North Carolina Budget Passes with Medicaid Expansion and Tax Cuts

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The long-awaited state budget for North Carolina has finally received initial approval from the Republican-controlled General Assembly on Thursday, September 21, 2023. The budget includes several major changes, such as speeding up individual income tax cuts, expanding private-school scholarships to all K-12 children, and initiating Medicaid expansion coverage to hundreds of thousands of adults.

Medicaid Expansion: A Sweet Pill for Democrats

One of the most significant provisions in the budget is the implementation of Medicaid expansion, which has been a longstanding priority for Democrats led by Gov. Roy Cooper. The expansion would provide health insurance to about 600,000 low-income adults who currently do not qualify for Medicaid or subsidies under the Affordable Care Act. The expansion would be funded by a combination of federal and state funds, as well as assessments on hospitals and health plans.

The Medicaid expansion law was signed by Cooper in March, but it required the enactment of the budget to take effect. The law also included a work requirement and a small premium for some beneficiaries, which were concessions to the Republicans. However, the expansion was almost derailed by a last-minute attempt by Republican leaders to link it to the authorization of new casinos and the legalization of video gambling machines. The gambling legislation was dropped after facing opposition from some lawmakers and the public.

North Carolina Budget Passes

Gov. Cooper has not yet indicated whether he will sign the budget, which also contains many items that he opposes, such as spending on private school vouchers and weakening the powers of the executive branch. However, some Democrats have expressed support for the budget, citing the Medicaid expansion as a major achievement.

Tax Cuts: A Bitter Pill for Democrats

Another key feature of the budget is the acceleration of individual income tax cuts, which would reduce the state’s revenue by about $2.8 billion over the next two years. The budget would lower the flat income tax rate from 5.25% to 4.99% in 2023, and then to 4.75% in 2024. It would also increase the standard deduction, the amount of income that is exempt from taxes, by 18% over the same period.

The budget would also reduce the corporate income tax rate from 2.5% to 1.99% in 2023, and then phase it out completely by 2028. The budget would also eliminate the franchise tax, a levy on businesses based on their net worth, by 2028.

The Republicans argue that the tax cuts would stimulate the economy and benefit all taxpayers, especially the middle class. They also claim that the state has enough reserves and surpluses to cover the revenue loss. However, the Democrats contend that the tax cuts would mainly benefit the wealthy and corporations, while jeopardizing the state’s ability to fund public education, health care, and other essential services.

Private-School Scholarships: A Controversial Pill for Both Parties

The budget would also expand the Opportunity Scholarship Program, which provides vouchers for low-income students to attend private schools. The budget would increase the funding for the program from $74.8 million to $145 million over the next two years, and make it available to all K-12 students, regardless of their income or academic performance. The budget would also create a new scholarship program for students with disabilities, funded by $40 million over the next two years.

The Republicans defend the expansion of private-school scholarships as a way to provide more choices and opportunities for families, especially those who are dissatisfied with the public school system. They also point out that the budget would increase the funding for public schools by $1.7 billion over the next two years, and raise the average teacher pay by 5.5%.

However, the Democrats criticize the expansion of private-school scholarships as a diversion of public funds to unaccountable and unregulated schools, some of which may discriminate against students based on their religion, race, or sexual orientation. They also argue that the budget would not adequately address the needs of public schools, such as reducing class sizes, improving facilities, and providing more support for students and teachers.

Other Changes: A Mixed Bag of Pills

The budget also contains several other changes that would affect various aspects of the state government and society. Some of these changes are:

  • Increasing the minimum wage from $7.25 to $8.50 per hour in 2023, and then to $9.50 per hour in 2024.
  • Creating a new state agency, the Department of Public Safety, which would oversee the state police, the prison system, the emergency management, and the juvenile justice.
  • Transferring the authority to appoint and supervise the state board of elections from the governor to the legislature.
  • Giving the legislature the power to confirm the governor’s nominees for cabinet positions and judicial vacancies.
  • Allocating $1.5 billion for capital projects, such as building and renovating schools, universities, community colleges, and state facilities.
  • Providing $750 million for broadband expansion, especially in rural areas.
  • Establishing a rainy day fund, a savings account for emergencies, with a balance of $2.5 billion by 2024.

The budget also includes several provisions that are related to the COVID-19 pandemic, such as:

  • Extending the deadline for spending the federal relief funds from December 2023 to June 2024.
  • Providing $100 million for COVID-19 testing, tracing, and vaccination.
  • Giving $250 bonuses to state employees who are fully vaccinated by October 31, 2023.
  • Requiring state agencies to report the vaccination status of their employees to the legislature.
  • Prohibiting state agencies from mandating COVID-19 vaccines or masks for their employees or customers, unless authorized by the legislature.

The budget also reflects the impact of the recent census and redistricting, which resulted in the loss of one congressional seat and the shift of some legislative seats from urban to rural areas. The budget would reduce the number of state House districts from 120 to 119, and the number of state Senate districts from 50 to 49. It would also redraw the boundaries of the judicial districts, the prosecutorial districts, and the school board districts.

What’s Next: A Final Pill to Swallow

The budget still needs another set of affirmative votes in the House and Senate, which are expected to happen on Friday morning, before it goes to Gov. Cooper, who will have to decide whether to sign it, veto it, or let it become law without his signature. If he vetoes it, the Republicans will likely have enough votes to override it, unless some Democrats change their minds. If he signs it or lets it become law, he will have to accept the trade-offs and compromises that the budget entails.

The budget is the result of months of negotiations and delays, as well as the influence of various political, economic, and social factors. It reflects the priorities and values of the lawmakers and the people of North Carolina, as well as the challenges and opportunities that they face. It also sets the stage for the upcoming elections in 2024, which will determine the direction and future of the state.

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