NC enters new fiscal year without agreement on state budget

Monday, June 30 marks the last day of the fiscal year, and state lawmakers have yet to pass a new budget. The lack of agreement between the House and Senate means the state will enter the new fiscal year, which begins on Tuesday, July 1, without an updated spending plan in place. 

the government will continue to operate

Despite this, there’s no risk of a government shutdown. Under North Carolina law (G.S. § 143C-5-4), most state operations continue at current funding levels even when a new budget isn’t approved in time. Services like public schools, public safety, and health departments will continue operating uninterrupted. 

However, while core functions continue, funding increases and new investments remain stalled. The House’s proposed budget includes significant raises for teachers, state employees, and other public workers. For example, the proposal includes an 8.7% pay increase for teachers in the upcoming fiscal year, along with a 2.5% across-the-board pay raise for state agency employees. 

new programs and raises on hold

Those increases will not take effect without an enacted budget. That includes expanded funding for infrastructure improvements, transferring of Medicaid funds for disaster relief, and tax cuts. Essentially, any change requiring new appropriations or policy shifts is frozen until lawmakers agree on a final budget or pass targeted “mini-budgets.”

Brian Balfour, Locke’s senior vice president of research, noted the positive and negative aspects of budget stalls. 

“One significant drawback is that the state agencies, including school districts, are left in limbo for planning purposes,” he said. 

Balfour called on the potential downsides of state agencies continuing on without having a clearly outlined budget. 

“It’s a bit problematic for state agencies to not really know how much money they’re getting,” he said. 

Use of Mini-budgets

Both chambers have introduced mini-budgets in an attempt to continue budget operations. Last week, the Senate approved a $5 billion stopgap measure to move essential funding priorities forward in spite of the budget delay. House bill 125 appropriates over $3.4 billion in the next fiscal year and $1.9 billion for the 2026-2027 fiscal year to address urgent funding needs in North Carolina. Issues such as disaster recovery funds, Medicaid adjustments, and funding for capital projects across the state are among these. 

Meanwhile, the House introduced their own mini-budget, which appropriates $882,291,773 in recurring funds for the 2025-2026 fiscal year.

Joseph Harris, fiscal policy analyst for the John Locke Foundation, says the House’s proposal (House Bill 192), “predominately focuses on salary increases for state employees.”

what’s the hold-up?

The current delay stems from disagreements between the House and Senate over spending priorities, including the scope of tax cuts, teacher pay levels, and how much to set aside for savings and capital projects. 

Balfour called these disagreements a “gap too big to bridge.”

Harris explained the differences of opinion that the two chambers have over personal income-tax rate cuts.

“The Senate wants to lock in and accelerate future rate reductions, while the House prefers raising revenue triggers to make further cuts much less likely,” he said.

Lawmakers may return in the coming weeks to further negotiations, although no voting dates are set on the legislative calendar in the near future.

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