After months of delays and negotiations between the House and Senate, the state’s $21.74 billion budget will become law Friday with Gov. Pat McCrory’s signature.
The House voted 80-35 Thursday evening, mostly along party lines, to approve the compromise budget bill. A final vote after midnight had a 81-33 tally. The Senate signed off on the spending plan Wednesday, and McCrory announced Thursday that he’ll sign it when it reaches his desk.
Nine Democrats backed the budget on the first vote, and two more switched to “yes” on the final vote. All House Republicans present supported the bill – a big change from the original House budget when 11 Republicans voted no.
“This is a very strong bipartisan vote on a budget that really does fund North Carolina’s priorities,” House Speaker Tim Moore said. “As a result of compromise, we think at the end of the day we came up with a very fair budget.”
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The governor’s approval will end 11 weeks of uncertainty for schools and government agencies across North Carolina. Many school districts will resume driver’s education programs and finalize teacher assistant hires after the Senate’s original budget sought to cut funding for both items.
In addition to resolving those questions, the budget also restores historic preservation tax credits and a tax deduction for medical expenses. The deduction was cut in a previous budget and prompted outcry from seniors who saw their tax burden grow.
The bill also includes cuts to personal income tax rates and additional sales taxes on repair, maintenance and installation services that aren’t currently taxed. Republicans say the income tax cuts represent $400 million in tax relief, but Democrats have attacked the new sales taxes, saying they’ll hurt poorer residents who will pay more to keep their cars working.
The senior budget writer in the House, Rep. Nelson Dollar of Cary, noted the budget’s delays at the start of Thursday’s debate. This year’s spending plan was supposed to be in place by June 30, and it’s the longest delay since 2002 – an impasse that has occurred with Republicans firmly in control of state government.
Since July, state government has been operating under a temporary budget that continues last year’s spending levels.
“I’ve never seen two budgets further apart, and that was the real challenge that we had over the last weeks and months,” Dollar said.
At the Senate’s insistence, the House cut millions from its original budget plan, and the Senate gave up plans to convert teacher assistant funding to hire elementary teachers. House Republicans said Thursday that they’re happy with the compromise.
“I believe this bill moves our state forward, and I believe this bill funds essential state services,” House Rules Chairman David Lewis said.
Rep. Craig Horn, a Union County Republican, said the budget will improve the state’s education system. “Education is 57 percent of our over $21 billion budget in this state, and I think we can be proud of that,” he said. “We are keeping our teacher assistants, probably the number one objective of this House.”
But Rep. Tricia Cotham, a Mecklenburg County Democrat, labeled the budget’s funding for education as barely “adequate.”
“Is that what we want North Carolina to be, just adequate?” she said, comparing the budget’s $750 bonus for teachers and state employees to a tip on a restaurant bill. “Your tip is an insult to the profession of teaching. It’s just not good enough.”
The House had originally sought a 2 percent raise for all state employees, but that plan didn’t make the final cut. The budget does, however, raise starting teacher pay to $35,000 and funds “step” pay increases for teachers who qualify.
Rep. Yvonne Holley, a Raleigh Democrat, said the budget should do more for state employees and retirees. The latter will not receive a cost-of-living increase in their retirement benefits this year. She said they’ve “been beaten up by the General Assembly.”
“State employees give and give and give, and they never get anything back,” Holley said.
Republicans praised the budget for better funding the state’s roads and transportation networks. It will halt the use of $216 million in gas tax funds to pay for the Highway Patrol in order to increase state spending for highway construction and bridge and road maintenance.
Rep. John Torbett, a Gaston County Republican who oversees transportation spending, said the change will create a “second renaissance when it comes to fixing our roads in North Carolina” and bring back the label of “good roads state.”
The budget’s tax changes also prompted heated debate Thursday night. The personal income tax rate would drop from 5.75 percent to 5.499 percent in 2017. And the standard deduction would increase, meaning a married couple filing jointly wouldn’t owe income taxes on the first $15,500 in income starting next year, up from $15,000.
Meanwhile, repair, maintenance and installation work on cars and other personal property would be subject to sales taxes starting March 1. A major portion of the new tax revenue would be distributed among 79 suburban and rural counties.
Rep. Bill Brawley, a Mecklenburg County Republican, said the combination of income tax cuts and new sales taxes will still mean people owe less.
“There is still a net tax cut to all the taxpayers of North Carolina,” Brawley said.
Democrats were skeptical of that analysis. Rep. Kelly Alexander of Charlotte pointed out that this year’s tax changes are the latest in a GOP-led shift away from income taxes toward more sales taxes. In recent years, sales taxes have been added to purchases like movie and concert tickets, while the personal income tax rate has dropped.
“According to my math, we still come out with some kind of tax increase,” Alexander said. “We are moving along the pathway of dramatically changing how we raise revenue in this state. What we are doing is moving down a path in which the poorest citizens of our state will end up paying sales tax on just about every purchase they make.”
What made the final cut:
▪ Teacher assistants funded at last year’s level
▪ Driver’s education through public schools
▪ Sales taxes on repairs, installation and maintenance services, including on vehicles
▪ Historic preservation tax credits
▪ Increase in starting teacher salaries from $33,000 to $35,000
▪ Higher Division of Motor Vehicles fees
▪ Tax deduction for medical expenses, available for filers of all ages
Proposals that got axed:
▪ 2 percent raises for all state employees (they’ll get a $750 bonus instead)
▪ Sales taxes on veterinary services, pet care and advertising
▪ Cost-of-living increase for state retirees
▪ Dropping health insurance benefits for future state retirees
▪ Tax credits for solar and other renewable energy projects