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The 2023 North Carolina state budget: Here’s what you need to know
Publisher's Note: This post appears here courtesy of the Carolina Journal. The author of this post is Alex Baltzegar.
In a Tuesday evening press conference at the N.C. General Assembly, Senate Leader Phil Berger, R-Rockingham, and House Speaker Tim Moore, R-Cleveland, announced an agreement to abandon, for now, efforts to legalize casinos through the state budget.
Focusing on tax cuts and development projects in the over $30 billion budget, the leaders announced that the Senate will vote on the conference report at 2:00 PM Thursday with final votes at 9:30 AM Friday. The House is planning to hold budget votes on the floor on Wednesday and Thursday.
"Medicaid expansion will still be contingent the budget becoming law," Berger told reporters. "The conference budget will not include VLTs (video lottery terminals) for the rural tourism districts. We think this is the best, most prudent way for us to move forward."
"A lot of the conversation has been about where the differences of opinion are, but now is a good time to talk about what a good budget this is, what it does; absolutely record investment in rural infrastructure like water sewer and education," said Moore. "Tax relief for working families, more money for education, pay raises for our hard working state employees, we have probably the greatest budget I've ever seen."
Berger did tell reporters that the casino issue is not dead, though. Leadership plans to bring it back up in a later session for more discussion.
Senate Leader Phil Berger originally wanted to include casinos in the state budget. However, the House never garnered the support necessary to get a budget with casinos over the finish line, with only 42 of his Republican colleagues expressing a willingness to do so. After a new plan was floated that would have paired Medicaid expansion with casinos through House Bill 149, most Democrats indicated they would likely vote against it.
Berger pointed to high "emotions" from certain lawmakers as the reason for the change.
Medicaid expansion is still tied to passing the budget. However, now that casinos are not in the budget, legislative leaders are nearing a final agreement, and Governor Cooper is now more likely than not to sign the budget. Moore and Berger both said they expect the budget to pass with at least supermajority margins and bipartisan support.
Here's what was inside the leaked draft, which legislative leaders have confirmed is very close to the final agreement:
TAXES
Personal income tax drops to 2.49%: North Carolinians' personal income tax could drop to as low as 2.49 percent in the next five years, but only if revenue triggers are hit each year. There will be a 0.50% PIT reduction each FY revenue triggers are hit.
If there are years where North Carolina does not hit revenue goals, the PIT rate will remain the same, but no PIT cuts will be reversed once they occur. The soonest PIT could drop to 2.49 percent would be 2029, on the condition of revenue hitting the "trigger amount" every year. With large-scale gambling revenue not kicking in until the Senate figures out how to get its desired casinos and VLTs, North Carolina is unlikely to hit all of the revenue triggers every year.
For reference, North Carolina revenue for the 2022-23 Fiscal Year was $33.535 billion.
Franchise tax capped: The franchise tax will be capped starting in 2025 and will affect corporate income tax filings starting in 2024. For "C" Corporations, for the first one million dollars of their tax base, they will pay a flat fee of $500. For any amount of their tax base that exceeds one million dollars, they will pay $1.50 for every $1,000 of that excess amount. "S" Corporations will pay $200 for the first one million dollars of their tax base and $1.50 for every $1,000 of the excess amount. ets minimum tax for all corporations at $200 and a maximum of $150,000.
Privilege tax repealed: The budget's tax package includes a repeal of the privilege tax, but keeps certain exceptions for financial and lending businesses.
Extends sales tax exemptions: Sales tax exemptions are extended from their previous expiration date from Jan 1, 2024 to 2028. These exemptions include retail sales and use taxes on motorsports, senior care facilities, aviation, fuel for freight boats, and breast pumps.
Vape tax: The budget allows for vape products containing nicotine to be taxed similarly to other products. They are also shifting the tax from being cost-based to weight-based.
Rideshare service tax: The General Assembly is implementing a new excise tax on Uber, Lyft and other rideshare services of 1.5 percent for exclusive rides and 1 percent for shared rides.
