N.C. Republicans Reach Deal to Cut Taxes, Raise Teacher Pay

North Carolina’s top Republicans have reached an agreement on key budget sticking points, but still have some policy disagreements to continue working out.

House Speaker Destin Hall and Senate leader Phil Berger said at a news conference on Tuesday that they struck a deal on taxes, teacher pay raises, and funding for a children’s hospital, which were the biggest sources of disagreement between the two chambers when talks collapsed last year. 

“This is a starting point,” Berger said. “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.”

Under the agreed upon framework, starting teacher pay will increase to $48,000 before bonuses and local supplements. On average, teachers will see their base salary increase by 8%. Most other state employees, however, will receive only a 3% raise. Retirees will get a 2.5% bonus.

The House and Senate leaders also said they’ve agreed to advance a pair of constitutional amendments to voters this November that would cap the personal income tax rate at 3.5% and limit how much local governments can charge property owners.

Hall and Berger announced that the personal income tax rate will drop from 3.99% this year to 3.49% in the 2027, 2028, and 2029 tax years. The rates would drop to 3.24% from 2030 to 2032, followed by another cut to 2.99% in 2033 and 2034. The budget will make no changes to corporate income tax rates, which will be phased out by the end of the decade.

The chambers also agreed to put $208 million toward a children’s hospital that is a joint project between UNC Health and Duke Health. Berger has championed the hospital, while House negotiators took a more skeptical stance.

State lawmakers haven’t passed a comprehensive budget since 2023, prompting frustration among workers across the state. Teachers and state employees held a rally in Raleigh this month to call attention to a lack of meaningful pay raises. While the Senate wanted a 3% increase for starting teachers, House leaders favored a 22% increase. 

Hall and Berger said they don’t have all the legislative language worked out, so it could take at least another month before lawmakers vote.

“If things go smoothly, we could be in a place to have a vote on a conference report by the middle of June,” Berger told reporters after Tuesday’s voting session. “I think it’ll take that much time to get the details worked out.”

Hall added, “I wouldn’t be surprised if that’s the correct timeline, but I’m just confident that we’re going to get it done somewhere around that time period.”

The two leaders have yet to resolve a dispute about funding for NCInnovation, a nonprofit that seeks to help university researchers commercialize their work. Berger has supported it, but many House Republicans have been more skeptical of the initiative. While the House has called to claw back all $500 million set aside for the program, the Senate has pushed for $100 million to remain.

Hall said lawmakers are also likely to pass a separate measure providing additional funding for Hurricane Helene recovery, which isn’t included in the latest budget framework deal.

To get the bill across the finish line, Republicans will need at least some bipartisan support either from Gov. Josh Stein or legislators outside their party. House Republicans are one vote shy of the supermajority they would need to override any vetoes by the governor.

House Democratic leader Robert Reives was quick to criticize the proposed tax cuts and small salary increases for state employees, noting the latter does not keep up with latest federal data showing inflation at 3.8% and other cost of living increases.

“State employees aren’t getting a meaningful raise that helps them make up for the fact that we have increased their health insurance costs by an incredible amount,” he said.

Berger and Hall said they’ll continue to work with Stein, who will have 10 days to decide whether to sign off on the budget once it reaches his desk. The governor appeared to signal his support for the deal in a statement Tuesday evening.

“It is past time that our teachers, state law enforcement officers, and state employees get a meaningful pay raise and recognition for their service to the people of North Carolina,” Stein said. “Today’s announcement is only a framework, but if the final budget actually includes real salary increases, it would be welcome. The proof, however, will be in the pudding.”