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Good evening,

The North Carolina House of Representatives recently released its 2025–2027 biennial budget proposal ([link removed]) , calling for a $32.6 billion General Fund in FY 2026. Including federal and other funds, total state spending would reach $70.4 billion, which is an increase of 59.2% compared to FY 2019 – deficit spending driven in part by population growth, federal aid, and expanding program costs.

While both the House and Senate propose identical overall spending levels, they differ significantly in how they structure tax policy and certain funding priorities.

Under current law, the state’s personal income tax rate is set to decline to 3.99% in 2026. The House budget proposes slowing the revenue triggers required for further rate reductions, which is likely to postpone a future drop to 2.99%. It also proposes a $5,000 exemption for tipped wages and increases to the standard deduction for individuals and families.

In contrast, the Senate budget removes revenue triggers entirely, allowing future tax rate reductions beyond 3.99% to occur without requiring revenue benchmarks. It accelerates the path toward deeper cuts but does not directly reduce the rate to 1.99% in this biennium.

One point of agreement between the two chambers is the decision to scale back the state’s $500 million endowment to NCInnovation ([link removed]) , a nonprofit created to support research commercialization at public universities, but criticized for its lack of transparency ([link removed]) and unclear return on taxpayer investment. The House proposes fully reclaiming the endowment, reallocating those funds to Hurricane Helene disaster recovery. The Senate plan reallocates $400 million ([link removed]) to help build a joint Duke-UNC 500-bed pediatric hospital, while placing the remaining $100 million in a reserve to still be distributed to NCInnovation in $25 million increments over four years.

Other key differences between the proposals include:
* Education – The House proposes an 8.7% average teacher raise over two years and restores master's degree pay. The Senate offers a 3.3% raise plus a one-time bonus and expands salary supplements for advanced teaching roles.
* Health & Human Services – Both chambers include $1.6 billion for Medicaid rebase and propose work requirements (pending federal approval). The House adds funding for child care subsidies and eliminates Medicaid coverage for GLP-1 weight loss drugs.
* Savings & Structural Reforms – Both budgets allocate over $1.1 billion to replenish the state’s Savings Reserve. The House additionally calls for a back-to-school sales tax holiday, eliminates funding for 20% of vacant state positions, and proposes establishing a North Carolina Investment Authority.

Notably, the Senate proposal includes a few structural reforms not found in the House version, including:
* Repeal of the 70% carbon emissions reduction goal;
* Repeal of Certificate of Need (CON) laws; and
* Creation of a Division of Accountability, Value, and Efficiency (DAVE ([link removed]) ) within the office of State Auditor Dave Boliek.

As budget conferees from both chambers work to finalize a compromise, North Carolinians have an opportunity to consider what mix of priorities best promotes fiscal discipline, economic growth, and responsible governance.

You can read more about taxes and the state budget here ([link removed]) , here ([link removed]) , and here ([link removed]) .

Esse quam videri,

Donald Bryson
CEO
John Locke Foundation

Check out this video on the DOGE protest in North Carolina
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More from Locke
1) 🎒🎒🎒 How Trump’s tariffs will impact NC schools ([link removed])
* A lot of ink has been spilled about the broader impact of the President’s tariffs on North Carolina and the U.S. economy, but how might tariffs impact public education in North Carolina?
+ Tariffs would negatively impact school budgets in North Carolina by increasing costs for supplies, materials, and capital outlay
+ North Carolina public schools spent $298.7 million on supplies and materials in 2023–24
+ Textbooks, computer software/supplies, general supplies, repair parts, gas/diesel fuel, furniture, and computer equipment are susceptible to tariff-driven price increases
* Some worst-case scenario cost estimates include:
+ A 10% tariff could increase spending on supplies and materials by $29.9 million and capital outlay by $2.2 million
+ A 25% tariff could increase spending on supplies and materials by $74.7 million and capital outlay by $5.5 million
+ On a per-student basis, a 10% tariff would add approximately $23.50 in expenditures
* The actual impact of tariffs would depend on timing, the scope of tariffs, the percentage of imports in expenditures, and the availability of substitutes
* Another area where schools could be affected by tariffs is purchased services, which total $389.5 million in expenditures in 2023-24
+ While professional services may not be directly subject to tariffs like physical goods, other cost increases could tighten school budgets and eat into the funding for purchased services
* Ultimately, tariffs are the wrong tool to address the complicated issue of trade deficits, and would drive up costs for our public schools in NC

You can learn more here ([link removed]) .