ECONOMIC DEVELOPMENT INITIATIVES
NCInnovation: Lawmakers have settled on giving NCInnovation $500 million, or $250 million a year for two years. It will still be set up as an endowment. NCInnovation is a private, non-profit corporation that focuses on facilitating the commercialization of research from North Carolina universities. This decision contrasts with the Senate's earlier proposal of a $1.425 billion endowment, significantly diverging from the House's $50 million allocation.
The budget also includes stipulations to cap salaries funded by NCInnovation at $140,000, introduces enhanced reporting requirements to the legislature's Joint Government Operations Committee, and mandates reporting on outcomes, regional hub expenditures, unaudited overhead reports, and more. The State Auditor gains explicit audit authority, while the North Carolina General Assembly is granted the power to repeal NCInnovation's charter and reclaim assets. Additionally, the budget outlines extensive functional and job description parameters for NCInnovation's operations.
Regional Economic Development Reserve: The budget establishes a Regional Economic Development Reserve within the General Fund, allocating $1.25 billion in nonrecurring funds for the 2023-2024 fiscal year.
Golden LEAF: The budget increases Golden LEAF funding from $17 million annually to $25 million annually. Golden LEAF is a nonprofit that works "to increase economic opportunity in North Carolina's rural and tobacco-dependent communities through leadership in grantmaking, collaboration, innovation, and stewardship as an independent and perpetual foundation," according to its website.
EDUCATION
Universal School Choice: Opportunity scholarships will be awarded to eligible students based on household income levels and the average State per pupil allocation. For reference below, North Carolina's per pupil allotment as of 2022 is $7,426, and the income threshold for free and reduced lunch varies based on number of children in the household.
Students from households with income levels qualifying for the federal free or reduced-price lunch program are eligible for a grant of up to 100% of the prior fiscal year's average State per-pupil allocation.
Students from households with income levels between 100% and 200% of the federal free or reduced-price lunch program are eligible for a grant of up to 90% of the prior fiscal year's average State per-pupil allocation.
Students from households with income levels between 200% and 450% of the federal free or reduced-price lunch program are eligible for a grant of up to 60% of the prior fiscal year's average State per-pupil allocation.
Students from households with income levels above 450% of the federal free or reduced-price lunch program are eligible for a grant of up to 45% of the prior fiscal year's average State per-pupil allocation.
There will be an annual audit on 4% of opportunity scholarship recipients in order to verify North Carolina residency requirements are met. The General Assembly will also require opportunity scholarship school recipients to contract with a CPA to perform annual financial reviews.
Free lunch and breakfast for more low-income students: Mandates that the Department of Public Instruction expand public school participation in the federal Community Eligibility Provision (CEP) program to increase the number of students with access to healthy, cost-free school breakfast and lunch.
School safety: This budget allocates $3.2 million for New Hanover County and $2 million for Davidson County for an Artificial Intelligence school safety pilot program.
Teacher pay raises: The budget gives teachers an average increase in pay of about 7 percent over the next two years. Increases in base salary are larger for early-in-career teachers than for more experienced teachers, with raises ranging from 3.6% to 10.8% depending on the number of years worked.
Bus drivers: Bus drivers will get an extra two percent more than most state employees, for a total of about a 9 percent raise over the next two years.
UNC School of Civic Life and Leadership: In Chapel Hill, the UNC School of Civic Life and Leadership will be established and will be run by the provost rather than being directly under the chancellor.
INFRASTRUCTURE
Water and sewer: Nearly $2 billion is allocated to over 200 individual water and sewer related projects all across the state.
Highway Fund: For the Fiscal Year 2023-24, the budget allocates almost $3 billion. For 2024-25, the budget allocates almost $3.2 billion.
Prohibition on state or regional emissions standards for motor vehicles: Prohibits any requirements on controlling emissions on new motor vehicles and reduces the number of vehicles currently subject to emissions inspections.
Prohibit cap and trade requirements for carbon dioxide (CO2) emissions: No state agency, governor, or the Department of Environmental Quality, may require certain public utilities to engage in carbon offset programs.
