North Carolina Senate unveils state budget with deeper tax cuts, lower raises than House proposal

North Carolina Senate Republicans revealed their proposed two-year state government budget proposal Monday, one that would further reduce personal income taxes but offer less generous pay raises for workers compared to what their House counterparts sought.

The Senate plan spends the same amounts as the House budget bill approved last month, with $29.8 billion for the year starting July 1 and $30.9 billion for the following year. Those bottom-line figures are the result of an already-negotiated agreement by GOP leaders from both chambers.

Chamber leaders say judicious year-over-year spending increases, along with billions of dollars in reserves and for capital projects, will protect a state faced with an uncertain business climate.

“As we continue down the road of what economists have dubbed a ‘slowcession,’ the Senate budget proceeds with caution,” Senate leader Phil Berger said at a news conference, adding that the plan also helps “ease inflationary pains” felt by taxpayers with additional personal tax cuts.

The Senate proposal is slated to go through three committees Tuesday and recorded floor votes Wednesday and Thursday. GOP budget writers ultimately will have to hammer out a compromise spending plan to vote on and send to Democratic Gov. Roy Cooper’s desk. Cooper’s budget proposal would have spent over $3 billion more than the spending limit set for next year by Republicans.

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Compared to the past four years, the governor’s budget preferences matter less since Republicans now hold veto-proof majorities after seat gains and a party switch last month by then-Democratic Rep. Tricia Cotham to the Republican Party.

Cooper was already in an uncomfortable negotiating position since language in Medicaid expansion legislation he signed into law in March requires passage of a state budget law before the coverage of low-income adults can begin. With expansion as one of the governor’s top priorities, Cooper may have to swallow budget provisions he finds distasteful.

One such Senate provision would incorporate a previous standalone measure that would expand greatly the taxpayer-funded program for K-12 students to attend private schools so that any child could receive some type of grant no matter the family’s income. All House Republicans have signed on as sponsors to similar school-choice legislation.

There are other differences between the House and Senate plans through spending line items, competing policy prescriptions and what to do with an estimated $3.1 billion in revenue overcollections this year.

The Senate budget proposal would raise average teacher pay by just 4.5% over the next two years, compared to a 10.2% average raise in the House proposal. Cooper wanted an 18% raise over two years. Berger said the Senate budget emphasizes starting pay for first-year teachers, saying their state-funded base salary would grow from $37,000 currently to $41,000 for the 2024-25 school year.

In a tweet, Cooper called the 4.5% proposed raises “pitiful” and the private school grant expansion “disastrous.”

Rank-and-file state workers would see 5% pay raises through mid-2025, compared to more than 7.5% from the House and over 8% by Cooper. Additional funds are provided to raise salaries further in hard-to-staff categories.

As for individual income taxes, current law is ratcheting down the rate from its current 4.75% to 3.99% starting in 2027. The Senate Republican budget would instead reach 3.99% in 2025 and lower it further over time to 2.49% in 2030. House Republicans are still aiming for the 3.99% in 2027 but would reduce the planned rate in 2024 slightly further than what is currently in law.

The Senate plan would set aside $1.425 billion to assist “NCInnovation,” a Durham-based nonprofit organization designed to translate applied research birthed on University of North Carolina System campuses into commercial successes and job creation, particularly in rural areas. About $250 million would immediately go into an endowment for distribution. A board is responsible for funding decisions. The current board includes an all-star lineup of state financial, university and research luminaries.

“This will help generate homegrown companies that will stay in North Carolina and hire North Carolinians,” said Sen. Brent Jackson, a Sampson County Republican and budget writer.

A Senate provision would also dismantle more regulations requiring state review before a health care facility can expand or use expensive equipment. Some “certificate of need” rules were eliminated or scaled back in this year’s Medicaid expansion law.

Another Senate item threatens urban hospitals with the loss of operating licenses unless they participate in efforts to generate health care expense savings for the state employee health insurance plan. The bill states that accumulated savings target would be $125 million in 2026.