North Carolina’s proposed new state budget won initial approval Wednesday in the first of round of voting on the $34 billion spending plan. Republican lawmakers plan to vote the plan through before the end of the week, sending it to Democratic Gov. Josh Stein to approve or veto.

The budget contains raises and bonuses for state workers and teachers, one-time boosts to retired state workers’ pensions, income tax cuts for all North Carolinians, tax increases for data centers and sports betting companies, and throughout state government, a mixture of spending cuts and boosts.

For more details of what is or isn’t included in the budget, see WRAL’s detailed budget breakdown from when the plan was made public Tuesday.

The House of Representatives voted 92-22 to advance the budget, with nearly twenty Democrats joining the Republican majority in support of the bill. The Senate’s vote was 37-12, with two Republicans breaking party ranks to vote against the budget, and several Democrats breaking party ranks to vote for it.

The budget will need to pass another round of voting later this week, largely a formality. 

“This budget reflects the need to rein in spending while prioritizing our state’s most pressing needs,” lead Senate budget write Sen. Brent Jackson, R-Sampson, said Wednesday. “As costs for North Carolinians rise, budget drivers made a concerted effort to slash your taxes, cut bureaucracy, and make their life more affordable.”

The $34.4 billion spending plan is the largest in state history. In addition to spending on state programs and tax cuts, the budget also sought a balance between funding continued relief efforts to Hurricane Helene damage in western North Carolina, with hundreds of millions of dollars, while also setting aside hundreds of millions of dollars more in reserves to prepare for the next emergency.

Sen. Julie Mayfield, D-Buncombe, thanked GOP leaders for continuing to focus on Helene relief but criticized them for slashing funding for some programs that have been helping with relief.

She said similar themes existed in many other parts of the budget, with Republicans making some good investments in the state but also making, in many Democrats’ opinions, some head-scratching decisions on funding cuts.

“This budget giveth, and it taketh away,” Mayfield said. “… Despite all the new money in this budget, it seems to me this is a budget born of a scarcity mindset instead of one of abundance. And it could be — and should be — different.”

Mayfield ultimately voted for the budget, although most of her fellow Democrats voted against it. So did two Republicans, Sen. Bobby Hanig and Sen. Norm Sanderson, who represent much of eastern North Carolina including the Outer Banks. They opposed a provision that will end the state’s system of free coastal ferries. Hanig said it’s a new tax the General Assembly is forcing on people who live or work in certain parts of the coast reachable by ferry. The budget will charge coastal residents who commute by ferry $150 per car per year.

“We’ve done an amazing job in lowering our tax rate,” Hanig said. “Now, we are proposing to tax the hardworking people in East North Carolina to go to work, go to school, go to doctor’s appointments.”

If the budget becomes law, it will be the state’s first comprehensive spending plan approved since 2023. Republican lawmakers began negotiating the spending plan in early 2025 but ran into numerous intra-party fights that delayed the budget over a year.

Education

More than half the state budget goes toward education, whether that’s for K-12 schools, community colleges or public universities. Sen. Kevin Corbin, R-Macon, said the legislature will have boosted education spending 39% since 2020 once this budget plan becomes law.

Corbin said there’s a reason why education should be such a strong focus for state spending. His grandfather never attended high school, and his father never graduated high school, Corbin said. But he was able to go to college, and now his son is a dentist and his daughter is an occupational therapist.

“I say that to say I’m a believer in public education in North Carolina,” Corbin said. “I’m a believer in what it does for our state and for our families.”

While most state employees get a 3% raise in the new budget, teachers get an average raise of 8%, with less for more experienced teachers and more for those newer in their careers. But North Carolina has among the lowest-paid teachers in the country, and Stein and other Democrats have said those raises need to be substantially higher just to bring North Carolina up to the national average.

Sen. Sophia Chitlik, D-Durham, said the budget should’ve spent more on pre-K programs. It has a massive return on investment, she said, since helping more children be better-prepared to enter public school will ensure they don’t fall behind on reading and other skills in the early elementary school years. 

WRAL reported in May that 4th grade students’ reading skills have been steadily dropping for the past decade, a problem that has grown even worse since the Covid-19 pandemic. Chitlik said lawmakers could’ve chosen to try fixing that problem, but instead are focused on cutting taxes or funding other priorities in state government.