Go Back
In a Tuesday evening press conference at the N.C. General Assembly, Senate Leader Phil Berger, R-Rockingham, and House Speaker Tim Moore, R-Cleveland, announced an agreement to abandon, for now, efforts to legalize casinos through the state budget.
Focusing on tax cuts and development projects in the over $30 billion budget, the leaders announced that the Senate will vote on the conference report at 2:00 PM Thursday with final votes at 9:30 AM Friday. The House is planning to hold budget votes on the floor on Wednesday and Thursday.
"Medicaid expansion will still be contingent the budget becoming law," Berger told reporters. "The conference budget will not include VLTs (video lottery terminals) for the rural tourism districts. We think this is the best, most prudent way for us to move forward."
"A lot of the conversation has been about where the differences of opinion are, but now is a good time to talk about what a good budget this is, what it does; absolutely record investment in rural infrastructure like water sewer and education," said Moore. "Tax relief for working families, more money for education, pay raises for our hard working state employees, we have probably the greatest budget I've ever seen."
Berger did tell reporters that the casino issue is not dead, though. Leadership plans to bring it back up in a later session for more discussion.
Senate Leader Phil Berger originally wanted to include casinos in the state budget. However, the House never garnered the support necessary to get a budget with casinos over the finish line, with only 42 of his Republican colleagues expressing a willingness to do so. After a new plan was floated that would have paired Medicaid expansion with casinos through House Bill 149, most Democrats indicated they would likely vote against it.
Berger pointed to high "emotions" from certain lawmakers as the reason for the change.
Medicaid expansion is still tied to passing the budget. However, now that casinos are not in the budget, legislative leaders are nearing a final agreement, and Governor Cooper is now more likely than not to sign the budget. Moore and Berger both said they expect the budget to pass with at least supermajority margins and bipartisan support.
Here's what was inside the leaked draft, which legislative leaders have confirmed is very close to the final agreement:
TAXES
Personal income tax drops to 2.49%: North Carolinians' personal income tax could drop to as low as 2.49 percent in the next five years, but only if revenue triggers are hit each year. There will be a 0.50% PIT reduction each FY revenue triggers are hit.
If there are years where North Carolina does not hit revenue goals, the PIT rate will remain the same, but no PIT cuts will be reversed once they occur. The soonest PIT could drop to 2.49 percent would be 2029, on the condition of revenue hitting the "trigger amount" every year. With large-scale gambling revenue not kicking in until the Senate figures out how to get its desired casinos and VLTs, North Carolina is unlikely to hit all of the revenue triggers every year.
For reference, North Carolina revenue for the 2022-23 Fiscal Year was $33.535 billion.
Franchise tax capped: The franchise tax will be capped starting in 2025 and will affect corporate income tax filings starting in 2024. For "C" Corporations, for the first one million dollars of their tax base, they will pay a flat fee of $500. For any amount of their tax base that exceeds one million dollars, they will pay $1.50 for every $1,000 of that excess amount. "S" Corporations will pay $200 for the first one million dollars of their tax base and $1.50 for every $1,000 of the excess amount. ets minimum tax for all corporations at $200 and a maximum of $150,000.
Privilege tax repealed: The budget's tax package includes a repeal of the privilege tax, but keeps certain exceptions for financial and lending businesses.
Extends sales tax exemptions: Sales tax exemptions are extended from their previous expiration date from Jan 1, 2024 to 2028. These exemptions include retail sales and use taxes on motorsports, senior care facilities, aviation, fuel for freight boats, and breast pumps.
Vape tax: The budget allows for vape products containing nicotine to be taxed similarly to other products. They are also shifting the tax from being cost-based to weight-based.
Rideshare service tax: The General Assembly is implementing a new excise tax on Uber, Lyft and other rideshare services of 1.5 percent for exclusive rides and 1 percent for shared rides.
