During the 2023 Long Session, the General Assembly enacted a two-year budget to carry the state through June 30, 2025.

While that budget remains in place, it is standard practice for the General Assembly to enact a budget update in the second year of each biennium to adjust for revenue changes and the state's evolving needs. Appropriations leaders from both chambers have been hard at work developing that revised budget for many months, but differing opinions about spending totals and tapping into state savings accounts have halted those negotiations. 

Senate and House leaders strongly disagree about whether, and to what degree, this budget should utilize funding from state savings reserves to help fund the spending plan. Senate Republicans argue that it is fiscally irresponsible to pull from savings reserves in a year with a revenue surplus and no natural disasters. House leaders disagree and stand by the projects they believe would be perfect uses of Medicaid Reserve and the Economic Development Savings Reserve funding. 

The two chambers also disagree about total spending and what to do with this year's surplus, but those are issues that House and Senate leaders have overcome many times before. In order for a new budget to be enacted this year, the House and Senate will need to work through each of those differences and agree on the same spending plan. 

After weeks of stalled negotiations on a new budget with the Senate, the House elected to unveil its own proposed second-year budget Monday night around 8 p.m. In recent budget cycles, House and Senate Republicans have consistently negotiated a joint state budget privately and then unveiled their consensus plan together before voting on it. While that may have been the original plan this year, weeks of unfruitful budget negotiations between the two chambers gave rise to the House stepping away from the joint approach to develop its own plan.

Notable details from the House's proposed spending plan include: 

• The document contains virtually no local projects or member requests, although it sounds like Appropriations leaders from both chambers have agreed on which local projects to fund and plan to add that list to the final budget conference report, if there is to be one.
• Additional raises for state employees (4% for most over the biennium, higher raises for hard-to-fill corrections and parole positions).
• Additional raises for teachers (4.4% on average for the biennium, higher raises for early career teachers).
• Increasing starting teacher pay in North Carolina to $44,000.
• Restoration of Master's Pay for teachers with advanced degrees.
• $487M to fully fund the Opportunity Scholarship waitlist.
• Additional $35M for the Housing Trust Fund at NCHFA.
• Supplemental funding for childcare centers in hopes of avoiding the looming fiscal cliff.
• No extra funding for the State Health Plan, which State Treasurer Folwell reports is $240M underfunded.
• Very few tax-related changes, although through negotiations with the Senate that could change dramatically.
• Various changes to the economic development and megasite readiness funds, mostly centered around the Toyota Megasite in Randolph County.
• The budget would withdraw half a billion dollars from state savings accounts (the Medicaid Reserve and the Economic Development Savings Reserve).
• Modification of the Completing Access to Broadband (CAB) matching fund requirements for counties in order to expand participation and maximize utilization of federal pass-through funds.
• Disbursement of opioid settlement funds to designated recipient counties pursuant to litigation.
• $20M for NCDIT cybersecurity, with various other requirements for the agency to improve data and cybersecurity through a study with the General Assembly.

Wednesday night, in a surprise turn of events, the Senate responded to the House's budget by releasing its own budget proposal. The Senate counteroffer is significantly shorter (a streamlined 46 pages) and proposes less total spending as well as less utilization of state savings reserves than the House budget.

While Republican leadership from the two chambers certainly share a handful of key priorities in their respective budget documents, they often disagree about how much funding is needed or how to best achieve their shared priorities. The two competing budget proposals have many differences that will need to be sorted out before a final consensus budget can be produced.

Key details of the Senate's proposed budget include: 

• Like the House budget, the Senate's budget does not list any local projects or member requests. We continue to receive assurances that the local projects list has been settled and agreed upon by the two chambers and will be included in the final compromise budget, if there is one.
• The Senate budget proposes a 5.5% increase in total spending compared to the 6.5% increase outlined in the House budget.
• Unlike the House budget, the Senate budget would not increase the raises for teachers or state employees that were enacted for FY 24-25 in the 2023 Long Session budget.
• Like the House budget, the Senate budget would fully fund and clear the Opportunity Scholarship waitlist of over 55,000 North Carolina families seeking private school vouchers.
• Also like the House budget, the Senate budget would provide supplemental funding for childcare centers in an attempt to curtail the looming fiscal cliff. The budget allocates $136.5M for this item.
• The Senate budget would modify CAB matching requirements for counties to expand participation and maximize utilization of federal pass-through funds by eliminating the county match requirement completely.
• Unlike the House budget, the Senate budget does not appropriate funding for state agency cybersecurity.
• Unlike the House budget, the Senate budget does not disburse opioid settlement funds to recipient counties designated by the litigation.

On Thursday morning, the House passed its one-year budget with unanimous Republican support as well as four Democrat votes. The Senate plans to conduct votes on its spending plan on Monday evening. Of course, neither of these documents will become law without action from the other chamber. Governor Cooper's response to the final budget will depend on its contents and the possibility of a Gubernatorial veto remains on the table.

If lawmakers fail to reach a budget deal, then the budget enacted last year will remain in effect unchanged, and the General Assembly will still have met its budget-making responsibilities through the adoption of the two-year budget in 2023. The new state fiscal year will begin on July 1, but a budget deal enacted after that date can take effect at any time.

We expect the General Assembly to recess after next week for a period of time, at least the month of July, before returning to consider outstanding legislation, possible constitutional amendments, and any budget work that is left on the table in June. When satisfied that their business is complete, the two chambers will need to agree to a resolution adjourning the 2024 Short Session and concluding the 2023-24 legislative biennium.