The N.C. General Assembly is expected to being voting Tuesday on the newly-released 2021-23 conference budget. The 2021-22 budget plan, out on Monday,  represents a 4.3% increase over the previous plan with $25.9 billion slated to be spent. The fiscal 2022-23 portion of the biennial plan is $27 billion, and the state’s rainy day fund grows to $4.25 billion by the end of the biennium.

Among the highlights are tax cuts, including lowering the personal income tax rate from 5.25% to 3.99% over six years and phasing out the corporate income tax beginning in 2025 and ending in 2031. Tax cuts were one of the priorities for Republican leadership over the past decade and a point of contention for Democrats.

“Eliminating the harmful corporate income tax benefits workers and discourages targeted corporate handouts through a fairer tax climate,” said Paige Terryberry, fiscal policy analyst at the John Locke Foundation. “The personal income tax reduction allows workers to keep more money in their pockets while also reducing the tax burden for small businesses. These are fruitful actions for North Carolina.”

The budget also exempts military pensions from state income tax. North Carolina has the fifth largest military population of any state, with eight major installations and $66 billion in impact to the state economy annually.

“We want to make North Carolina the most military-friendly state in the country, and this tax exemption should get us there,” Sen. Jim Burgin, R-Harnett, stated in a release.

Medicaid expansion, something that Gov. Roy Cooper and Democrats wanted, wasn’t included, but the budget does extend postpartum benefits and increases funding for home and community-based service enhancements.

In an effort to soothe some of the Medicaid expansion, which Cooper has cited for previous budget vetoes, a Joint Legislative Study Committee on Access to Healthcare will be created. It will be directed to study and report a bill to the General Assembly in the 2022 Session on Healthcare Access and Medicaid Expansion.

The budget also funds an average 6.7% raise for teachers over the biennium, while state workers should see a 5% raise. Bonuses for teachers range from $1,000 to $2,850, plus a $1,000 bonus for all state employees.

Some further points to look at what’s proposed for education:

  • 5% state and teacher retiree COLA bonuses over the biennium.
  • $100 million for salaries for Low Wealth Schools.
  • Implementation of a $13/hour minimum wage in fiscal 2021-22 and a $15/hour minimum wage in fiscal 2022-23 for local, non-certified employees for public schools and community colleges.
  • Funding for the NC Promise tuition plan ($15 million in fiscal 2021-22 and $20 million in fiscal 2022-23), plus $11.5 million to include Fayetteville State University in the program.

Another important item in health care includes the addition of 1,000 Innovations Waiver slots to serve the intellectually and developmentally disabled. More than 15,000 families qualify for the program, but many wait years for help. The additional slots have been in previous budgets vetoed by Cooper.

Regarding infrastructure, the budget includes $1 billion in new federal funding to the state’s broadband expansion initiatives, $5.9 billion in state funding over the biennium in the State Capital and Infrastructure Fund, providing funds to build, repair, and renovate state, university, and other capital assets, and authorizes $878 million in capital projects for state agencies.

“This is a great budget that has many of Locke’s priorities included and what the citizens of North Carolina want; substantive tax breaks for hard-working families, restrained, responsible spending, investments in infrastructure, health care and education, and building the state’s savings reserves,” said Becki Gray, senior vice president, John Locke Foundation.

“It’s been a long time coming,” Gray said, “but with careful and thoughtful consideration of every dollar spent, a focus on the state’s needs, and respect to the taxpayer, this budget has been worth the wait. It sets North Carolina firmly on the path to economic recovery and growth after the most challenging two years in our history. It should command the support of every legislator and Governor Cooper.”

Beyond funding, some policy issues made their way into the budget. Revisions to the governor’s emergency authority would go into effect after Jan. 1, 2023. This was part of the original Senate budget bill from this past spring and is a direct response to Cooper’s emergency declarations over the past 20 months due to the pandemic. Those orders included restricting people’s movements, limiting gatherings, shutting down businesses and schools, and setting curfews. The revision would require such orders to get approval from the Council of State after a set period. The Council of State is a group of 10 statewide elected officers, including the lieutenant governor.

The budget also contains language to ban collusive settlements effective immediately. Cooper vetoed a bill in September designed to block the state attorney general from entering collusive lawsuit settlements and stems from a controversial 2020 lawsuit settlement involving state election rules.

In a statement, House Speaker Tim Moore said, “This budget represents months of hard work and good-faith negotiations between Republicans and Democrats, House and Senate, and our governor. Although we have many differences, we each had the common goal of coming together to create a spending plan for the state, one of the General Assembly’s most important constitutional obligations. In the end, I am confident that we have come together to design a budget that truly meets the most critical needs of all North Carolinians.”

The proposed budget exempts military pensions from the state’s income tax.
Sen. Jim Burgin, R-Harnett, said, “We want to make North Carolina the most military-friendly state in the country, and this tax exemption should get us there.”

A new budget should have been in place when the new fiscal year began July 1, but the first offer from the House and Senate was sent to Cooper in late September. However, many of the priorities and proposals were vetted through the House and Senate budgets throughout the months-long process. Senate Democrats tweeted within minutes of the draft’s release, with leaders saying they only had 24 hours to read the proposal.

“This budget proposal was worth the wait,” said Terry Stoops, director of the Center for Effective Education for JLF. “Now, it is imperative that lawmakers ratify the budget promptly so that its extraordinary benefits start to flow to North Carolinians as soon as possible,”

North Carolina hasn’t had a new budget since the 2018-19 fiscal year. Cooper has vetoed every Republican-backed budget since he took office. Insiders in the legislature say the governor’s office has been closely involved in this year’s budget negotiations, and that there are likely the available votes among Democrats to pass the budget by a veto-proof majority.

“We have made significant progress over nearly two months of good-faith negotiations with the governor, and I’m optimistic that the budget will have a strong bipartisan vote and that Governor Cooper will sign it into law,” Senate Leader Phil Berger, R-Rockingham, said.

If Cooper vetoes this budget, and Democrats don’t support the Republicans in an override, GOP legislators will most likely pass several mini-spending bills so the state can gain access to available federal money. The state budget that has been in place for the past three years would remain. Alternatively, Cooper could wait 10 days without signing or vetoing the plan, allowing it to become law.

The Senate plans to vote on the budget plan Tuesday and Wednesday; the House is scheduled to vote on it Wednesday afternoon and Thursday morning.