Republican leaders in the North Carolina Senate plan to introduce and pass their two-year state budget as early as this week, setting up what could be a lengthy debate with their House colleagues and, potentially, a fight with Democratic Gov. Josh Stein over spending, planned tax cuts and policy priorities.

The budget is often stuffed with divisive policy changes that get packaged together with more than $30 billion in spending decisions that impact state workers, schools, transportation and public safety for the state’s 11 million residents.

Other WRAL Top Stories

“It’s a budget that will meet the needs of North Carolina,” Senate leader Phil Berger, a Rockingham County Republican, told reporters last week.

Senate Republicans plan to release the budget Monday, hold committee hearings on it Tuesday and vote on Wednesday and Thursday, Berger said. But that fast-paced schedule won’t be the only chance for the general public to weigh in. Leaders in the state House will eventually propose their own changes, then the two chambers will enter negotiations. This is the Senate's year to go first.

The current state budget is $31.7 billion. GOP lawmakers propose bringing that up to $32.6 billion in the coming year and $33.3 billion in 2026-27. Lawmakers set a two-year budget in odd years, then often make changes or tweaks in the second year.

Stein proposed a larger increase, to nearly $34 billion, which would be paid for by keeping tax rates the same — instead of continuing with tax cuts that Republicans favor — as well as by slashing another top GOP priority, the state’s taxpayer-funded private school tuition vouchers. But Stein has little say in the spending plan because the chambers are controlled by Republicans who approve the final budget.

Republicans hold large majorities in both chambers of the General Assembly, but are a single vote shy of a supermajority in the House that would enable them to override Stein’s vetoes without Democratic support.

“We have to invest in strengthening our families and lowering costs,” Stein said in March. “Too many families can’t afford the bare necessities, like groceries, housing, health care, so we have to lower costs wherever we can.”

Berger said the Senate’s proposal would replenish the state’s rainy day funds, a reserve of billions that lawmakers have used to deal with the devastating impacts of Hurricane Helene in Western North Carolina. Lawmakers have allocated more than $1.5 billion for recovery. Berger said the fund would grow back to $4.75 billion, if the Senate budget plan becomes law.

That could lead to cuts elsewhere. Republican President Donald Trump's administration has made cutting the federal budget a priority, which could impact North Carolina since the state receives billions of dollars a year from the federal government for health, education and more. Trump’s plans have also inspired state Republicans to seek their own cuts in state government.

“We have asked all of our budget subcommittees to look at their areas,” Berger said, “and if there are programs that could be curtailed, if there are situations where we’re spending more money than we need, to take the appropriate steps.”

The House, too, is focused on finding efficiencies in the state government, said Rep. Erin Pare, a Wake County Republican and one of the chairs of the appropriations committee. Republicans have controlled the state legislature for more than a decade. Pare said she was happy the chambers could agree to the top-line spending number and they aim to complete work before the Fourth of July.

The new fiscal year begins July 1. But unlike the federal government, state government doesn't shut down if there isn't a budget agreement. The state continues to operate under the current budget.

"The real work, though, happens when you work down from that and look at some of the priorities that are in front of us and looking for efficiencies in state government, how to spend taxpayer dollars and, of course, how to to make sure that we are responsible in allowing taxpayers to keep more of their hard earned money," Pare said.

Berger was light on details of what exactly would be in the Senate budget as lawmakers work through the weekend.

“If the ‘what might be in there’ was in a list, that list would go from here to California,” said Berger, who has held his position since 2011.

Tax policy

The personal income tax rate is scheduled to drop to 3.99% in 2026. Berger, long a proponent of cutting income tax rates, said there will be no tax increases, even as Stein has warned of looming revenue problems, citing a bipartisan revenue forecast that said North Carolina is heading to a deficit by 2026 unless planned tax cuts are stopped.

“North Carolina is approaching a fiscal cliff that threatens our ability to invest in rebuilding western North Carolina, strong public schools, people’s health, infrastructure, and other services we need to make North Carolina safer and stronger," Stein wrote in February.

Berger downplayed the risk. He said nothing he has seen with the national economy, turmoil in the stock markets over President Trump’s tariff policy or in the state has indicated to him that a change in course to the current tax cut implementation schedule is necessary. The personal income tax rate will fall to 3.49% if the state reaches certain revenue thresholds in future years and could eventually reach as low as 2.49%. The corporate income tax rate is scheduled to fall to 0% by 2030.

“I remain optimistic that North Carolina’s economy is growing, will continue to grow, and I think we’ve got the capacity to further reduce the tax burden on everyday North Carolinians,” said Berger, who has been in his role since 2011.

Berger has ruled out tax increases. House Speaker Destin Hall also ruled out the possibility of tax increases last month. But he left open the chance that lawmakers could take Stein’s advice and pause the tax cuts planned to go into effect, or change their amount.

