Senate moves forward on new state budget, $14 billion in tax cuts

The state’s personal income tax rate would fall from 5.25 percent to 3.99 percent over the next five years under the plan, and North Carolina's 2.5 percent corporate rate would phase out entirely over the same period. Altogether, this would save taxpayers – and cost state coffers – $13.9 billion.

The Senate budget also includes $1.5 billion in federally funded grants for businesses impacted by the pandemic, more than $1 billion in water and sewer rehabilitations around the state and $700 million to expand rural broadband.

The legislative process at this point requires one more vote in the Senate, slated for Friday morning. Then, the two-year spending proposal moves to the House, which will make changes.

Then, the House and the Senate negotiate away their differences. Then, the governor can sign the budget or, as he has in the last two years, veto it, leaving day-to-day state operations to run on a budget in place since 2018, though lawmakers have added priority-by-priority tweaks that have become known as "mini-budgets."

25 things from the Senate budget

The Senate’s plan totals $25.7 billion in general fund spending for the coming fiscal year, which begins July 1, about a 3.5 percent increase from this year.

“Do we keep spending more and more and more and more?” Sen. Paul Newton, R-Cabarrus, asked during Thursday’s budget debate. “The Senate has decided to return what we can to the taxpayers of North Carolina.”

Newton said a family of four making the state’s median income would see a 37 percent cut in their state income taxes if the proposed cuts are fully implemented.

Democrats said out-of-state corporations would reap most of the benefit from phasing out the corporate income tax, with Sen. Wiley Nickel, D-Wake, saying "rich, corporate shareholders in Texas will love it.”

Democrats pressed for smaller tax cuts instead and bigger investments in government: Higher salaries for teachers and other state employees, more free pre-kindergarten slots for young children and more money for state retirees. Republicans shelved all eight Democratic-proposed amendments during Thursday's debate, including one that would have raised teacher salaries by 10 percent over the next two years.

Sen. Michael Garrett, D-Guilford, who carried the proposal, called the budget’s current raises for teachers “a slap in the face … beneath the dignity of this body.”

Senate President Pro Tem Phil Berger said the amendments Democrats offered Thursday amounted to $8 billion in extra spending. He said spending what you've got while you've got it works for a while, but "when you get to the end of that, the promises to write the check can’t be kept."

"We’ve seen this philosophy before," Berger, R-Rockingham, said. "It just doesn’t work"

Berger also reminded Democrats that Republicans voted through budgets the last few years that would have given teachers raises, but Cooper vetoed those budgets in an attempt to secure larger raises and Medicaid expansion, something again left out of this year's budget proposal.

Republican Senators did back one amendment Thursday undoing a proposed cut. The State Board of Elections initially would have lost federal funding in the budget that supports 30 positions. The cut had been criticized by the board and others concerned about election security going forward, but the money was restored.

Teacher raises in the bill total about 3 percent, including step increases, over two years. Regular state employees would see similar raises. State employees would also get one-time bonuses - $1,500 for those making less than $75,000 a year, $1,000 for those making more – courtesy of a $545 million dip into federal stimulus dollars.

Teachers would get the same bonuses, plus $300 extra.

The Senate’s proposal includes larger salary increases, an average of 7 percent, for correctional officers in the state’s prison system as a new annual salary scale is implemented.

It keeps the status quo for state government retirees, funding the state retirement and health plans, but without a cost-of-living adjustment. Sen. Joyce Waddell, D-Mecklenburg, who routinely advocates for retirees, asked for a 2 percent COLA, but that was one of the amendments tabled by the Republican majority.

“Shame, shame,” said Waddell. “We can do it."

Berger said the request made him think of textile workers in his district who lost their jobs and pensions when the industry collapsed. Those people are taxpayers, he said.

"You’re asking them to pay, those people to pay, for these COLAs," Berger said. "You talk about unfair. That’s utterly unfair.”

As for Cooper, he called this proposal "just awful" on Wednesday.

“The Senate budget mortgages the future health and education of our people to the corporations and wealthiest among us ($13B tax cut)," he said on Twitter. "Just awful. A measly 1.5% raise for teachers next year after no raise last year? Thank goodness the budget process has a long way to go."