Read our Kelly Lester’s take on how tariffs will impact farmers and grocery prices in Governing Magazine here ([link removed]) .

2) 💻💻💻 AI is new, but the principles for regulating it are not ([link removed])
* The rise of artificial intelligence (AI) has raised the question of how to regulate its use and abuse
* But the novelty of AI should not be considered outside of the scope of the principles the Founding Fathers envisioned
+ Instead, the same framework of the First Amendment principles applied to older technologies should be applied to AI, as articulated by Justices Scalia and Gorsuch
* What about liability if something AI-generated harms someone?
+ The principle of "he who causes harm should compensate the victim" should apply
o If an AI system's failure causes harm, the producer is liable
o If a misapplication of AI causes harm (e.g., an attorney using unverified AI-generated content), the user is liable
* Likewise, our free speech rights applied to AI do not negate existing protections against libel or fraud
+ AI-generated deception, fraud, or reputation damage should be subject to existing relevant laws
* One narrow exception, where technology might necessitate a rebalancing of how traditional principles are applied, is AI-generated child pornography
+ While actual child pornography is banned both federally and in every state, virtual child pornography (where no real children are harmed) was previously protected under Ashcroft v. Free Speech Coalition (2002)
+ Justice Clarence Thomas, in his Ashcroft concurrence, warned that technological advancements might make it impossible to distinguish real from virtual child pornography, requiring a re-evaluation of the law
+ North Carolina House Bill 375 ([link removed]) , which would criminalize AI-generated child pornography, while the General Assembly is considering other state-level AI regulations
o However, a provision in the U.S. House's "One Big Beautiful Bill Act" (H.R. 1) could preempt state AI laws for 10 years in order to give Congress time to craft its own AI legislation
* As federal and state officials wrestle over how to regulate AI, they should remember that, while AI may be new, the principles we should use to regulate it are not

You can get the full picture here ([link removed]) .

3)🧑‍⚖️🧑‍⚖️🧑‍⚖️ Federal voter registration lawsuit is important, but likely premature ([link removed])
* North Carolina’s voter rolls are less secure than they should be
+ One reason is that hundreds of thousands of voter registrations are missing required identifying data that would help officials keep the rolls clean
* Both federal (Help America Vote Act of 2002- HAVA) and state laws mandate the collection of a driver's license number, or the last four digits of a Social Security number, for voter registration (“HAVA Numbers”)
+ The North Carolina State Board of Elections (SBE) has been out of compliance with these requirements, partly due to poor voter registration application design, and a lack of "diligent effort" in collecting missing HAVA numbers
+ Even after citizen complaints and a redesigned application, the SBE has refused to make an effort to actively collect missing HAVA numbers for existing registrations
+ While the North Carolina Supreme Court ruled in Jefferson Griffin’s lawsuit that ballots with missing HAVA numbers would still be counted in 2024, it also strongly criticized the SBE's "inattention and failure to dutifully conform its conduct to the law's requirements"
* Since then, the DOJ has entered the fray, filing a federal lawsuit against the SBE for its failure to enforce the HAVA number requirement
+ The DOJ is asking the court to:
o Declare the SBE is non-compliant
o Require the SBE to comply
o And develop a plan within 30 days to collect the missing HAVA numbers
* However, the new lawsuit is probably premature
+ In early May, a new SBE board majority and executive director (Sam Hayes) were appointed
+ And Hayes has acknowledged the "well-documented" failure to collect HAVA information and is "committed to bringing North Carolina into compliance with federal law"
+ The lawsuit will almost certainly end in a settlement now, with Hayes and the SBE agreeing to collect the missing HAVA numbers before the 2026 midterm primaries, if not sooner

You can dive deeper here ([link removed]) .

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