NCInnovation faces $500 million clawback in Stein’s recommended budget

In his budget recommendation released Tuesday, Democratic North Carolina Gov. Josh Stein included a policy shift targeting NCInnovation, recommending the state claw back $500 million previously designated in the 2023 State Budget for the university-linked commercialization initiative. His proposal redirects those funds to the State Emergency Response and Disaster Relief Fund (SERDRF).

“Clawing back $500 million from NCInnovation and redirecting it to disaster recovery is a fiscally wise decision,” said Joe Harris, fiscal analyst at the John Locke Foundation. “Taxpayer money shouldn’t be used for speculative venture capital-style research at universities, especially when North Carolina has far more pressing and immediate responsibilities.”

In the budget recommendation overall, Stein proposes spending $35.4 billion in 2026–2027, almost $3 billion more than lawmakers agreed to last year. While the North Carolina governor does not control the state budget directly, his proposal sets the executive branch priorities and came the same day as the North Carolina General Assembly gavels in the short legislative session.

Timeline of NCInnovation Funding and Scrutiny

State funding for the non-profit NCInnovation was added directly into the state budget in final days of 2023 negotiations to fund a privately run initiative to commercialize research across North Carolina’s public university system, with a focus on turning academic research into private-sector applications. The organization emerged from long-running private discussions over how to get university projects through the “valley of death,” the period between innovation and in-state economic development. Initially, NCI leadership requested more than $1.4 billion in taxpayer money.

As part of that biennium budget negotiations, state lawmakers agreed to a smaller, but still large-scale, funding commitment to support NCI in its early-stage grant-making and organizational efforts.

By 2024 and into 2025, the program drew increased attention. Lawmakers raised questions about governance, accountability, and performance metrics tied to the large public investment.

Those concerns culminated in public oversight discussions and hearings, in which NCInnovation leadership was pressed on reporting standards, grant outcomes, and long-term return on investment. The hearings were held by the House Oversight and Reform Committee.

“Some of these scholar entrepreneurs may need support for their research to get to market, but I believe a privately funded effort to promote that support would be a better solution,” said Chariman Harry Warren, R-Rowan, during a 2024 oversight hearing. “I have doubts about NCI’s ability to get the projected investment returns, but mostly I have doubts about whether or not this is really the best use of taxpayer dollars in light of state priorities that we have in areas like transportation, mental health, education, and many other issues that are before the legislature.”

The State Auditor’s January 2025 report on NCI found that the organization was compliant with the law as outlined in the budget, but warned NCInnovation about lobbying expenditures, noting that lobbying expenses were outside the scope of the audit.

In both the Senate and House 2025 budget proposals, NCI faced cuts to its state allocation. The House plan reallocated the money to Hurricane Helene recovery, and the Senate plan sent half to a UNC–Duke Children’s Hospital project and returned the rest to NCInnovation in $25 million installments over four years. However, no final budget was passed by the legislature and sent to the governor for approval.

“I want to thank Gov. Stein for including the clawback of NCInnovation dollars in his budget proposal,” Rep. Jake Johnson, R-Henderson, told Carolina Journal on Wednesday. “We certainly do not agree on everything the governor has proposed; however I do agree that the lack of accountability and transparency surrounding this program, paired with the imminent need for recovery, capital investment and education funding, make the case for this money to be used elsewhere. We look forward to making this case to our Senate colleagues in the coming days.”

Stein’s Proposal and Policy Shift

Against that backdrop, Stein’s budget proposes to effectively unwind the previously approved $500 million commitment. The proposal also lands amid ongoing discussions in the state legislature over the content and passage of mini budgets in this short legislative session, scheduled to conclude in early July. The mini budgets would fund groups of state needs but could also redirect NCInnovation’s state money.

“NCInnovation was created to generate long-term economic return for North Carolina, and that work is already underway across the state,” said Michelle Fiscus, spokesperson for NCInnovation, in comments to Carolina Journal. “We recognize the governor’s responsibility to ensure the state is prepared to respond to emergencies and support communities in times of need. At the same time, the proposal would redirect a $500 million endowment that was designed to build long-term economic capacity. Redirecting it now shifts those dollars away from active projects and into a reserve for future use.”

As budget discussions have started and stalled over the last year, NCI board members and leadership have been working on alternative plans to keep the state funding liquid in the event it is clawed back by the state. Leadership has also been in discussion on how to fundraise to replace the state investment if needed.

In a press conference and press statement on Tuesday, Stein pushed the legislature to make state government “work more efficiently and effectively” while increasing spending on public safety, public education, child care, workforce development, and health care.

“With goals this important — building an economy that works for everyone, strengthening our public schools and workforce, supporting families, and keeping people safe and healthy — we cannot afford to waste a penny,” Stein said. “We need people to be able to feel how their government is working for them and maximize the value of every taxpayer dollar.”

NCInnovation says they are actively engaging with lawmakers.

“These conversations are focused on transparency, stewardship, and ensuring policymakers understand that this work is already in motion across institutions and communities throughout the state,” Fiscus said.

“NCInnovation is evaluating all scenarios and is structured to operate responsibly under changing conditions,” she said. “As a young organization in its build phase, NCInnovation has already made measurable progress — launching a statewide portfolio, advancing projects toward commercialization, and releasing its first philanthropy report.”