Taxes, raises and past promises: What's holding up NC's state budget

Both sides in North Carolina’s state budget debate are dug in.

House Speaker Destin Hall and Senate leader Phil Berger, the state’s two most powerful Republicans who control the General Assembly, remain divided over taxes, raises and a new children’s hospital.

The budget battle this fall is not between political parties, but between chambers. As the House and Senate each returned to Raleigh this week for a one-day voting session, neither is budging on big issues.

In a General Assembly that changed the law to make its own records more secretive a few years ago, top North Carolina senators say they want to make the state budget more transparent.

But the issue, as with other bills, is the other chamber. The House did not take up a Senate mini-budget bill that would tie lawmakers’ names to what provisions they were requesting in future budget bills. That could range from earmarks for their districts to policy changes.

Meanwhile, there’s still no new comprehensive budget, and there might not be one at all.

Just one mini-budget passed, still no overall budget

Instead, the Senate passed a flurry of mini-budget bills, including the one that would make the budget more transparent.

But the House took up just one spending bill, passing legislation that gives infrastructure funding to the Lenovo Center sports and entertainment arena, as well as funding to recovery from the remnants of Tropical Storm Chantal and more office space for the state auditor. House Bill 358 passed easily, with bipartisan support and no debate, and now goes to Democratic Gov. Josh Stein.

Speaker Hall said after the House session on Tuesday night that the bill they passed “was the one that we had worked out with (Senate budget) chairs, and so that was one that was agreed upon.” He said he didn’t know about any of the other budget bills, including the proposal about budget transparency, adding that he found out about them the same time reporters did.

Senate Republicans’ transparency proposal

The state budget, which is three months late in a fiscal year that began July 1, spends billions of dollars in taxpayer money. Within a document that is often more than 600 pages long are earmarks for all kinds of projects. The Senate’s proposal, a revised version of House Bill 389, would tie each of those provisions to the lawmaker who asked for it.

That would be a big change and shine a light on one of the more obscure legislative processes. While budget committee meetings and floor debate are public, negotiations often take place behind closed doors. And in the 2023 legislative session, state law changed to exempt legislators from following public records law.

Sen. Ralph Hise, a top budget writer and Spruce Pine Republican, said that the idea came from the budget chairs, including himself. Berger, too, described the idea as coming from “just a conversation among members, I don’t think I can, ironically, attribute that to anybody in particular.”

“But we’ve heard from a number of folks who have suggested that when you have a provision in a budget bill .... particularly if it’s for a special project of some sort, there needs to be a name associated with it. We felt that that was a good thing to put in,” Berger said.

Why is there still no overall budget?

The move came as budget provisions have emerged in a series of smaller bills. The legislature passed its first mini-budget bill in late July.

Most lawmakers have already gone home to their districts. They won’t be back until the next potential voting session, scheduled for Oct. 20. Four days of sessions have been scheduled for late October, November and December.

While those sessions could include a budget deal, there’s not much optimism coming from the leaders right now.

Asked by The News & Observer if these mini-budget bills mean there won’t be a big budget by Dec. 31, Berger said that Senate leaders “continue to be willing to have conversations about a more comprehensive budget.”

“We’ve not been able to reach agreement on those matters, and that’s one of the reasons you saw the multiple measures. We’ve got one that’s agreed to,” Berger said, referencing the bill the House went on to pass on Tuesday.

The state government does not shut down like the federal government, because of state law. Rather, spending levels remain at the same amount unless a new budget is passed. In 2019, there was no big budget passed at all, and it is often late when it does.

Taxes, raises, children’s hospital and past promises

Key hangups in negotiations include the planned children’s hospital in Apex, which the Senate tied this week to a Medicaid bill in an attempt to gain House support. It failed.

Looking back to agreements made in the past, Republican senators want the House to agree to more funding this year. But Hall is skeptical of funding a new children’s hospital in the state, telling reporters on Tuesday night that he’d even look at clawing back money.

The hospital isn’t the only fight over past promises.

Berger wants the House to agree on future tax cuts negotiated in 2023. Lawmakers can set levels of state revenue to act as “triggers” for more tax cuts.

“I would say that the House has been unwilling to engage, and generally the word I get, is it’s got to do with their desire to increase the triggers. We consider that to be a tax increase,” Berger said.

“That’s something that that we cannot agree to,” Berger said Monday night after the Senate session.

While both chambers agree on tax cuts for 2026, beyond that, House Republicans want to slow future planned tax cuts by adjusting triggers. The Senate wants to stick to the plan negotiated in 2023, when Tim Moore was speaker. But the speaker now is Hall, and he has a different take.

Inflation changes things for Hall

“It’s not just taxes. The first issue is, we believe that we should have some significant salary increases for teachers and state employees,” Hall said.

Hall went on to say because of inflation the past few years, he thinks that income tax triggers agreed on in 2023 “no longer make any sense. You know, $1 today is not worth what it was in 2023 and so we think we need to adjust those triggers” based on inflation and population growth.

Hall said that while each chamber’s budget committee chairs met this week to talk about the budget, he and Berger did not. Hall maintains that the House is still willing to negotiate.

“As I have told Sen. Berger, and as our chairs have told the Senate chairs, this body exists to change laws, and I really don’t know what that means to say there was a prior agreement from a prior General Assembly,” Hall said.

The facts have changed over time, he said.

“We all know one General Assembly can’t bind another one. That’s what we do here every session, is we change laws that existed in the past.”