GOP leaders in the state House and Senate announced Tuesday afternoon that they've finally reached a framework deal for a state budget for the fiscal year that began last July.
The agreement calls for most state employees to receive a raise of about 3%, while teachers would see raises that would average 8%. Employees would also receive bonuses ranging from $1,000 to $1,750, based on salary level and experience. The raises would not be retroactive to the beginning of the fiscal year, as they have been in previous years' delayed budgets.
Budget negotiations had been stalled for months, largely over disagreements between House and Senate Republicans about scheduled income tax cuts. House Speaker Destin Hall wanted to delay scheduled cuts because of projections that they could result in declining state revenues, while Senate leader Phil Berger pushed to keep the scheduled cuts unchanged.
In the end, the two leaders agreed to repeal the current triggers and replace them with a delayed tax cut plan, dropping the personal income tax rate from 3.99% to 3.49% for the next two years, reducing it further in subsequent years to eventually reach 2.99% in 2033 and 2.49% when revenue triggers are reached after that point.
Berger said he likes the approach of pegging the tax cuts to specific years, rather than tying them to the state's total revenue number. That approach would have led to tax cuts in back-to-back years.
The change is something of a victory for Hall, who said that "our goal all along has been to stretch out the timeline on the tax cuts, as it was way too quick under the prior policy."
Plans to lower and phase out the corporate income tax rate would be unchanged. Legislative leaders have also agreed to put two tax-related constitutional amendments on November's ballot. One would cap the personal income tax rate from exceeding 3.5%, while the other would place unspecified restrictions on local governments seeking to increase property taxes.
The legislature hasn't passed a comprehensive two-year budget bill since 2023, leaving much of state government operating at 2023 spending levels with some minor spending legislation passed since that year.
Budget writers from both chambers are still working out the details of the full budget deal — a vote could be weeks away — but Tuesday's agreement marks major progress. Senate leader Phil Berger says he thinks the final bill could be sent to the governor around mid-June.
"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," Berger said.
Tuesday's announcement came together quickly, with Hall's office posting on the social media site X about a budget deal at 3 p.m. The press conference began about an hour later, and legislative Democrats say they weren't informed about the deal before the announcement.
In a statement Tuesday evening, Gov. Josh Stein, a Democrat, wrote, "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."
What raises are being proposed?
Most state employees: Legislative leaders say they'll get an "average" raise of 3%. Those making less than $65,000 annually would also receive a $1,750 bonus (instead of being paid retroactively for the months when the legislature didn't have a budget). Those making more than $65,000 would receive a $1,000 bonus.
House Minority Leader Robert Reives, D-Chatham, was critical of the size of that raise, pointing to the impact of rising costs for insurance coverage on the State Health Plan and lack of back pay for the months without a budget.
"We've got to include everybody. We can't just include people who are sexy. And what I mean by that is, don't touch hot button issues, don't just say I'm giving a teacher raise, I've given a raise over here, I've given a raise over here. But then when we're talking about basic infrastructure, those are our state employees," Reives told reporters.
Teachers: The average raise is 8%, but the exact amount depends on years of experience. Full details of proposed teacher raises were not released Tuesday (WUNC News has requested the information from Berger and Hall's offices). Berger and Hall said starting pay will increase to $48,000. That's less than the $50,000 starting pay in the initial House budget proposal and in Gov. Josh Stein's budget, but legislative leaders stressed that most beginning teachers will make more than $50,000 because of local salary supplements.
Teachers would also get a bonus — $1,000 for those with more than 16 years of experience, and $500 for others. Overall, Hall said it's "the largest average teacher pay increase at least since 2006."
The teacher raises are bigger than what the Senate initially proposed, but Berger said that after seeing new revenue projections, he became "a lot more comfortable with the idea of our capacity to be able to support additional raises for teachers."
Retired state employees: They'd receive a one-time, 2.5% cost-of-living bonus in their pension.
State law enforcement: They'd receive a minimum increase of 13%, Hall said, with more for State Bureau of Investigation and Alcohol Law Enforcement officers, state troopers and correctional officers. The latter two categories are some of the lowest-paid in the country, leading to high vacancy rates.
Constitutional amendments
Both the House and Senate agreed to pass bills putting a pair of tax-related amendments on November's general election ballot.
The Senate agreed to pass the House's amendment establishing a limit on how much additional revenue local governments could earn on property taxes from year to year. Additionally, both chambers agreed to a new amendment that would cap the state's personal income tax at 3.5%.
"Our position all along was that we've got an assurance that the rate would go to 3.49%. We need to make sure that that promise to the taxpayers was kept, which this agreement does. In addition to that, it was important for us to provide some assurance that the rate would not bounce back up at some point," Berger said.
Reives told reporters that he is worried that state government is already headed towards a financial crisis, one that is now going to be borne by other taxes paid by people on the lower end of the income scale.
"Where is the money going to come from to take care of the very, very basic needs right now and to not even talk about the needs that we have in the coming years," Reives said, adding that things like sales taxes and fees are likely to ultimately increase if state government is going to continue functioning.
Stein immediately expressed concern about the potential income tax cap.
"The proposed constitutional amendment would put North Carolina in a financial straight jacket that could wreak havoc on our public schools and public safety," Stein wrote, referring to the amendment that caps personal income tax at a level below where it currently stands.
Stein cannot veto bills putting constitutional amendments in front of voters. A simple majority of voters would pass the constitutional amendment into law.
