House budget proposal: How does it stack up to the Senate’s?

• The North Carolina House has released its recommended budget for the 2025–27 biennium
• For fiscal year (FY) 2026, the proposal includes $32.6 billion in net General Fund appropriations and $70.4 billion in total expenditures
• The proposal also aims to terminate the state’s relationship with NCInnovation and implement targeted tax cuts, while also increasing revenue triggers that would make further personal income tax rate reductions less likely

On Monday, the North Carolina House unveiled its 2025–2027 biennial budget proposal, calling for $32.6 billion in net General Fund appropriations for fiscal year (FY) 2026. This would represent a 3 percent year-over-year increase and a 50 percent jump compared with a decade ago. The level of spending would be identical to the Senate’s budget proposal and reflect a more fiscally restrained approach than Gov. Josh Stein’s $33.6 billion plan.

Total expenditures in the House’s proposal, which include state and federal receipt-supported appropriations, amount to $70.4 billion. This would mark a 3.9 percent increase over the previous year and a striking 59.2 percent leap since FY 2019, when total spending stood at only $44.2 billion. Unfortunately, the precise share of federal funding remains unclear, despite emerging concerns for the state’s heavy dependence on the federal government, which is nearly $37 trillion in debt.

The remainder of this brief will highlight relevant recommendations from the House’s budget and illuminate some key differences between it and the Senate’s proposal from last month.

Income taxes

The personal income tax rate is scheduled to decrease from 4.25 percent to 3.99 percent in calendar year 2026. If specific revenue triggers are met, three further reductions down to 2.49 percent are planned.

The House’s budget proposal recommends substantially increasing the revenue trigger amounts. For example, the trigger amount for FY 2026 would be increased from $33 billion to $36.3 billion; for FY 2033, from $39 billion to $46.2 billion. These changes would, in effect, make further reductions beyond 3.99 percent much less likely. By contrast, the Senate proposed eliminating the triggers to 2.99 percent and implementing further trigger-based cuts down to 1.99 percent.

Instead of following the Senate’s plan to solidify and expand across-the-board tax cuts, the House wants to exempt the first $5,000 of tipped wages from the personal income tax. While this policy might sound politically appealing, it would introduce compliance issues and benefit only a small, targeted set of workers. The House also proposes increasing the standard deduction from $12,750 to $13,250 for individual filers and from $25,500 to $26,500 for married couples filing jointly.

According to the budget’s fiscal note, the House’s changes to the personal income tax would cost taxpayers more than $8 billion over the next five years.

NCInnovation

The controversial nonprofit NCInnovation was awarded $500 million in taxpayer funding in the 2023–25 biennial budget to fund and commercialize research projects with low market viability at North Carolina universities. 

Fortunately, the House and Senate agree on scaling back NCInnovation; however, the House takes a more aggressive approach. While the Senate proposed reclaiming NCInnovation’s $500 million endowment, it also wanted to return $100 million over four years through annual appropriations. Alternatively, the House recommends clawing back the entire amount and permanently cutting ties with the nonprofit.

The House would divert the entire $500 million to Hurricane Helene recovery efforts, while the Senate proposed using the remaining $400 million to fund the new NC Children’s Hospital.

Education

The House proposal seeks to boost average teacher pay by 8.7 percent over the biennium, while the Senate recommended a 3.3 percent average raise and a one-time, $3,000 bonus.

The House’s proposal aims to reinstate increased pay for teachers who have earned master’s degrees. While earning a master’s degree is laudable, research demonstrates little evidence that teachers with master’s degrees are more effective at increasing student achievement than those without. The Senate recommended increasing funding for salary supplements (up to $10,000) for teachers in advanced roles under the Advanced Teaching Roles Program.

The House also recommends requiring all school units to adopt cell phone–free classroom policies.

Health and human services

Both chambers’ proposals include $1.6 billion to cover the Medicaid rebase in FY 2026, with $500 million from the state and $1.1 billion from the federal government. The rebase accounts for changes in enrollment, services, and the enrollment mix in the program. Additionally, each proposal calls for implementing work requirements for Medicaid recipients, pending federal approval.