“As we watch the revenues come into the state, I think you'll have members taking a look to see if we want to dial the knobs a little bit on tax cuts,” Hall said. “I think we want to continue to go down. We're definitely not going up.”

Pare, too, said the scheduled tax cut should be a point of negotiation.

"Generally speaking, those types of issues are on the table," she said. "I think that we need to be doing what North Carolinians want us to be doing, and put us in office here to do, and that is to take a complete picture approach to crafting a budget and a fiscal side that allows for stability in the future."

There are other options to raise revenue, beyond income taxes. Sports betting has brought in more money for the state than expected, and some GOP leaders have looked toward legalizing other forms of gambling or medical marijuana as other ways to bring in cash and offset the losses caused by lower income tax rates.

Republicans in the House this week filed a bill to legalize video gaming terminals across the state — an oft-debated topic that could bring in hundreds of millions in revenue. But Berger said such a proposal would not be in the Senate budget. “It would be a huge surprise to me if that was in,” he said.

That topic could be one of several sticking points in negotiations between House and Senate leadership in coming months.

Themes to keep an eye on:

A test of relationship with the governor: Republicans have applauded Stein’s efforts to engage with them through his first months in office. Rallying for Hurricane Helene relief and opening lines of communication are one thing, but it was fights over the budget and Medicaid expansion that exposed the biggest rifts between Republican state lawmakers and former Democratic Gov. Roy Cooper.

Another frequent sore subject was the legislature’s seemingly constant stream of new ideas to take away the governor’s power, often giving it to themselves instead. Previous budget bills have included power grabs completely unrelated to state spending, but, for the last several years, Republicans never had to worry about winning Democratic support for the budget due to their supermajorities. But now the supermajority is gone in the House.

Hall is in his first term as House Speaker. If the budget contains controversial provisions that would invite a Stein veto, he’ll face pressure to find some way to get a Democrat to break party lines and help the GOP pass the bill over Stein’s veto.

But with about $32 billion to work with, he’ll have options. House Republicans have been successful at getting Democratic support for the budget in recent years by including money for certain lawmakers’ districts or projects.

The budget is not likely to tackle social issues like abortion or Medicaid expansion, which have seen action in recent years, though there could be policy related to transgender issues and further restrictions on diversity, equity and inclusion efforts in the budget.

Pare said she would prefer that policy stay out of the budget and pass through the regular legislative process. "That's my opinion from the House side," Pare said. "We'll see what the Senate has in mind, but I think that's probably a cleaner way to do it for the people of North Carolina."

Raises for teachers, state workers: A frequent point of contention in recent years between House and Senate Republicans has been over raises for teachers and other state employees, with the House favoring larger increases.

Stein’s budget proposed a 10.6% average raise for teachers over the two-year budget, a 6.5% raise for correctional officers and youth counselors and a 2% average raise and $1,000 bonus for other state employees. Pare said the House would prioritize salaries for state government employees in its budget.

North Carolina teacher pay ranks relatively low nationally and in the Southeast, according to the 2024 National Education Association’s teacher pay report.

Meanwhile, the state’s traditional public schools had more than 7,100 teaching positions that were vacant or filled by an unqualified person at the start of the school year, a 7.6% vacancy rate.

School leaders have also complained of being unable to fill other positions — often because of low pay — in jobs ranging from bus drivers to school nurses and school psychologists.

Advocates for state employees will be watching closely for what Republicans might do to increase wages or improve benefits to help recruit new employees or retain existing ones. Already lawmakers have sought to open state government jobs to more people.

There are currently more than 14,300 vacancies across the state government, down slightly from a year earlier. The vacancies, however, have slowed services, from DMV appointments to safety inspections and the availability of mental health care.

In addition to raises — which are almost certain to be lower than what state employees want — lawmakers could also take steps to improve benefits for state workers. Some ideas that have already been floated include bringing back coverage of weight-loss drugs on the State Health Plan or subsidizing the creation of on-site child care options at state government buildings.

Backfilling federal cuts: As the Trump administration makes cuts to federal funding, state agencies are scrambling to cover budget holes the cuts are leaving behind. The state Department of Health and Human Services alone has lost more than $100 million and 80 jobs funded by federal grants this year.

WRAL News asked Berger whether the Senate budget would set aside any contingency funds to backfill federal cuts. Berger said there won’t be any in the initial budget proposal.

“I don't know that we need to take any specific steps at this point to address something that may or may not be a problem,” Berger said. “We’ve got time in the session, because it's not the final budget, to address things if something comes up.”

WRAL State Government Reporter Will Doran, WRAL Capitol Bureau Chief Laura Leslie and WRAL Education Reporter Emily Walkenhorst contributed this report.