“I just cannot vote for a budget that invests over $2.2 billion in our prisons, and nothing more in the hundreds of thousands of preschoolers we are dooming to fail in 3rd grade, and for the rest of their lives,” Chitlik said. “… I can’t vote for a budget that promises that 3rd grade won’t be any different for a kid turning three this year than it is for the majority of current 3rd graders, who still can’t read at grade level.”

Healthcare

Another large source of state funding is health care, which takes many forms in the budget ranging from mental health services to aid for children’s health and the Medicaid program, which is funded by a combination of state and federal funds and provides health insurance for more than 3 million people.

Sen. Benton Sawrey, R-Johnston, said the budget meets Medicaid’s expected needs of $1 billion next year but also noted that the budget contains other provisions aimed at cutting Medicaid funding the future. Cutting waste, fraud and abuse is a key goal, and he said he believes the Stein administration’s Department of Health and Human Services is on board with that goal.

“While we’re glad we’re funding the [$1 billion] Medicaid rebase requirements, I think this continues to be a cautionary tale of our increased health care costs we’re seeing across the state,” Sawrey said. “In North Carolina, it continues to be one of the largest marks for the budget and eat up costs for things that we do.”

The budget creates a dozen new state jobs that will be focused on oversight of the Medicaid program to try to catch or prevent fraud and abuse, he noted, plus it allocates $2.5 million for more intensive audits of the program that could identify other cost-saving opportunities.

The proposal would also cut other jobs within the state health department — a plan that Rep. Maria Cervania, D-Wake, said would make it harder for the department to meet federal government mandates. 

“Think about the contradiction in this: At the very moment we’re asking us to successfully implement new federal Medicaid requirements — reduce payment errors, oversee managed care, and improve accountability — we are taking away the majority of people responsible for making those programs work.”

Transportation

The budget spends more than $5 billion on transportation projects across the state, from road construction and bridge repairs to coastal ferries, harbors, airports, railroads and building new Department of Motor Vehicles offices — and hiring several dozen new DMV staffers — to address wait times that have long been a complaint across the state.

“This budget reflects our commitment to maintaining and improving the infrastructure that keeps our citizens safe,” Sen. Michael Lazzara, R-Onslow, said. “It supports economic development and ensures the efficient movement of people and commerce across our state.”

Taxes

The budget will slash the personal income tax rate from 3.99% this year to 3.49% next year, continuing a long trend of GOP lawmakers consistently lowering taxes. It makes no change to the corporate income tax rate, which is currently at 2% and set to hit 0% in the next few years.

Lawmakers don’t plan to fully eliminate the personal income tax, but the budget does set up a system of future tax cuts, eventually lowering the rate as low as 2.49% by as early as 2034, depending on whether the state continues hitting certain revenue benchmarks.

It also eliminates certain tax breaks, including for data centers and hospitals, while expanding other tax-funded incentives, such as for the film and television industry to film in the state.

Mayfield said the state’s tax policy is a mistake.

“We are the third fastest growing state in the country,” she said. “That means we have more demands and more needs. And we have more revenue, but we’re not yet all-in in meeting those new needs. Indeed, we have ensured that we will not be able to meet those needs with the tax cuts that are baked in.”

In the House, Republican leaders hailed the proposed tax schedule as a more responsible plan than what was already in place. Existing law would allow the personal income tax rate to fall to 2.49% by 2029 — rather than the proposed 2034 — if the state hit certain revenue goals. 

State economists have warned North Carolina lawmakers that aggressive tax cuts could lead to a revenue shortage and potentially a budget deficit before the end of the decade. House budget negotiators wanted to ensure that the state government retained enough revenue to fund the needs of a growing state, said Rep. Dean Arp, R-Union. 

“We cut taxes for the hardworking people of North Carolina: real reductions that will make real differences in real paychecks. And at the same time, we set this state on a better trajectory to pay for what North Carolina actually needs,” Arp said, adding: “A tax cut you cannot afford is not a tax cut, it’s a promise you break later.”

This is a developing story. Check back for updates.