The House’s proposal aims to eliminate Medicaid coverage for GLP-1 drugs to treat weight loss beginning October of this year. This policy change would reduce spending by an estimated $33.9 million in FY 2026, $12 million of which would be state funds.

Policymakers in the House also propose using $60 million in federal block grants to increase the Child Care Subsidy program’s funding to $552.7 million in FY 2026.

Reserve accounts

Since Hurricane Helene, the state’s Savings Reserve balance has decreased from $4.75 billion to $3.61 billion. Prudently, both the House and Senate recommend replenishing the account to its pre-Helene level by allocating more than $1.1 billion in FY 2026.

The House also proposes allocating $600 million to the Regional Economic Development Reserve and $250 million to the Economic Development Project Reserve for FY 2026. Meanwhile, the Senate’s budget advocated setting aside $314.6 million in the Economic Development Project Reserve.

In addition to the $500 million from NCInnovation, the House recommends transferring $200 million from the State Emergency Response and Disaster Relief Fund to the Hurricane Helene Disaster Recovery Fund, which matches the Senate’s recommendation.

Other relevant recommendations

The House’s proposal also makes the following pertinent recommendations:

• Reinstate a back-to-school sales tax holiday for one weekend in August. While this policy may appear to offer meaningful tax relief to working families, in practice, sales tax holidays are more of a symbolic gesture than an effective policy measure. Moreover, tax holidays increase administrative complexities for firms, especially smaller businesses, due to the compliance burden.
• Increase state employees’ salaries by 2.5 percent in FY 2026, which is double the raise recommended by the Senate.
• Direct state agencies to eliminate funding for 20 percent of their vacant positions, many of which have been vacant for a year or more. The saved funds will be redirected to increase pay for hard-to-fill positions.
• Decrease the annual funding for the Job Development and Investment Grant program by  $10.3 million. This adjustment would mark progress toward decreasing the state’s use of corporate welfare.
• Allocate $400,000 to the Department of Commerce to study the economic impact of motorsports on the state.
• Provide $1.5 million to Winston-Salem Speedway for stadium improvements.
• Create a pilot program to privatize DMV driver’s license renewal services in Guilford and Harnett counties.
• Establish the North Carolina Investment Authority to become the investment manager of the state retirement system, shifting that authority out of the exclusive hands of the state treasurer.
• Establish licensure requirements for educational interpreters and transliterators.
• Join an interstate compact for licensed school psychologists, allowing those licensed in other states to practice in North Carolina without additional credentialing.
• Give the executive director of the State Board of Elections (SBE) the authority to set the salaries for some exempt policymaking and managerial positions.
• Allow the SBE to retain private counsel for litigation instead of rely on the attorney general.

What’s missing?

The House’s proposal failed to include the following prudent policy changes that the Senate recommended:

• Remove the interim goal of a 70 percent reduction in carbon dioxide emissions from electricity generation. This policy change would help to maintain power reliability and affordability.
• Repeal the Certificate of Need (CON) laws that limit health care supply and increase costs.
• Establish the Division of Accountability, Value, and Efficiency (DAVE) in the Office of the State Auditor, requiring each state agency to report to DAVE by Oct. 1, 2025, with an explanation for how it disburses its funding and a description of any positions vacant for six months or more.

Closing thoughts

Despite some commonalities, the two chambers diverge on several key policy issues. The House proposes a more appropriate policy response to NCInnovation: reclaiming all $500 million and cutting ties with the nonprofit. On the other hand, the Senate’s proposal offers greater tax relief for North Carolinians by guaranteeing and furthering across-the-board personal income tax rate reductions that benefit all working families in the state.

In the conference budget, legislators should adopt the Senate’s growth-oriented tax policy alongside the House’s suggestion to end the state’s relationship with NCInnovation. The budget should also incorporate the House’s vacant position reductions as well as the establishment of DAVE per the Senate plan. Additionally, the budget should incorporate the House’s suggestion to end Medicaid coverage for GLP-1s to treat weight loss and the Senate’s recommendations to remove the interim target in the Carbon Plan and repeal CON laws.