North Carolina lawmakers released a long-awaited state budget Tuesday, setting up votes this week on a $34.4 billion spending plan that pairs broad pay raises and continued income-tax cuts with new investments in Hurricane Helene recovery, Medicaid oversight, education, and public safety.
The release comes as the state approaches the July 1 start of the new fiscal year and during what is currently scheduled to be the final week of the legislative session.
Both the House and Senate are expected to vote on the budget on Wednesday, July 1, and Thursday, July 2.
If approved by both chambers, the spending plan would go to Gov. Josh Stein, who could sign it, veto it, or allow it to become law without his signature.
The agreement follows months of negotiations between the House and Senate after lawmakers failed to pass a comprehensive budget during the 2025 long session, leaving much of the state government operating under spending levels approved in 2023.
House Speaker Destin Hall, R-Caldwell, framed the budget as a plan focused on affordability, public safety, and government accountability.
“This budget invests in the people of North Carolina,” Hall said. “It delivers historic raises, keeps taxes low, strengthens public safety, and protects taxpayer dollars by making targeted investments to crack down on waste, fraud, and abuse. Every dollar reflects our commitment to build a North Carolina that is a better and more affordable place to live, work, and raise a family.”
Senate Leader Phil Berger, R-Rockingham, described the plan as fiscally responsible, pointing to tax reductions, education funding, and public safety investments.
“Our state’s fiscal health remains in great shape,” Berger said. “This is a responsible spending plan that takes aim at bureaucratic bloat without endangering core services. This keeps our promise to reduce the tax burden for all North Carolinians, while expanding access to incredible educational opportunities, keeping our communities safe, and solidifying North Carolina’s status as the best state in the nation.”
Raises
The final agreement includes an average 8% teacher pay raise, with budget negotiators saying the plan would make North Carolina’s starting teacher pay “No. 1 in the South.” Teachers would also receive bonuses ranging from $500 to $1,000.
State employees would receive a 3% raise, with larger increases in certain high-need areas of state government. State employees would also receive bonuses ranging from $1,000 to $2,000.
The deal includes raises for law enforcement officers, including a 20.3% average increase for SBI and ALE officers, a 17.7% average increase for State Highway Patrol, a 15.4% average increase for correctional officers, a 10.1% average increase for probation and parole officers and a 13% average increase for other law enforcement officers, including State Capitol Police. Local law enforcement officers would receive a one-time $1,750 bonus.
Tax Cuts
On taxes, the agreement makes no change to the corporate income tax rate reduction schedule. The deal would lower the personal income tax rate to 3.49% from calendar years 2027 through 2029, then 3.24% from 2030 through 2032, and 2.99% from 2033 through 2034. After that, two additional revenue-triggered cuts of 0.25 percentage points each could bring the rate as low as 2.49%.
The tax package also includes several business and industry-related changes, including closing a sales-tax reimbursement provision for large hospitals and their affiliates by treating them as a single entity for reimbursement purposes.
In addition, the budget repeals the sales-tax exemption on electricity for data centers, following growing scrutiny of the cost of data-center incentives and their impact on electric demand.
The bill also raises the tax rate on sports wagering operators from 18% to 23% and changes how sports betting tax proceeds are distributed, including funding for athletic departments at UNC System schools.
Hurricane Helene
The bill transfers previously appropriated or allocated funds into the Helene Fund and allocates more than $700 million in nonrecurring funding for the 2026-27 fiscal year. That includes money for the state and local share of federal disaster recovery programs, local government capital needs, volunteer fire departments, housing recovery, private road and bridge repairs, temporary relocation assistance, and other rebuilding efforts in western North Carolina.
Education
The budget keeps Opportunity Scholarship funding unchanged, maintaining the state’s existing commitment to the school-choice program. The plan also identifies roughly $35.8 million in savings from the 2024-25 and 2025-26 school years tied to students receiving scholarship grants below 100% of the average state per-pupil allocation, with those savings redirected to public school needs.
Healthcare
Health and human services spending includes more than $1 billion for Medicaid and a $333 million Medicaid Contingency Reserve. The budget also strengthens oversight of high-growth Medicaid services by requiring closed networks for Peer Support, Research-Based Behavioral Health Treatment, and Community Support Services.
The plan includes new guardrails for applied behavior analysis, or ABA therapy, which has drawn increased scrutiny from lawmakers and state watchdogs after rapid growth in Medicaid-funded autism therapy costs. Under the budget, ABA therapy assessments would have to be conducted in person, service plans would require approval from prepaid health plans or DHHS, and plans involving more than 16 hours of therapy per week would face more frequent reapproval.
The budget also releases $208.5 million in nonrecurring ARPA Temporary Savings Fund money for North Carolina Children’s Health, Inc., to construct a new children’s hospital in the Triangle area, including a behavioral health hospital.
Included in the budget is a repeal of certificate-of-need laws for inpatient rehabilitation services, facilities, and beds, a long-running point of debate among healthcare providers and free-market policy groups.
Capital investments
The budget includes a range of capital, infrastructure, and economic development provisions, including PFAS and emerging contaminant funding, $133.9 million for improvements tied to the JetZero economic development project at Piedmont Triad International Airport, new positions at the State Board of Elections, $15 million to upgrade the State Election Information Management System, and additional funding for the Office of the State Auditor.
One major item not included in the final budget is a proposed funding framework for a Major League Baseball stadium tied to a possible Raleigh expansion bid. The stadium proposal had been a point of contention in budget negotiations and had gained momentum in recent weeks, particularly following the Carolina Hurricanes’ Stanley Cup championship and renewed attention around professional sports in the Triangle.
Reserves and next steps
The budget allocates more than $450 million to the Rainy Day Fund, bringing the total to just over $4.2 billion. It also includes a $1.325 billion Stabilization and Inflation Reserve, a $333 million Medicaid Contingency Reserve, and a $350 million State Emergency Response and Disaster Relief Fund.
The budget deal follows weeks of uncertainty over whether lawmakers would complete a spending plan before the start of the fiscal year. As recently as last week, Berger told reporters that the timeline remained uncertain.
“Next week’s getting closer and closer, and we’re still not there,” Berger said. “I don’t want to say anything because I don’t know anything specifically as to when we’ll get things done. It’s entirely possible that we could. It’s entirely possible that we may not.”
By Sunday night, legislative leaders had reached an agreement, setting up budget votes in both chambers. Because the spending plan was negotiated between House and Senate leaders, lawmakers are expected to take up the final package through expedited votes rather than the longer process used for separate House and Senate budget proposals.
If the House and Senate approve the budget this week, the focus will shift to Stein. If he signs it or allows it to become law without his signature, the budget would take effect shortly after the start of the new fiscal year.
If he vetoes it, Republican legislative leaders would have to determine whether they have enough support to override him or whether further negotiations are needed.
