North Carolina is at a turning point, Governor Josh Stein said Tuesday in introducing his budget proposal, able to choose between pre-planned tax cuts or funding programs that benefit people across North Carolina.
In introducing his budget, Stein touted North Carolina’s successes, including its status as a top state for business and the state’s rapid growth.
“We’re putting that winning formula at risk. Our state has fallen behind in key metrics for public education, public safety and healthcare,” Stein said.
Stein is calling for a pause to planned cuts in the state’s corporate and individual income tax rates, arguing that dropping those levels risks the largest cuts in statewide services since the Great Recession of 2007-2009.
Stein compared the potential drop in revenue to that period, which was caused by the entire world’s economy slowing down. Now, Stein said, “This is entirely self-imposed. It makes no sense.”
Stein’s $35.24 billion spending plan includes a 2.5% raise for all state employees the ongoing fiscal year, with an identical raise the 2026-27 fiscal year. He is also calling for a $1,000 bonus for all state employees, with an additional $500 for employees earning less than $75,000.
State employees like law enforcement, correctional officers, nurses and health technicians would receive 10% raises in the first year of the biennium and 5% raises in the second year.
“We cannot afford to miss this moment,” Stein said.
Stein's budget proposal includes the "critical needs" spending plan he introduced last this month, including funding for the state's Medicaid program and state employee raises. It does not include the $792 million Helene recovery budget proposal he pitched last month, which would largely be funded out of the state's Stabilization and Inflation Reserve.
The budget landscape
Stein’s proposal is the first step in North Carolina’s budget process. While it's indicative of the governor's policy goals, it is largely symbolic as far as shaping the final budget.
Stein said he has spoken with Senate leader Phil Berger, R-Rockingham, and Speaker of the House Destin Hall, R-Caldwell, within the past week.
“I am hopeful that we’ll have a budget. I genuinely believe that both chambers want a budget, and now the proof will be in the pudding,” Stein said.
North Carolina hasn’t passed a comprehensive budget since 2023.
North Carolina is the only state that hasn’t passed a budget this biennium, largely because Republicans in the House and Senate were unable to come to terms.
“I think we are at a point that everyone appreciates that it’s been too long,” Stein said.
Since 2023, Stein noted, North Carolina has added 325,000 people; seen inflation between 6 and 8 percent; western North Carolina has suffered catastrophic damage from Hurricane Helene; and the state and its local governments are grappling with new mandates from the passage of last year’s federal House Resolution 1.
“We cannot simply stand still and hope for the best,” Stein said.
A key disagreement has been how quickly to phase in planned cuts to the state’s income tax. Senate leadership wants to stick with plans that are projected to see taxes drop in each of the next two fiscal years, while the House is more concerned about projections that North Carolina is facing a deficit if spending continues at the current rate and the tax cuts are phased in.
Tax Policy
Stein wants the General Assembly to pause its tax cuts, saying planned cuts to the state’s corporate and individual income taxes are benefiting the wealthy at the expense of North Carolina families.
“If we don’t, we will face an imminent shortfall in our budget of $5 billion,” Stein said.
Maintaining the existing 2% corporate income tax rate and 3.99% individual income tax rate brings in about $897 million a year.
“We can be the low-tax state, and we can also provide all of the things North Carolinians like to see from their state government,” Kristin Walker, Stein’s budget director, said Tuesday
Existing state law phases out the corporate income tax by 2030, a measure that Stein called unnecessary because the state already has one of the lowest corporate income taxes in the county.
"We're talking about taking $2 billion of revenue off the bottom line that could go to help our public school kids. To me, the choice between a wealthy out of stater and a North Carolina elementary school student, it's not even a choice, and that's what I want the legislature to focus on. Let's make tax investments that help families and not that help big corporations," Stein said.
Stein is also hoping to help remedy the spiking cost of living, in part with a quartet of targeted tax cuts.
Stein is proposing a refundable child and dependent care tax cut; a working families tax cut for low to moderate income workers worth about $350; a back-to-school sales tax holiday in August; and a larger standard personal income deduction of $26,500 for North Carolinians.
“These investments and these tax cuts are what it looks like to be truly pro family. Our current tax policy is not," Stein said.
Education and childcare
North Carolina is falling behind on education spending, Stein said, pointing to the state's status as 49th in per-pupil spending, 43rd in teacher pay and having one childcare slot for every five that families want.
“These are some embarrassing and unacceptable facts,” Stein said.
He added that neighboring South Carolina spends about $5,500 more per child, while Mississippi spends about $1,300 more per pupil.
“If you had told me as a young man in this state that South Carolina and Mississippi would invest more than North Carolina does, let alone so much more, I simply would not have believed you. Let us right this wrong,” Stein said.
Stein said he met a teacher last week who moved to North Carolina from South Carolina in 2000 because the profession was better paid. Now, he said, she is thinking about moving back.
To fix that, Stein is proposing an 11% average raise for teachers, including the restoration of higher pay for teachers who have received their master’s degrees. Most teachers would also receive a $1,500 bonus.
That proposal would, Stein said, take North Carolina’s teacher pay to the highest level in the Southeast.
Stein is also proposing free school breakfast and using recurring state funding to unlock federal funding for the Sun Bucks program, which provides meals to kids during the summer.
Call for rollback to voucher program
Stein is calling for the state to roll back its Opportunity Scholarship program, arguing that the vouchers have not been used as they were originally intended.
Over the next decade, he said, the voucher program is projected to move about $7.5 billion from public schools to their private counterparts, funding that Stein contests is much needed in the public sphere.
Stein is proposing winding down the voucher program, with students in households that earn 150% or less of area median income able to continue receiving the voucher until their child finishes high school.
Rural communities are frequently unable to take advantage of the program because charter schools aren’t open in their community, Stein said.
“North Carolina’s rural families are losing their tax dollars that could go to strengthen their public schools that are instead going to parents in Wake and Mecklenburg counties to send their kids to private schools,” Stein said.
When the voucher program was created, Stein said, it was touted as being able to help kids who are attending failing public schools find an alternative in their community. Instead, he argued, about 90% of the students whose families are receiving vouchers have never attended public schools.
"Let's invest in public schools so that they don't fail, and let's give parents choice within the public school system through magnet schools and other ways of creating choice within the public school system before we abandon it and create a second, competing system that requires its own resources," Stein said.
This is a developing story and will be updated.
