At a press conference on Tuesday, Democratic North Carolina Gov. Josh Stein laid out his recommended state budget for fiscal year 2026-2027 proposing that the state increase spending by nearly $3 billion, the same day as the state legislature began its short session.
Reeling off state honors for North Carolina, ranking No. 1 in business, economic development, workforce development, job growth, and accelerated in-migration — over 325,000 new residents — Stein argued that “the winning formula” for the state’s success is at risk. Stein contends that the state has fallen behind in key metrics for spending on public education, public safety, and health care since the General Assembly last passed a full budget 2.5 years ago, adding that 6-8% inflation, Hurricane Helene, and federal mandates have further increased costs for state and local governments.
Stein called for more spending, up from the $1.4 billion in his critical needs budget, which he announced last month. He recommended $804 million in pay increases for state employees and retirees and $734 million for teacher salaries are necessary.
“This budget ensures that we continue investing in our people, meeting their needs, and keeping North Carolina strong,” he said.
The governor’s $35.44 billion spending recommendation is nearly $2.85 billion higher than the $32.59 billion the House and Senate originally agreed upon for FY 2025-26, a year-over-year increase of about 8.7%.
It calls for:
- $19.66 billion for education (55.5% of the total)
- $9.71 billion for Health and Human Services (27.4% of the total)
- $4.28 billion for Justice and Public Safety (12.1% of the total)
- $979.9 million for Natural and Economic Resources (2.8% of the total)
- $823.3 million for General Government (2.3% of the total).
In addition, the governor’s recommendation:
- Provides state employees with a 2.5% raise for FY 2025–26 and another 2.5% raise for FY 2026–27.
- Provides a $1,000 bonus for all state employees, and an additional $500 bonus for those making less than $75,000.
- Provides a 2.5% COLA for state retirees each year.
- Raises average teacher pay by 11% and makes starting teacher pay the highest in the Southeast.
- Halts the personal income tax rate at 3.99%.
- Halts the corporate income tax rate at 2%.
- Takes back $500 million from NCInnovation and transfers the funds to the State Emergency Response/Disaster Relief Fund.
- Places a moratorium on Opportunity Scholarships, with no awards, and removes families earning above 150% of the income level for reduced-price lunch from the program.
Education
North Carolina spent $11.5 billion on education, $18 billion when federal and local funding is added, in the 2024-2025 school year, and an average of $13,068 per K–12 student in federal, state, and local operating funds. That number has climbed over the last decade of state budgets, increasing pupil expenditures from $8,800 to over $13,000 per student annually.
Citing many of the same points as he has in his critical needs budget, Stein remarked that the state is 49th in per-student spending and 43rd in teacher pay, and said there is only one childcare slot for every five families.
He also wants to restore master’s pay, expand advanced teaching roles, increase funding for school safety grants, add more support staff, such as counselors, nurses, and social workers, fund needed repairs, proposing free school breakfast, appropriate recurring state funding that will unlock federal funding for the “Sun Bucks” summer program that will provide meals to children in the summer, and help counties with SNAP (Supplemental Nutrition Assistance Program).
Opportunity Scholarships
Stein’s budget recommendation includes freezing the Opportunity Scholarship Program (OSP) by ending new enrollment and removing families from the program if they earn above 150% of the income level for reduced-price lunch. He said the freeze would “let the program wind down.” OSP has a 64% support among North Carolinians.
Stein was strongly opposed to keeping the Opportunity Scholarship program as is, saying that if left unchecked, it would take away $7.5 billion from public schools and give it to private schools over the next decade.
“The voucher program is not about expanding choice,” the governor said. “Nearly every single student who received a private school voucher for the first time never attended a public school. It is simply taking public dollars to send to families who were already sending their children to a private school.”
“I could not disagree with Stein more, he ignores some basic facts and shaves the truth,” said Robert Luebke, director for the Center for Effective Education at the John Locke Foundation. “The Opportunity Scholarship does not take money from the public schools. The Opportunity Scholarship IS about choice. It’s about empowering parents with the ability to choose an education that best fits the needs and abilities of their child.”
Stein also said that, since rural areas of the state don’t have the same concentration of private schools as urban areas, vouchers often can’t be used there, resulting in a loss of tax dollars that would strengthen their public schools.
“Gov. Stein’s comments about nearly all scholarship recipients not coming from public schools is misleading,” Luebke added. “That was true when the program was initially open to all students, but certainly not true historically. Low-income families receive the highest priority in the program and will continue to do so. Low- and moderate-income families continue to constitute the largest group served by the Opportunity Scholarship program.”
Tax Cuts
Stein called for lawmakers to pause existing scheduled tax cuts saying there will be an imminent $5 billion budget shortfall, risking public services. He instead suggested four tax cuts including a refundable child and dependent care tax cut, a working families tax cut (up to $800 a year for some families), resumption of the back-to-school sales tax holiday in August, and a larger standard personal income deduction.
The governor’ s recommendation is also to spend $110 million more on unemployment benefits.
“If your objective was to be the most competitive, we are No. 1, so why are we going from 2% corporate income tax to 0%, which is what their budget proposes?” he asked. “So, we’re talking about taking $2 billion of revenue off the bottom line, which could go to help our public school kids.”
“If the governor is concerned about the pace of future tax relief, the wiser course would be to slow the scheduled cuts rather than halt them outright,” Joseph Harris, fiscal policy analyst for the John Locke Foundation told Carolina Journal. “Reducing future personal income tax rate cuts from 0.5 percentage points to 0.25 would be more consistent with previous rate cuts, while still protecting the pro-growth tax reforms that have helped make North Carolina more competitive.”
Workforce investment
Touting nearly 41,000 new jobs and nearly $28 billion in capital investment since January 2025, Stein proposed more spending on short-term workforce training programs and apprenticeships, free community college tuition for in-demand fields and investing in Propel NC, a business model proposed by the North Carolina Community College System that provides investment in educational programs for high-demand, high-wage fields.
The budget also pushes for small business loans and rural transformation projects, and calls to put $35 million into the “Housing Trust Fund,” $15 million into a workforce housing loan program, and $10 million into grants for local governments that increase their housing supply.
public safety
Included in the budget recommendations is a 15% raises for law enforcement officers, correctional officers, nurses, and health technicians, with 10% in the current fiscal year and 5% in the 2026-2027 fiscal year, and bonuses for law enforcement officers who have completed Basic Law Enforcement Training.
In addition, he is calling for more funding for school resource officers, including a juvenile justice residential crisis unit, treatment for opioid use disorder in correctional facilities, a fentanyl control unit, opening two more behavioral health units in the state’s psychiatric hospitals which would open up as many as 48 additional beds, the creation of 50 new co-responder teams to help law enforcement.
The governor’s budget also calls for closing the Medicaid funding gap, with a $319 million deal reportedly reached Monday afternoon with lawmakers. A bill for Medicaid funding is expected to be filed Wednesday morning after weekly talks with Senate Leader Phil Berger, R-Rockingham, and House Speaker Destin Hall, R-Caldwell.
Other items
Stein recommends spending money to continue fixing the DMV, and improving online services across state government using AI. In terms of data centers, the governor is calling on the legislature to reexamine economic development incentives, saying the state is currently subsidizing them to come to the state and getting a rebate on how much electricity they can they consume. He said it is almost incentivizing them to consume more electricity, and will create more demand on the system and raise rates on all consumers.
“My budget is about opportunity,” Stein said. “I believe that if you work hard, where you come from should never limit how far you can go. That is the promise of North Carolina: delivering on that promise is what drives me as your governor. Delivering on that promise is what this budget is all about.”