State lawmakers heard directly from Gov. Josh Stein’s budget director Thursday morning, seeking clarity on some of what Stein is proposing in his budget proposal that he first made public Wednesday.

The new fiscal year begins July 1, and lawmakers are starting to ramp up budget negotiations — especially since they’ve now accomplished their first priority for the 2025 session, a Hurricane Helene relief bill that Stein signed into law Wednesday night.

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The Republican-led legislature is highly unlikely to go along with many of the more high-profile budget recommendations made by Stein, a Democrat. He received a frosty reception to his suggestion to redirect billions of dollars away from private school tuition vouchers in the coming years, as well as his suggestion to freeze future tax cuts — two of the main policy achievements of the state Republican Party since flipping control of the legislature 14 years ago.

GOP leaders also say Stein’s request to let voters decide on a $4 billion bond, to build new schools, is dead-on-arrival at the legislature.

However, Stein could find more success working with lawmakers on efforts to respond to Helene, modernize some parts of state government, and to raise state employee pay.

On Wednesday Senate leader Phil Berger and House Speaker Destin Hall each said they support some level of raises for teachers and other state employees, although they declined to cite exact numbers. In the eight years that Democratic Gov. Roy Cooper was in office, he typically suggested substantially higher raises than what legislative leaders ultimately agreed to pay for.

Stein’s budget proposes a:

  • 10.6% average raise for teachers, spread over two years.
    • 6.5% raise for correctional officers and youth counselors.
      • 2% average raise and $1,000 bonus for other state employees.

        Complicating budget negotiations this year could be two factors.

        Republicans’ loss of a legislative supermajority in the 2024 elections, giving Democrats more leverage to negotiate if Stein threatens a veto, is one. The other is a recent report from a team of nonpartisan state economists predicting that while North Carolina should expect a budget surplus through 2025, the state will begin running a deficit by the 2026-27 fiscal year.

        State budgets are written two years at a time, so lawmakers could find themselves struggling this year to balance an expected surplus in the first year with a deficit in the second year.

        Stein said that’s why he called on lawmakers to freeze planned income tax cuts. Berger and Hall both pushed back against the suggestion.

        Areas of agreement

        On Thursday, as Stein’s budget director Kristin Walker presented his recommendations to state lawmakers, the discussion tended to focus less on fights over tax policy and more on individual pieces of the spending plan — especially areas where the two political parties might find common ground.

        For instance, while Republican lawmakers frequently criticize Democrats for wanting to spend too much, one of the legislature’s top budget writers Rep. Donny Lambeth, R-Forsyth, questioned why Stein wasn’t asking for even more money for the Department of Motor Vehicles.

        “I get a lot of questions in my office about time for appointments, long lines,” he said. “And I didn’t see anything in there that might improve the performance of DMV.”

        Walker said Stein’s budget requests money to hire an extra 85 DMV examiners, as well as to open new offices and pay for IT improvements. She also said they’ll likely come back with even more requests in the future. Right now, though, the DMV is under examination by State Auditor Dave Boliek’s office. Walker said they’re waiting for the results of that audit before deciding exactly where or how to ask the legislature to focus more spending.

        Stein’s budget proposal also shows that he backs some priorities of Republican legislative leaders, such as funding for a new children’s hospital to be run as a partnership between UNC and Duke.

        State lawmakers put about $200 million into the hospital in 2024, with an extra $103 million planned for 2025. Stein’s budget proposes the same figure, and Walker highlighted that Thursday as one of several big projects the governor is hoping to see progress on.

        That hospital is expected to eventually cost more than $2 billion, including the roughly $300 million expected from current and future state budgets. It would be the only freestanding children’s hospital in the state. Supporters say creating a hospital specifically for children would free up capacity at other existing hospitals, allow for more specialized medical care for children who need it, and foster new research on pediatric care.

        The proposed hospital would also have 100 new beds dedicated for pediatric mental health care. That’s an area where North Carolina faces a severe shortage, sometimes leading to children with serious issues having to spend months living in hospital ERs before a mental health bed becomes available.

        However, funding for the new children’s hospital could be hampered by Republican President Donald Trump’s efforts to cut federal spending — another potentially complicating factor in state budget debates this year.

        The former administration of Democratic President Joe Biden paid North Carolina $1.8 billion in exchange for approving Medicaid expansion in 2023, which is helping pay for the new hospital. Trump, however, has moved to claw back many federal funds that were paid out before he took office. Some of his attempts have been blocked in court, but others have worked.

        Walker said her office is watching for any developments that could affect the hospital plans.

        “This is funded … from the money we’re getting from the Medicaid expansion bonus,” she told lawmakers Thursday. “So if that money is compromised somehow, or put into question, then we would need to find an alternative source of funding for the N.C. Children’s Hospital.”

        Rep. Laura Budd, D-Mecklenburg, suggested that Trump or Congressional Republicans might also cut funding for Medicaid more broadly, which could cause hundreds of thousands of North Carolinians to lose health insurance. She asked how much that might cost North Carolina taxpayers. Walker declined to give specifics, citing ongoing lawsuits against the Trump administration over that exact concern.

        “Some of that is protected attorney-client privilege, but we are looking at those numbers,” Walker said.