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Fiscal year begins with budget negotiations ongoing

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(The Center Square) – State agencies will maintain operations at current levels as the new fiscal year starts on Saturday without a budget, while legislative leaders continue to haggle over the details.

July 1 annually marks the beginning of the fiscal year and Republican leaders in the General Assembly have yet to iron out differences between budget proposals in each chamber that both aim to spend $60.7 billion over the coming biennium.

The new fiscal year comes as lawmakers break for the coming week to celebrate the nation’s independence, with legislative leaders calling off votes until the following week. It’s unclear whether budget negotiations will continue during the break.

Rockingham County Republican Senate President Phil Berger has told the media he does not expect to hold votes on the budget until the last full week in July, based on the current state of negotiations.

Legislation approved in March to expand Medicaid is tied to an approved budget, putting added pressure on Gov. Roy Cooper to sign off to secure one of his top policy objectives since taking office in 2017. When exactly the budget is finalized is less consequential. Cooper, who is term-limited, has little sway over Republican supermajorities in both chambers that have repeatedly overridden his vetoes this session.

Republican leaders have signaled several budget decisions remain unsettled, including proposed tax reductions, money toward reserves, and allocations for capital projects, economic development and other issues.

House Speaker Tim Moore, R-Cleveland, told reporters last week lawmakers “are getting closer” to resolving the differences, but “still have a ways to go.”

Whatever the outcome, the budget negotiated by Republicans is expected to come in about $6 billion below the 18% spending increase proposed by Cooper in March.

Analysis from the Tax Foundation, the nation’s leading independent tax policy nonprofit, has noted that while both House and Senate budget proposals are “pro-growth,” the Senate’s more aggressive approach to accelerating scheduled tax reductions would put the state at a significant advantage.

“If lawmakers phase down the rate to 2.49% by 2030, North Carolina would be on track to have the lowest individual income tax rate on wage and salary income in the country,” the analysis read.

Both the Tax Foundation and N.C. Chamber have also highlighted plans in the House budget to phase down the corporate franchise tax over five years, a move both argue would help to further attract business investments.

The State Employees Association of North Carolina and others, meanwhile, are advocating for lawmakers to rethink pay increases for state employees proposed at 7.5% in the House plan and 5% in the Senate plan over two years.

SEANC Executive Director Ardis Watkins joined with Johnston County Republican Rep. Donna McDowell White, a retired state employee, and the heads of state departments of Labor, Insurance, Agriculture, and others in May to call on the General Assembly to better address the state’s workforce crisis.

Over the last five years, the state has had a 50% reduction in applications for state employee positions, while 8.5% of state employees are now eligible to retire. Officials pointed to low pay as the primary driver for double-digit vacancy rates, citing compensation that lags behind inflation by 9.1% over the last decade and is now 14% behind market rates.

“If we don’t get a higher raise than what’s proposed,” Watkins warned, “terrible things are going to happen.”

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