• Last week, Gov. Josh Stein released his recommended budget for the 2025–27 biennium
  • For fiscal year (FY) 2026, the proposal includes $33.6 billion in net General Fund appropriations and $70.2 billion in total expenditures
  • The recommendation also includes changes to the tax code that would increase taxes for North Carolinians by $1.35 billion in FY 2027

Earlier this month, Gov. Josh Stein released his biennial budget proposal for 2025–27, recommending $33.6 billion in net General Fund appropriations for fiscal year (FY) 2026. This allotment would represent an increase of 6.3 percent since last year and 54.8 percent over the previous decade.

Total expenditures within the proposal — including receipt-supported and federal appropriations — would amount to $70.2 billion, a yearly increase of 3.6 percent and a staggering jump of 58.8 percent since FY 2019, when spending totaled only $44.2 billion. Furthermore, of the $70.2 billion, 43 percent, or about $30.2 billion, would be funded by the fiscally unstable federal government, which is nearly $37 trillion in debt. North Carolina’s growing financial dependency on federal dollars should be cause for concern.

While some have touted the proposal as beneficial to education and working families, Stein’s recommendation would reduce educational opportunities for students and increase taxes for North Carolinians by $1.35 billion in FY 2027.

Tax adjustments

As depicted in the table below, Stein’s proposal would provide some tax relief to targeted groups and a slight overall decrease in taxes for FY 2026. In each subsequent year, however, the plan would cost North Carolinians billions of dollars.

The individual income tax rate is scheduled to decrease to 3.99 percent in 2026, with the possibility of further reduction to 2.49 percent by 2029 if specific revenue targets are met. The corporate income tax rate is scheduled to decrease to 2 percent in 2026 and be gradually eliminated by 2030. Stein’s proposal would halt these reductions.

Instead, Stein proposes a targeted “working families tax credit” fashioned after the federal Earned Income Tax Credit, along with a credit for a portion of child care expenses, and converting the child tax deduction to a refundable tax credit.

As a result, taxes for North Carolinians would increase in FY 2027 by $1.35 billion on net, $1.29 billion of which would come from individual income taxes. Moreover, by FY 2030, the tax increase would grow to an estimated $4.1 billion, $3 billion of which would come from individual income taxes.

Education adjustments

Stein’s proposal recommends increasing funding to the Department of Public Instruction (DPI) by $876.1 million in FY 2026. This allocation would increase DPI’s net appropriations to $12.9 billion and its total expenditures to $15.6 billion. Of the recommended adjustments to DPI, the following are particularly noteworthy:

  • Increase average teacher pay by 10.6 percent over two years = $1.05 billion
  • Provide universal school breakfast at no cost to students = $85.3 million per year
  • Provide funding for 330 new school resource officers = $63 million per year
  • Provide funding for 330 new school health personnel = $32.7 million per year
  • Increase administrators’ salaries by 6 percent over two years = $60.7 million
  • Reinstate increased master’s pay for teachers = $10 million per year

Nevertheless, this increase in funding for the public education system would come at the cost of decreased funding for students to attend the private school of their choice. Stein’s proposal recommends reducing funding for the Opportunity Scholarship Program by $783.8 million in FY 2026 and incrementally eliminating it by FY 2037.

Other relevant components

In addition to increasing taxes by billions of dollars and depleting the Opportunity Scholarship Program, Stein’s proposal also contained several other pertinent aspects that are worthy of discussion:

  • Debt: Issue a $4 billion general obligation bond for school repairs and construction. This would be the first state debt issued since 2018 (Build NC Bond Act) and the first issuance of General Fund–supported debt in a decade (Connect NC Bond Act). Since 2013, policymakers have successfully lowered the General Fund–supported debt from $6.2 billion to $2.5 billion; however, Stein’s $4 billion bond would erase years of successful debt reduction.
  • Government workers: Increase funding for state employees’ and retirees’ salaries and benefits by $700.3 million. This recommendation includes $226.5 million for a 2 percent cost-of-living adjustment for all state employees and $169.8 million to fund a $1,000 bonus for all General Fund employees.
  • Reserve accounts: Make only one discretionary allocation to a reserve account by sending $500 million to the State Emergency Response and Disaster Relief Fund. The governor’s proposal does not attempt to replenish the $1 billion withdrawn from the Savings Reserve since Hurricane Helene.
  • State retirement system: Maintain the state’s contribution rate to the retirement system. The state treasurer has stated that keeping the contribution rate the same would create a $206 million budget shortfall over the biennium; however, Stein’s office has claimed that the current rate would provide $551 million more than what actuaries say is needed.
  • Unemployment benefits: Increase unemployment insurance funding by $82 million to raise the maximum weekly unemployment benefit from $350 to $470 and extend the maximum benefit duration from 12 weeks to 16 weeks when unemployment is low and from 20 weeks to 26 weeks when unemployment is high.
  • Child care: Increase funding for child care by $125.7 million (in addition to the tax credits listed in the table above). 

A particular bright spot within Stein’s proposal is the proposed allotment of $20 million to establish the IMPACT Center (Innovation and Modernization for Performance, Accountability, and Cost-Effective Transformation) to advance projects to improve efficiency in government operations. This week, legislators also put forth Senate Bill (SB) 474, which would create the Division of Accountability, Value, and Efficiency (DAVE) within the Office of the State Auditor (OSA) to evaluate spending and staffing in state agencies.

Key takeaways

Stein’s 2025–27 biennial budget proposal would increase net General Fund appropriations in FY 2026 by $2 billion, or 6.3 percent, and raise total expenditures (including federal funds) above $70 billion for the first time in North Carolina’s history.

Although Stein’s proposal would increase funding for DPI, it would do so by decreasing educational opportunities for students. Moreover, despite proposing some targeted tax relief, Stein’s recommendation to halt the reductions to the individual and corporate income tax rates would increase taxes for North Carolinians by billions of dollars annually.