ECONOMIC DEVELOPMENT INITIATIVES
NCInnovation: Lawmakers have settled on giving NCInnovation $500 million, or $250 million a year for two years. It will still be set up as an endowment. NCInnovation is a private, non-profit corporation that focuses on facilitating the commercialization of research from North Carolina universities. This decision contrasts with the Senate's earlier proposal of a $1.425 billion endowment, significantly diverging from the House's $50 million allocation.
The budget also includes stipulations to cap salaries funded by NCInnovation at $140,000, introduces enhanced reporting requirements to the legislature's Joint Government Operations Committee, and mandates reporting on outcomes, regional hub expenditures, unaudited overhead reports, and more. The State Auditor gains explicit audit authority, while the North Carolina General Assembly is granted the power to repeal NCInnovation's charter and reclaim assets. Additionally, the budget outlines extensive functional and job description parameters for NCInnovation's operations.
Regional Economic Development Reserve: The budget establishes a Regional Economic Development Reserve within the General Fund, allocating $1.25 billion in nonrecurring funds for the 2023-2024 fiscal year.
Golden LEAF: The budget increases Golden LEAF funding from $17 million annually to $25 million annually. Golden LEAF is a nonprofit that works "to increase economic opportunity in North Carolina's rural and tobacco-dependent communities through leadership in grantmaking, collaboration, innovation, and stewardship as an independent and perpetual foundation," according to its website.
EDUCATION
Universal School Choice: Opportunity scholarships will be awarded to eligible students based on household income levels and the average State per pupil allocation. For reference below, North Carolina's per pupil allotment as of 2022 is $7,426, and the income threshold for free and reduced lunch varies based on number of children in the household.
Students from households with income levels qualifying for the federal free or reduced-price lunch program are eligible for a grant of up to 100% of the prior fiscal year's average State per-pupil allocation.
Students from households with income levels between 100% and 200% of the federal free or reduced-price lunch program are eligible for a grant of up to 90% of the prior fiscal year's average State per-pupil allocation.
Students from households with income levels between 200% and 450% of the federal free or reduced-price lunch program are eligible for a grant of up to 60% of the prior fiscal year's average State per-pupil allocation.
Students from households with income levels above 450% of the federal free or reduced-price lunch program are eligible for a grant of up to 45% of the prior fiscal year's average State per-pupil allocation.
There will be an annual audit on 4% of opportunity scholarship recipients in order to verify North Carolina residency requirements are met. The General Assembly will also require opportunity scholarship school recipients to contract with a CPA to perform annual financial reviews.
Free lunch and breakfast for more low-income students: Mandates that the Department of Public Instruction expand public school participation in the federal Community Eligibility Provision (CEP) program to increase the number of students with access to healthy, cost-free school breakfast and lunch.
School safety: This budget allocates $3.2 million for New Hanover County and $2 million for Davidson County for an Artificial Intelligence school safety pilot program.
Teacher pay raises: The budget gives teachers an average increase in pay of about 7 percent over the next two years. Increases in base salary are larger for early-in-career teachers than for more experienced teachers, with raises ranging from 3.6% to 10.8% depending on the number of years worked.
Bus drivers: Bus drivers will get an extra two percent more than most state employees, for a total of about a 9 percent raise over the next two years.
UNC School of Civic Life and Leadership: In Chapel Hill, the UNC School of Civic Life and Leadership will be established and will be run by the provost rather than being directly under the chancellor.
INFRASTRUCTURE
Water and sewer: Nearly $2 billion is allocated to over 200 individual water and sewer related projects all across the state.
Highway Fund: For the Fiscal Year 2023-24, the budget allocates almost $3 billion. For 2024-25, the budget allocates almost $3.2 billion.
Prohibition on state or regional emissions standards for motor vehicles: Prohibits any requirements on controlling emissions on new motor vehicles and reduces the number of vehicles currently subject to emissions inspections.
Prohibit cap and trade requirements for carbon dioxide (CO2) emissions: No state agency, governor, or the Department of Environmental Quality, may require certain public utilities to engage in carbon offset programs.
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