NC Senate backs budget with tax cuts, smaller raises, major new development program

The state Senate passed a $30 billion budget proposal Thursday, calling for tax cuts, a new $1.4 billion economic development program tied to the state’s university system, a major boost for private school vouchers and stingier state employee raises than their counterparts in the North Carolina House.

The votes Wednesday and Thursday were bipartisan, with 7 of 20 chamber Democrats joining the Republican majority to vote yes despite a litany of complaints about the proposal, including concerns over education funding.

The Republican majority called it a responsible plan that returns money to taxpayers, funds state government and builds up state reserve accounts — including an account meant to cover inflation costs for previously planned construction projects. Democratic Gov. Roy Cooper on Wednesday called the Senate proposal “a historic disaster for public education.”

Senate Democratic Leader Dan Blue, D-Wake, said it missed an opportunity to boost public school funding further and build on the state's recent run of strong economic growth, which Blue acknowledged the GOP majority deserves credit for.

"We don’t seize the opportunity [in this budget]," Blue said. "K-12 education fuels North Carolina’s competitive advantage."

Now House and Senate leaders will negotiate away the substantial differences between this proposal and one the House passed in early April, including differences on salaries for teachers and state employees. Once that’s finished, Republican lawmakers have the numbers they need in the legislature to make their budget law regardless of opposition from Cooper.

Senate Republican Leader Phil Berger, R-Rockingham, said conversations with the House should start next week and the budget should be final by mid-June. “I don’t know where we’ll end up [on salaries]," Berger said. "This is just kind of step two in a three-step process.”

Not only will the budget reset funding for all of state government, its final passage will trigger Medicaid expansion in North Carolina, extending the taxpayer-funded health insurance program to hundreds of thousands of new people as part of a deal struck earlier this legislative session.

The bill includes raises for state employees and teachers, though they’re smaller than the House’s Republican majority called for last month. State employees would get 5% across the board over the budget’s two-year life, with another $94 million available for targeted raises to help fill some of the state’s hardest to fill jobs.

Vacancies at state agencies routinely top 20% as state agencies struggle to recruit and retain employees.

Teachers would get an average pay boost in this budget of 4.5% over two years, though first-year salaries would go up more: From $37,000 now to $39,000 in the budget’s first year and to $41,000 in the second year. Those are base salaries and don’t include local supplements, which in many counties total several thousand dollars.

The state also funds supplements in poorer counties, and GOP lawmakers said average teacher pay will hit $59,121 by fiscal 2024-25 under the Senate budget.

Cooper complained that teachers with 15 years experience or more will only get an extra $250 over two years under the Senate's plan. Berger acknowledged budget writers focused on starting teacher pay, but he said veteran teachers should remember the state's generous retirement plan, calling it “a fairly significant pension that is unlike what you see in the private sector.”

The Senate budget also cuts taxes more aggressively than the House plan, taking the current 4.75% personal income tax rate down to 4.5% next year and to 3.99% for 2025.

Senators also backed a new $1.4 billion endowment in this budget for NCInnovations, a group that works with the UNC System to monetize research.

The proposal contemplates large increases in the state’s Opportunity Scholarships, which currently provides private school vouchers to families under certain income thresholds. The Senate budget replaces those thresholds with a tiered system so that the poorest families get the most money for private school tuition, but any family qualifies.

The budget also boosts the program’s annual funding, taking it above $500 million a year by 2031. Democrats tried to amend the bill to shift Opportunity Scholarship money into a new community college scholarship program open to any North Carolinian who graduates high school with at least a 2.0 grade point average, but Senate Republicans defeated the amendment.

Senate Republicans also batted away a Democratic amendment that would have taken $105 million out of the voucher program and spent it instead on bulltproof backpacks for school children. Sen. Michael Garrett, D-Guilford, said if Republican lawmaker weren’t going to pass new gun laws this session to protect children, at least they could help them survive a school shooting.

House Republicans also support overhauling the school voucher program and passed legislation along those lines today.

Cooper in past years has pushed to phase out Opportunity Scholarships altogether, freeing that money for public K-12 schools. He said Wednesday that “the Republican Senate budget will destroy public education while prioritizing tax cuts to enrich corporations and the wealthiest North Carolinians.”

The Senate budget doesn’t include new corporate tax cuts, but it continues cuts GOP lawmakers passed in 2021, which will drop the corporate income tax rate to zero between now and 2030. Democrats offered a budget amendment Wednesday to forego those future cuts and keep the corporate rate where it is now, at 2.5%, the lowest rate in the nation among states that have a corporate income tax. Republicans defeated the amendment.

Democrats also tried to amend the tax code by re-enacting the state's child tax credit, which the Republican majority voted away several years ago. That amendment also would have boosted what the state pays to supplement childcare costs for working parents, something the state’s business community has called for.

"If you say you’re for children, women and families in North Carolina, then you will support this amendment,” Sen. Gladys Robinson, D-Guilford and the amendment’s sponsor, said before the measure was defeated.

In the end, Robinson voted for the budget bill.

The Senate budget is laid out in two documents that together take up more than 1,000 pages. It covers two years, with $29.8 billion in state spending for the first year and $30.9 billion in the second.

Other items in the Senate proposal include:

Judiciary changes

The bill tinkers with judicial procedures used to decide the constitutionality of General Assembly decisions, giving the chief justice of the State Supreme Court — currently Republican Paul Newby — more authority to pick the three judge panels that initially deal with these cases.

These lawsuits are common, particularly after the General Assembly redraws election districts or changes voting laws. Right now the chief justice picks two of the three judges that hear these cases. The Senate budget would let him pick all three.

Sen. Mujtaba Mohammed, D-Mecklenburg, tried to amend this change out of the budget, saying it was “clearly aimed at consolidating power within the General Assembly.”

