Republican legislative leaders say they have resolved the major disagreements over tax cuts and spending that have held up passage of a new state budget for more than a year.
Under the framework House Speaker Destin Hall and Senate leader Phil Berger presented Tuesday, teachers will receive average raises of 8%. The salary structure will make new teachers the highest paid in the South, when salary supplements are included, said Hall (R-Caldwell).
Without supplements, starting teacher pay would be $48,000.
Raises for state employees will average 3%. Both groups would also receive bonuses with amounts dependent on their salaries.
Law enforcement officers and prison correctional officers would see considerably bigger bumps of 13% minimum raises.
State retirees would receive a one-time 2.5% bonus.
North Carolina has not had a new budget since 2023. North Carolina was the only state last year to not pass a new budget because House and Senate Republicans could not agree on a plan for future income tax cuts or teacher raises. Senate Republicans wanted to keep a plan that was baked into the budget for personal income tax cuts based on revenue triggers and wanted smaller teacher raises, while House Republicans wanted to change the triggers and boost teacher salaries, especially for those new to the classroom.
“There’s still a lot that will need to be decided and discussed between the two chambers,” said Berger (R-Rockingham). “This agreement sets out a good framework for us to move forward.”
The pay increases will not be retroactive, but would begin with the budget year that starts July 1. Teachers and state employees would also receive bonuses based on their salaries.
Under the agreement, the personal income tax cut triggers are repealed for the near future in favor of a new schedule, Berger said. Planned cuts to the personal tax rate remain.
Talking later to reporters, Hall described the new tax cut plan as stretching out the timeline “in a way that cures a lot of ills with the current policy” and allows for the salary increases.
Constitutional amendments on taxes on November ballot
The current personal income tax rate is 3.99%. It would drop to 3.49% for tax years 2027–2029, to 3.24% for tax years 2030–2032, and to 2.99% for tax years 2033–2034. After 2034, it would allow for two more 0.25% reductions if new revenue triggers are met.
The phase-out of the corporate income rate tax will continue. The corporate rate will hit zero in 2030.
As part of the agreement, constitutional amendments to put a 3.5% cap on the state income tax and to limit local property tax increases will be on the November ballot.
In 2018, voters approved a constitutional amendment reducing the maximum personal income tax rate from 10% to 7%.
Berger later told reporters he was comfortable with the teacher pay increases because he’s anticipating another revision to projected state revenue that will show more money coming in.
House Democratic leader Robert Reives of Chatham County criticized the idea of lowering the cap on the personal income tax rate to 3.5% and limiting local governments’ property increases.
Costs are going to be passed on through fees and sales taxes, Reives said.
“You’re still getting taxed,” he said.”It’s just not coming through personal income tax.”
State employees aren’t getting meaningful raises that help them make up for their increased health insurance costs, he said.
What the General Assembly is doing, Reives said, is making sure “we cut revenue for future legislatures so that they can’t do anything about it either.”
In a statement, Democratic Gov. Josh Stein said, “if the final budget actually includes real salary increases, it would be welcome. The proof, however, will be in the pudding.”
He added that the proposed constitutional amendment would harm the state.
“The proposed constitutional amendment would put North Carolina in a financial straight jacket that could wreak havoc on our public schools and public safety. If we want to continue to be the best state to live, work, and raise a family for years to come, we must be fiscally responsible and not make working families bear an unfair burden.”
The N.C. Association of Educators called the budget “smoke and mirrors.”
“They announced an 8% average raise for teachers, but no back pay for the work already done this school year,” NCAE President Tamika Walker Kelly said in a statement. “Eight percent may sound like a raise — until you pay Duke Energy’s skyrocketing electric bill, Aetna’s ballooning insurance premium, and more at the gas pump. Meanwhile, teachers are still spending more than $1,000 of their own money just to stock their classrooms.”
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