleigh stadium — a plan that would support a Major League Baseball expansion bid, people familiar with the matter said. The proposal was supported by the Senate, but the House leaders opposed public funding for the project. The proposal called for $500 million in state funding with the rest of the stadium money coming from local revenue sources, sports gambling taxes, personal income tax withholdings from players and performers at the facility and the creation of a sports and entertainment taxing district. Lawmakers could revisit the idea outside of the budget process or in a future budget. 

"I think the House has made it clear that they are not in favor of going forward with baseball," Berger told reporters Tuesday. "Whether another opportunity will come up as we go forward, I don't know. I think it would be beneficial for the state if that were the case, but again, for us to move forward with initiatives like that, it requires a good bit of consensus, and that consensus was elusive."

Hall said Tuesday that he didn’t consider it a dead issue. But he said his chamber wasn’t immediately comfortable with the mix devised to pay for the stadium and there was concern that other markets hadn’t made similar legislative moves yet toward expansion. “Our feeling on it was maybe it's too much too soon,” Hall said. He noted that collective bargaining discussions between Major League Baseball and its players could drag on and give the state more time to think about its plan.

“It's not a matter of us just philosophically saying we would literally never do anything, to promote this,” Hall said. “It's more of a question of smartly using taxpayer dollars, looking to see what other places are doing, because if you do everything at once, right now, in many ways, you set the floor for what the next city may do, and sort of ups the bidding war, and we just don't think that's the wise way to go about using taxpayer dollars.” 

He added: “Whether there's a future for it in us doing something is an open question. I don't think that there's much support within my caucus for the current total proposal, and so you know we're down here to the wire and want to pass a budget, so that was sort of the end of those discussions. But we'll see if it goes anywhere in the future.”

Money for children’s hospital. The legislature agreed to put an additional $105 million toward a new children’s hospital to be built in Apex, bringing the state’s total commitment to about $425 million. They were expected to raid a fund for rural health care to pay for it, saying that the rural program — which was supposed to have been a joint effort by the University of North Carolina  and East Carolina University — never got off the ground. As part of the 2023 state budget, the legislature promised nearly $320 million to the children’s hospital. The $3 billion hospital, to be built in Apex through a partnership between UNC Health and Duke Health, is expected to create 8,000 jobs and conduct cutting-edge treatments and research into rare or hard-to-treat pediatric disorders. It’s a top priority for state Senate leader Phil Berger and other Senate Republicans, who originally wanted to spend hundreds of millions more on the project. But House leaders have questioned the wisdom of spending so much money when pediatric care already exists in the Triangle and while hospitals in areas far less wealthy are struggling to keep their doors open.

Increased taxes on betting operators. The budget would increase the rate at which the state  taxes sports gambling operators. The state collects 18% of gross wagering revenue from eight legal and regulated operators. It has collected more than $287 million in taxes since the March 2024 launch of online sports betting, far exceeding initial projections. The budget would increase the rate to 23%, WRAL previously reported. Lawmakers have also considered an additional tax to lottery sales and individual sports bets, WRAL previously reported. Operators have warned that beneficiaries of gambling revenue could lose out if taxes are raised on bettors or betting operators and bettors turn elsewhere, even to illegal options, if it becomes more expensive to bet legally in North Carolina.

Tax revenue sharing for UNC, NC State. The University of North Carolina and NC State University would get a cut of the revenue from sports gambling taxes under the new budget. UNC and NC State, the state's largest and most popular public school athletics departments, have been left out of distributions from taxes on sports betting operators that have flowed to the other 13 UNC System schools. The budget would include the Triangle rivals in a revamped distribution model. The schools — along with other Football Bowl Subdivision Appalachian State, Charlotte and East Carolina — could receive up to $5.8 million annually beginning July 1, 2027, according to a budget proposal reviewed by WRAL.

PFAS studies. The proposal calls for spending millions of dollars to detect and remediate per- and polyfluoroalkyl substances: a group of man-made chemicals known as “PFAS.” The budget would give the North Carolina Collaboratory at UNC-Chapel Hill $15 million for research and remediation of PFAS near North Carolina fire stations. Toxic chemicals can be found in firefighters’ protective gear and firefighting foam. The money can be used to develop and implement a pilot program for deep cleaning of firefighter protective gear to mitigate PFAS exposure. It could also be used to provide temporary water supplies to fire stations on water wells with elevated levels of PFAS, and to test water in wells used by firefighters. The proposal also requires the UNC program to study the effects of PFAS more broadly and conduct “toxicological impact assessments” of its effects on the state’s drinking water. 

WRAL reporters Jack Hagel and Brian Murphy contributed to this report.