N.C. Lawmakers Haven’t Passed a Budget Since 2023. Can They Do It Now?

When lawmakers return to Raleigh on Tuesday, House and Senate Republican leaders will have a lengthy to-do list. The top priority will be something they haven’t done in 942 days: passing a comprehensive budget.

Talks between the two chambers collapsed last year amid a dispute over whether to implement tax cuts as planned, as well as high-profile disagreements over two projects—a proposed children’s hospital and a research support nonprofit—championed by Senate leader Phil Berger. Legislators also kicked the can on closing a Medicaid shortfall into 2026.

Then, last month, Berger lost his GOP primary, creating a leadership shake-up following his more than 15 years in the chamber’s top job. Several Republicans have already begun jockeying for the job. Across the two chambers, at least 18 other lawmakers are also lame ducks, either because they lost primaries or didn’t seek reelection.

Upheaval aside, General Assembly leaders have said they plan to pass a budget and have shown some openness to negotiate on some issues. But no one has indicated, publicly at least, that they have resolved the tax fight that was the biggest sticking point last year. 

Meanwhile, teachers and state employees have expressed frustration that they didn’t receive meaningful pay raises last year. The 2023 budget gave teachers an average 7% raise over two years, but they haven’t gotten a boost since. The UNC System wants more than $150 million to support enrollment in state universities. Democratic Gov. Josh Stein says Medicaid will run out of money sometime this spring, and he also wants more funding to help Western North Carolina recover from Hurricane Helene. 

He said the state has changed since the legislature last passed a comprehensive budget.

“We added 325,000 people, experienced 6% inflation, suffered the most damaging natural disaster in the history of the state, and are living through a federal government which is pushing hundreds of millions of dollars of expenses onto the state that it used to cover,” Stein said in an interview. “The world has changed dramatically in two and a half years, but our budget does not reflect those changes.”

Neither Berger nor House Speaker Destin Hall agreed to an interview ahead of the start of the short session. Sen. Brent Jackson, a Sampson County Republican and appropriations chairman, said in a statement that he and his House counterparts haven’t stopped talking.

“Senate budget writers are already engaged in conversations with our colleagues in both the House and Senate to lay the groundwork for a responsible budget that prioritizes the needs of all North Carolinians,” Jackson said. “To do so, we need to remain committed to keeping our spending in check, eliminating bureaucratic bloat, reducing the tax burden on our citizens, and ensuring our state has the adequate funding necessary to provide services and pay our hardworking state employees.”

Deal or No Deal?

Under a 2023 budget deal between Berger and former House Speaker Tim Moore, the personal income tax rate for the 2026 calendar year will drop from 4.25% to 3.99%. Further annual reductions of 0.5 percentage points depend on meeting future state revenue targets, but the law allows the personal income tax rate to drop as low as 2.49%.

Estimates from nonpartisan budget analysts last month show the state is on track to hit its next two revenue targets, which would drop the personal tax rate to 2.99% in 2028. Meanwhile, the corporate income tax rate will phase out altogether by 2030.

Other projections, though, have anticipated that the state is approaching a fiscal cliff, with revenue shortfalls starting in the 2026-27 fiscal year and rising substantially to a roughly $2 billion annual deficit. The latest estimates from state budget analysts show the deficit could balloon to more than $5 billion by the 2029 fiscal year.

Hall, who took over Moore’s job last year, has said he fears continuing the trajectory of aggressive tax cuts could devastate the state economy. His chamber’s budget proposal last year called for pausing the tax rate at 3.99% through 2027 unless the state hit a more ambitious revenue target.

“We must protect North Carolina’s hard-earned reputation for fiscal strength by passing a responsible budget sooner rather than later,” Hall said in a statement after last month’s revenue forecast.

Senate leaders, however, believe the fears are overblown. Its budget would have gone even further than the already-approved tax cuts by doing away with revenue triggers for the next three years and automatically dropping the tax rate to 3.99% in 2026, 3.49% in 2027, and 2.99% in 2028.

“Our policy success is largely grounded on the continuing exercise of discipline on two fronts—tax reduction and spending restraint,” Berger wrote in a column on Medium last week. “Failure to adhere to fundamentals on either front will thwart sustaining progress in our never-ending competition with other states for economic growth, job creation, and a better future for our people.”

Unlike the now-common shutdowns at the federal level, state funding in North Carolina continues at existing levels in the absence of a budget deal. That has left the Senate with little incentive to negotiate over the tax cuts. 

The House budget also would have devoted more money to teacher and state worker pay increases than the Senate wanted, while the House called to defund a Berger-backed project called NCInnovation, a nonprofit that supports and tries to commercialize university research. 

