North Carolina Senate Republicans have progressed towards enacting a two-year budget for the state, opting for a plan that allocates less funding than what the new Democratic governor had proposed. The GOP-controlled Senate initially approved a budget of $32.6 billion for the fiscal year starting July 1, and $33.3 billion for the following year. This decision contrasts with Governor Josh Stein’s request for approximately $1 billion more annually, a figure he suggested could be realized by pausing broad tax rate cuts. However, Republican senators have prioritized a balance of spending, taxes, and cost-cutting, including an allocation of over $1.3 billion for Hurricane Helene aid and the elimination of hundreds of vacant state government positions.
The proposed budget supports continued reductions in income tax rates. While Stein’s budget sought to freeze the individual income tax rate at 4.25% and the corporate rate at 2.25%, the Senate’s plan allows the individual rate to decrease to 3.99% next year, further dropping to 3.49% in 2027, and 2.99% in 2028. The Republican-led Senate dismissed concerns about fiscal irresponsibility, arguing that previous tax cuts have bolstered state revenue. Senate leader Phil Berger expressed confidence that these reductions will further stimulate North Carolina’s economy.
Additionally, the Senate’s budget proposes eliminating 850 vacant state government positions, particularly targeting roles that have been unfilled for over a year in the Department of Health and Human Services. Despite these eliminations, approximately 14,000 vacant positions will remain. The budget also directs the state community college system to cut $57 million by consolidating administrative functions and requires the University of North Carolina system to reduce spending by reassessing certain campus centers or institutes.
Employee compensation adjustments also form a significant part of the budget. Public schoolteachers are set to receive average raises of 3.3% over two years, while rank-and-file state employees would see a 1.25% raise in the first year. Additionally, teachers and employees are slated to receive bonuses totaling $3,000. In contrast, Governor Stein had proposed a more substantial average pay raise for teachers at 10.7% over two years and a 2% raise for rank-and-file workers with a $1,000 bonus.
Some state agencies face closure under the Senate budget, including the North Carolina Innocence Inquiry Commission, which has facilitated the exoneration of 15 individuals. The budget also eliminates funding for initiatives aiding minority male students in community colleges and programs supporting minority- and women-owned businesses in securing state contracts.
Democratic senators criticized the budget for its modest raises, tax cuts favoring the wealthy, and keeping billions in reserve rather than addressing urgent needs. Despite this, four Democratic senators joined Republicans in supporting the budget in the initial vote. The Senate is required to affirm the budget once more before it moves to the House, where a competing proposal will be developed. The final budget is expected by July 1, although the possibility of a gubernatorial veto remains, as Republicans lack a veto-proof majority.
Context and Clarity
The proposed budget has significant implications for North Carolina residents. The continued reduction in income tax rates could lead to increased disposable income for some households, potentially boosting local economies. However, critics argue that these cuts disproportionately favor higher-income individuals, raising concerns about equitable financial benefits. Additionally, the elimination of vacant state positions and agency closures may affect the availability and quality of public services, influencing community well-being and access to government resources.
Education is another pivotal area impacted by the budget, with changes in funding and compensation affecting teachers and educational institutions. The proposed cuts to community colleges and the University of North Carolina system could affect educational quality and accessibility, especially for minority students who benefit from targeted programs. As the final budget negotiations unfold, residents and policymakers alike will need to consider the long-term effects on public services and economic growth within the state.
