NC Senate gives initial approval to budget plan with cuts to programs and taxes

The North Carolina Senate took the first of two votes to advance its proposed two-year, $66 billion budget Wednesday, blending tax cuts, modest raises for teachers and state workers, increased reserves for Helene recovery and cuts to programs.

The budget also includes funding for a school teacher leadership program, for agriculture disaster crop loss and projects like a new children’s hospital being developed by Duke Health and UNC Health.

Senate Republicans plan to spend $32.6 billion in the first year and $33.3 billion in the second year, while aiming to restore the state’s rainy-day fund to $4.75 billion, its pre-Helene level.

The Senate proposal adds $700 million to the Helene reserve fund. Separately, lawmakers made temporary and permanent cuts in the transportation budget to support recovery efforts, providing another $633 million over the biennium, said Sen. Ralph Hise, a top budget writer who represents various Western North Carolina counties.

The budget proposal would accelerate income tax cuts. Past budgets set the rate at 4.5% in 2024, 4.25% in 2025 and 3.99% after. The Senate plan speeds that up — dropping it to 3.49% in 2027 and 2.99% in 2028 — while scrapping rate cuts tied to state revenue. Further reductions could follow if other triggers are met.

It also would double the tax paid by sports betting operators from the current rate of 18% to 36%.

After a debate that lasted more than five hours, the Senate voted to approve the budget with Sen. Dan Blue, a Raleigh Democrat and the former leader of Senate Democrats, joining Republicans in voting in favor of the bill. Three other Democrats also supported the plan, while one Republican voted against it.

Over the course of the debate, Democrats urged delaying further tax cuts, citing a projected decline in revenue. They also pushed for higher pay for state employees and criticized proposed agency cuts.

Democrats proposed more than two dozen amendments, all of which except one failed, including one to freeze the state’s corporate income tax phaseout. Sen. Julie Mayfield, an Asheville Democrat, proposed more Helene relief, including for mental health services for first responders and grants to help local businesses recover.

One amendment that did pass, offered by Democratic Sen. Dan Blue of Raleigh, would give Wake County five additional assistant district attorneys. Blue said he raised the issue with Republican budget writers in committee on Tuesday, and Republicans quickly recommended the amendment’s adoption.

Another amendment, introduced by Republican Sen. Bobby Hanig of Currituck County, would’ve cut a provision the Senate GOP included in their budget to end free rides on the state’s coastal ferries and start charging tolls board the boats.

Sen. Todd Johnson, a Union County Republican, asked Hanig if he would withdraw his amendment and continue discussions about ferry rides as the budget process move forward. Hanig refused to do so, prompting Republicans to make a motion to table the amendment.

The motion appeared to fail by a single vote before Sen. Buck Newton stood to say he accidentally hit the wrong button and wanted to change his vote to “yes.”

Hanig and Democrats questioned if Newton could change his vote once the time allotted for voting on the amendment had elapsed, but Lt. Gov. Rachel Hunt, who was presiding over Wednesday’s session, said that the rules allowed Newton to change his vote at any point on the day the vote took place.

The amendment was ultimately defeated 24-23.

Hanig then voted with Democrats against the full budget.

Sen. Kandie Smith, a Greenville Democrat, introduced various amendments, including one to reinstate the Earned Income Tax Credit, which helps low- to moderate-income workers and families get a tax break. That would have been done by eliminating two income eligibility tiers under the state’s Opportunity Scholarship program, a Republican priority that provides private school vouchers. The amendment failed.

A second and final vote on the spending plan will take place Thursday. The House is working on its own budget proposal, which it is expected to release next month.

Legislative leaders have said they hope to negotiate a plan Republicans in both chambers can agree on by the end of the current fiscal year on June 30, but budget talks have often gone on longer in the past.

If Republicans can finalize a budget to send to Democratic Gov. Josh Stein, he’ll have 10 days to sign, veto or let it become law without his signature.

In a statement Wednesday, Stein said the Senate’s spending plan is inadequate.

“We should be making investments in what makes North Carolina a great place to live: educating the next generation of North Carolinians, growing a strong workforce that drives our economy, and keeping communities safe. Unfortunately, the Senate budget falls short,” Stein said.

Stein said the budget will “need to do much more to compensate teachers, support community colleges, and protect public safety.”

“I look forward to working with the legislature to improve this budget and to appropriate additional funds for western North Carolina in the weeks ahead,” the governor said.

Under the Senate’s plan, teachers would see a new salary schedule, with starting pay at $41,510, rising to $56,650 for those with 25 or more years of experience. Teachers would receive a $3,000 bonus over two years and raises of 2.3% in year one and 3.3% over the two years.

Most state employees would receive a 1.25% raise and a $3,000 bonus split over two years, while law enforcement officers would receive additional raises on top of this.

Notable cuts include dissolving the Office of Historically Underutilized Businesses, which aids minority-owned firms in securing state contracts, and the Innocence Inquiry Commission, an agency created in 2006 that investigates wrongful convictions. The proposal also reduces funding for the state’s community college system by about $50 million and eliminates nearly 800 jobs throughout state government that have been vacant for more than two years.

About 14,000 vacant positions would remain under this budget.

The budget proposal also includes policy provisions, such as the language of a Senate bill that has already passed expanding the office of Republican State Auditor Dave Boliek. His office would be tasked with identifying waste in state programs and agencies and reporting back to the General Assembly. The budget proposal appropriates $6 million to Boliek’s office.

Other policy provisions include requiring K-12 schools to adopt policies restricting cellphone use in classrooms, repealing state laws that control where hospitals can open or expand and increasing transparency in health care billing.

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