The Senate budget called to maintain some annual funding for NCInnovation but would divert $400 million from its endowment and give it to the planned children’s hospital in Apex, a partnership between UNC Health and Duke Health. A Berger spokeswoman later said the number the Senate was seeking for the hospital had been reduced to $103.5 million. Meanwhile, Hall and House Republicans called for clawing back funding for the hospital.

Medicaid Mess

At the same time Republican leaders were bickering internally over tax cuts, they were also beefing with Stein over Medicaid. His administration says the insurance program for low-income people needs $319 million to cover increased enrollment and expenses.

The House and Senate both passed bills to send extra money to Medicaid, but other policy disagreements got in the way. In the fall, Stein tried to jolt them into action by slashing the amount doctors, hospitals, and other providers would be reimbursed for care covered by Medicaid, saying it was necessary to prevent steeper cuts later on.

The decision backfired. Lawmakers argued the rate cuts were unnecessary because the program still had months of funding. Stein’s administration reversed course on the cuts two months later.

Now, the governor says Medicaid really is approaching a crisis before the end of this fiscal year on June 30, although he hasn’t given a firm date when the program will run out of money.

“We don’t know to a day when the money is going to run out, but what we do know is that we do not have enough money to meet the needs of the program through the end of this fiscal year,” Stein told The Assembly. “It’s like driving down the highway when your tank is running on empty. You don’t wait until it actually stops running on the highway because you’ve run out of gas. You pull off the side of the road and you refill your gas tank, and that’s what we need to do with Medicaid.”

State Rep. Jake Johnson, a Polk County Republican and deputy majority whip, said he thought lawmakers could reach a smaller deal that resolves the Medicaid issue and deals with some others, even if they can’t agree on a comprehensive budget.

He proposed taking funds from NCInnovation’s endowment and diverting them to Medicaid instead of the children’s hospital, as the Senate had proposed.

“People’s health care is more important than these maybe projects that might pan out down the road sometime,” Johnson said.

Cost of Inaction

Republicans and Democrats alike enter the short session expressing concerns about affordability. The House is calling for a constitutional amendment to limit how local governments can raise property taxes. Berger has pledged to file a bill for a yearlong freeze on county property tax revaluations.

Stein expressed concern for families being priced out of communities but said he also wants to ensure local governments aren’t hamstrung.

“Local governments have a whole bunch of new responsibilities that they didn’t have before, and I want to make sure that we’re not unduly limiting their ability to meet the needs of their residents,” Stein said.

The governor and House lawmakers are still pressing the Senate for bigger raises for teachers. The House budget proposal last year called for a 22% increase to starting teacher pay, from $41,000 to $50,000, while the Senate’s included a 1.2% raise (3.3% when supplemented by one-time bonuses).

The North Carolina Association of Educators is organizing a rally outside the Capitol on May 1 to call for more public school funding and better teacher pay.

“Our lawmakers have shown time and again that the resources exist—they have simply chosen not to invest them in our children,” NCAE President Tamika Walker Kelly said in a statement. “If they will not act, we will.”

There could be bipartisan agreement this year around the funding necessary to get victims of Hurricane Helene back into their homes and for local governments to rebuild devastated infrastructure. 

Stein and top legislative Republicans said they hope the pace of disaster recovery will improve with new Homeland Security Secretary Markwayne Mullin at the helm. Since taking over from former Secretary Kristi Noem, Mullin has eliminated a policy that required the secretary’s personal sign-off on expenditures of more than $100,000. Stein has called for an additional $792 million in state spending and is renewing his push for $13.5 billion in additional federal support.

Stein is also pushing for increased public safety spending, especially for state troopers and correctional officers: “We have thousands of vacant correctional officer positions, and when we don’t have enough well-trained public safety officials or law enforcement officers on the job, we are all less safe.”

Johnson was skeptical, though, that there would be any progress on the issue of medical marijuana, which the Senate overwhelmingly supported legalizing in 2023. Stein said recently that he supports a regulated market for adult cannabis use. Then-Speaker Moore said at the time the House GOP majority wasn’t open to legalizing marijuana use, and Johnson said it’s unlikely enough House Republicans have changed their minds on the issue.

How departing lawmakers—Berger included—will approach the budget and any other policy issues is an unanswered question looming over the short session.

Two new members will be sworn in this month: Democratic Sen. Jonah Garson and Republican Rep. Anna Ferguson. Garson will take the seat of Sen. Graig Meyer, who resigned last month to lead the North Carolina Justice Center, while Ferguson is replacing Rep. Mike Clampitt, who died of cancer last month.

At least 15 Republicans and 4 Democrats are leaving at the end of the year, a number that could grow if any incumbents lose in November. 

“If somebody’s not coming back, are they going to kind of play it more conservative not knowing what they could do going forward, or is it anything goes?” Johnson said. “There’s two very different attitudes for someone who’s still got time left on their term.”