Mohammed also tried to do away with a budget provision that would have the General Assembly appoint 10 new special superior court judges. These are judges who fill in for other judges around the state and often take complex cases. They're currently appointed by the governor, with General Assembly confirmation.

Republican Senators tabled Mohammed’s amendment without comment, killing it. After the vote Berger said legislative leaders want to make sure the new judges have "some level of experience and expertise."

Asked about the decision to give the chief justice more control over judicial panels, Berger noted that "the chief justice is elected by all the people in North Carolina."

Newby was reelected in 2020. He's slated to hit the state's mandatory retirement age for judges, 72, in 2027, but Republican lawmakers are advancing legislation this session to move that retirement age to 76.

Hospital threat, rules

The Senate proposal says any hospital in a county of more than 210,000 people must help the State Health Plan, which covers nearly 750,000 people, realize $125 million in savings in 2026 or risk losing their license, which would effectively close the hospital.

The savings target represents about 8% of the $1.6 billion the State Health Plan expects to spend at hospitals in 2025, according to plan staff.

The threat is part of a running battle between hospitals and State Treasurer Dale Folwell, who has pushed hospitals to cut prices and be more transparent about what procedures actually cost. Senate budget writers said they don’t expect hospitals to actually lose their licenses, but that this is a move to force better contracts.

There are a number of other provisions in the Senate's budget affecting hospitals, including a rollback in regulations limiting competition in that industry and a requirement for hospitals to cut costs for the State Health Plan or lose their licenses to operate.

The budget also has language in it that would allow Charlotte-based Atrium Health to expand significantly in the state.

Retiree cost-of-living adjustment

The Senate included a 1% bonus for state retirees in each year of its budget. The House included 1% each year as well, but that was a permanent cost-of-living adjustment that would carry forward beyond those two years. The Senate’s COLA is non-recurring, and would go away after two years. Sen. Joyce Waddell, D-Mecklenburg, ran an amendment to increase the COLA to 2 percent this year, but it was defeated.

School lunches

The Senate budget has $9 million in it over two years to cover reduced-lunch co-pays so that any student eligible for free or reduced lunch would get a free lunch.

The budget also forbids local school systems from penalizing students who have school debts, banning schools from withholding transcripts, report cards and other records. Schools also couldn’t forbid students from participating in graduation ceremonies or receiving their diploma.

New hospital construction

As part of the Medicaid expansion deal lawmakers approved earlier this year, the state will get roughly $1.6 billion from the federal government once expansion takes effect. The money was an enticement Congress approved for states that hadn’t yet expanded the federally funded program.

The Senate budget would invest much of this enticement in health care infrastructure, including:

• $500 million for a new UNC children’s hospital in the Triangle area
• $370 million for a partnership between UNC Chapel Hill and East Carolina on three regional health clinics
• $50 million for a new regional behavioral hospital in Greenville, with a plan to eventually create five of these facilities in various places.

Contraception and abortion

Legislative Republicans on Tuesday passed new abortion restrictions over Gov. Roy Cooper’s veto. That legislation, Senate Bill 20, contains new funding for contraception, along with new abortion rules and other measures.

The Senate budget includes language that would forbid the state from sending any family planning money to an entity that performs abortions. Similar language is already part of state law, but in a manner that has to be re-upped every so often, according to Planned Parenthood, which is affected by the language.

The Senate budget would make the rule permanent, Planned Parenthood South Atlantic spokeswoman Molly Rivera said. It would also ensure that Planned Parenthood won’t qualify for contraceptive funding from the abortion bill.

African American monument

The budget includes $3 million to design and install a long-discussed monument on the state capitol grounds honoring African Americans in the state.

School of Civic Life and Leadership

This budget has $4 million in it over two years to start the new School of Civic Life and Leadership at UNC Chapel Hill.

The new school has support from UNC leaders, but it's controversial with faculty and has been seen as an effort to inject more conservative ideas into the campus curriculum.

The Senate budget also cuts $5 million, each, from the UNC School of Government and UNC School of Law over two years.

Community college changes

Senate Republicans baked into the proposal a number of changes to the state’s community college system, which they’d already proposed in separate legislation.

That includes changes in the way the community college board is appointed, which shifts appointments from the governor to the legislature, and a new requirement that new system presidents be confirmed by votes of the General Assembly.

The system recently hired a new president who won’t be subject to that requirement, even if it becomes law.

Governor’s salary

The Senate proposal boosts the governor’s annual salary from $165,750 now to $198,120 starting July 1 and to $203,073 a year come July 2024.

The bill also boosts salaries for other members of the Council of State, which is a group of statewide elected officials including the lieutenant governor and attorney general. Salaries for those nine jobs would be $168,384 a year after July 1, 2024.

Rural doctors

This budget also has $8 million a year in it for a new forgivable loan program for medical students who go on to practice primary care medicine or psychiatry in poor or rural North Carolina counties. Up to $100,000 per student could be forgiven.

Transportation

This budget boosts road construction, in large part due to continuation of a policy passed last year to shift some of the state’s sales tax revenue into the Department of Transportation’s budget.

Senators proposed $5.3 billion in the first year of this transportation budget, an increase of 17%. The second year would total $5.6 billion.

Permits and fees

The Senate budget would raise a number or fees that GOP leaders said haven't increased in decades.

Many of those fees go to the state's Department of Environmental Quality, which would find itself pressured to speed up or ease a number of permitting processes if this budget becomes law.

One section would prohibit the department from refusing to permit natural gas and other projects because the project failed to get another required permit, unless the refusal is required by state or federal law.

Another budget section would cut the processing time for air quality permits and expand the scope of construction that could occur before a permit is required.