A comprehensive state budget is more than nine months overdue, North Carolina’s Medicaid program is about to run out of money, and state employees and teachers are clamoring for raises.
The General Assembly returns to work Tuesday staring at the same divisions it left at its last regular meeting last year. Gov. Josh Stein, a Democrat, has disagreements with the Republican-run legislature, and House and Senate Republican leaders don’t agree with each other.
Lame-duck legislators who lost their primaries, including Republican Senate leader Phil Berger (R-Rockingham), one of the most powerful politicians in the state, as well as several House Democrats and Republicans, are wild cards factored into delicate budget negotiations.
Flock of lame ducks at NC legislature could upend short session dynamics
House Republicans proposed average teacher raises of more than 8% over two years, with a big boost in starting teacher pay to $50,000 a year. The House budget also paused future cuts to the personal income tax rate. The House had proposed spending $32.6 billion in the current budget year.
Senate Republicans proposed teacher raises averaging 3.3%, and wanted the future tax cuts to go ahead as planned. The Senate proposed spending $32.3 billion this year.
Medicaid and the children’s hospital
One of the pressing issues for the legislature is a $319 million Medicaid shortfall. The health insurance program that covers about 3.1 million North Carolinians is about to run out of money, and Stein has been demanding the additional money for months.
“It is time to fund Medicaid,” Gov. Josh Stein said in a news conference Thursday, Nov. 6, 2025 in Raleigh. “Because if [lawmakers] fail to do so, people are suffering. And it is unacceptable.” (Photo: Galen Bacharier/NC Newsline)Last year, bills that would have provided more Medicaid money were caught up in other budget disagreements between House and Senate Republicans and the funding didn’t come through.In committee meetings over the winter and spring, Republicans have questioned state health officials about the Medicaid numbers and extent of the shortfall.
At a March event on civil debate about health care, Rep. Grant Campbell (R-Cabarrus) said he supported filling the Medicaid budget hole, but wanted to make sure it will really cost $319 million.
“I’m all for it if you can show me the money has been calculated appropriately,” he said.
House and Senate Republicans differed on funding a children’s hospital being built in Apex. Senate Republicans want additional funds approved for the hospital. They attached $103.5 million for the hospital to a bill on added Medicaid funding. House Republicans have resisted more spending on the hospital.
Automatic tax cut
The largest hang-up in budget talks between House and Senate Republicans is automatic tax cuts.
House Republicans want to pause those reductions, while Senate Republicans want the cut to go forward as planned.
The offices of House Speaker Destin Hall (R-Caldwell) and Senate leader Phil Berger (R-Rockingham) did not respond to requests for interviews.
North Carolina Senate Leader Phil Berger (R-Rockingham) sits on the Senate floor during debate over a new Republican-led congressional map on Oct. 20, 2025. (Photo: Galen Bacharier/NC Newsline)Berger acknowledged in a recent press release that “progress was elusive” on tax issues in last year’s session, but said “circumstances do exist for us to reach an agreement on a comprehensive state budget.”
“Our policy success is largely grounded on the continuing exercise of discipline on two fronts — tax reduction and spending restraint,” Berger wrote. “Failure to adhere to fundamentals on either front will thwart sustaining progress in our never-ending competition with other states for economic growth, job creation, and a better future for our people.”
The tax cuts are based on revenue triggers that the state is expected to meet. But the reductions mean that the state will have less money to spend in future years.
The individual tax rate is scheduled to fall from 3.99% to 3.49% in 2027. The rate is to fall again to 2.99% in 2028.
Stein wants to pause the cuts too, and his Office of State Budget and Management projects that the first reduction will mean the state collecting $2 billion less each year.
The corporate income tax is being phased out, with elimination set for 2030.
The individual and corporate tax cuts will result in a structural budget deficit, reducing annual state revenues by $7.7 billion in 2033-2034, OSBM anticipates.
Federal fallout
A major federal law shifted more of the cost of providing food benefits, known as SNAP, from the federal government to counties.
Looming federal cuts to food stamps could impact state and local budgets in NC
The total increase to counties comes to $52 million starting in July, according to the NC Association of County Commissioners. The association is asking the General Assembly to cover the cost.
Sen. Jim Burgin, chairman of the Senate Health and Human Services budget committee, told NC Newsline the state can’t afford it.
The state will also need to foot the bill for monitoring new work requirements and verification requirements for Medicaid. DHHS officials have said that could run into the tens of millions of dollars.
Burgin said DHHS may be able to help the counties with additional tasks that will fall on local caseworkers.
Hurricane Helene relief
Stein is pushing lawmakers for a third round of recovery funding to western North Carolina, requesting $792 million in a March proposal.
Workers with DSW Homes construct a three-bedroom house in Canton, North Carolina in March 2026, one of more than 130 rebuild or repair projects in progress through Renew NC. (Photo: Renew NC)Among the largest line items in the budget request is $100 million for repairs to private roads and bridges. Another recommendation would allocate $50 million for a revolving loan program to help local governments avoid budget cuts while funding repair efforts.
Republican lawmakers have grown skeptical of the governor’s handling of Helene relief, grilling recovery officials earlier this month over rising costs and a home rebuild and repair initiative that has completed work on just 30 houses since its inception.
“The numbers don’t add up and meanwhile, the citizens of North Carolina are suffering,” said Rep. Karl Gillespie (R-Macon), the House Majority Whip, at a Helene oversight meeting on April 2. “We’re going to have to have a lot more conversations and a lot more oversight and a lot more efficiencies in the program to ever make this work out.”
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