North Carolina's House lawmakers recently unveiled their proposed two-year spending plan for the state, well ahead of the traditional schedule.

The proposed nearly $30 billion budget would set a new record high for state spending and includes significant raises for teachers and state employees, while also allocating money for key infrastructure improvements across North Carolina. In this article, we break down some of the key points in the House's plan and what it will mean for North Carolinians.

Education is a Major Focus

In this budget, lawmakers prioritized education spending and were focused on positioning the state to successfully recruit and retain educators as well as non-certified school personnel. The budget proposes a 10% average pay raise for teachers, including step raises and additional funding for difficult to hire positions.

Other highlights include:

• A 9.5% raise for all bus drivers;
• Capping class sizes for 4th and 5th grade at 24 students;
• Providing 4 to 8 weeks of parental leave for teachers;
• Restoring master's degree pay;
• Allocating $40 million for school safety initiatives; and,
• A 7.5% raise for UNC System and Community College System employees.

In addition to providing the funding framework for the state's education system, the budget also often includes education policy. This year was no exception. Proposed policy items in the House budget include a new requirement that lesson plans be posted online and prohibiting COVID vaccination mandates in schools.

Alleviating State Government Staffing Challenges

In addition to the proposed pay raise for teachers, the budget also includes a plan to increase the salaries of government workers. The state employee vacancy rate in North Carolina is currently 23.4%, which is almost double the pre-pandemic rate and creates tremendous operational challenges for state agency leaders.

The House's proposed budget outlines a 7.5% average pay raise over two years for state employees. This translates to an expected increase of 4.25% in the 2023-2024 fiscal year and a 3.5% increase in the 2024-2025 fiscal year. Notably, State Highway Patrol employees are set to receive an 11% increase over the two-year period.

Moreover, the state budget calls for a permanent 1% cost of living adjustment increase for state government retirees in each fiscal year, amounting to a total 2% cost of living adjustment over the biennium.

Major Infrastructure Improvements

The proposed budget has the potential to deliver significant infrastructure improvements to communities across the state. The House budget would allocate $1 billion annually for the next two years towards water and wastewater infrastructure, in addition to an extra $1 billion for transportation projects. The House also proposes $100 million in the 2023-2024 fiscal year and $200 million in 2024-2025 for airport capital improvements grants.

Unlike in past budget cycles, funding for specific local projects was not outlined in the House's proposal and we do not expect to see individual local projects outlined in the Senate version either. This year, House and Senate leaders have agreed to wait until the budget is in the conference committee stage to list specific local projects that will be receiving earmarks from the infrastructure funds listed above.

Tax Relief and Health Care

The proposed budget maintains the state's current individual income tax cut schedule with minimal alterations while recommending a reduction in the corporate franchise tax rate. The House's proposal aims to expedite the reduction of the individual income tax rate to 4.5% by next year, one year ahead of schedule. The budget also provides relief to parents in the form of tax credits. Lawmakers propose increasing the child tax credit by 20% and also providing an adoption tax credit. The budget also includes a tax credit for organ donation.

If the state budget is enacted, the Medicaid expansion bill previously signed by Governor Roy Cooper will be enabled. The House budget proposal has incorporated the estimated $400-500 million that will be generated through the implementation of Medicaid expansion.

Other Notable Appropriations

The House budget also proposes the following notable appropriations:

• $25M for Minor League Baseball stadium upgrades, which require a 2:1 state/local match, and is capped at $5M per grant;
• $10M for the Resilient Coastal Communities Program (RCCP) in FY 2023-2024;
• $5M for Stormwater Retrofit Pilot Program initiated by Ward and Smith in partnership with the Coastal Federation in FY 2023-2024;
• $987,000 for the Flood Resiliency Blueprint in both FY 2023-2024 and FY 2024-2025; and
• $35M for Workforce Housing Loan Program in both FY 2023-2024 and FY 2024-2025

What Happens Next

The House is anticipated to vote on the budget soon, and once this process is completed, the Senate will commence drafting its own proposed budget over the next few weeks. After the Senate budget is finalized, a conference committee comprising members from both chambers will be established to negotiate the final version. We anticipate that the conference committee will commence its work in May, contingent upon the Senate budget's passage timeline. While the dates for the final budget votes remain uncertain, we project that they will take place in late May or June.

We will continue to monitor the budget's progression and provide updates about any developments that may arise.