Lawmakers returned to Raleigh on Tuesday for the first time since adjourning last year without reaching an agreement on a new comprehensive, two-year budget.
Looming over the upcoming short session is the yearlong budget impasse among House and Senate Republicans that quickly developed into a thorny intraparty dispute over the state’s fiscal health, tax policy and spending priorities.
The appetite for a compromise on any sort of budget legislation — potentially a narrow and limited bill focused on a few of the state’s urgent funding needs, or if negotiations go well, a broader, full-scale spending plan — remains uncertain. It will likely take a few weeks, if not longer, for a clearer picture to emerge on whether a budget resolution will be possible.
While negotiations proceed, lawmakers are expected to be working on many other important issues that could result in legislative action this session. Here are five key issues to watch for in the months ahead.
One of the most urgent funding challenges facing lawmakers this session is a $319 million shortfall in the Medicaid rebase, an annual recalculation of costs to administer the program.
Lawmakers previously disputed the analysis by Gov. Josh Stein’s administration of how much additional rebase funding was needed — and when — to keep the program running uninterrupted. Although both the House and Senate passed bills to allocate an extra $190 million last year, the measures stalled. Republican leaders said they would revisit the issue in the spring, when existing funding would be closer to running out.
Now, Stein and Department of Health and Human Services Secretary Dev Sangvai are optimistic that an agreement among lawmakers to fill the $319 million funding gap before a June 30 deadline is nearing fruition.
House and Senate Republicans have said they plan to address the issue this session but have also said Health and Human Services and the Department of Justice haven’t done enough to investigate and crack down on waste, fraud and abuse within the program.
Still, Rep. Grant Campbell, R-Cabarrus, told NC Insider/State Affairs — after chairing a three-hour oversight hearing Thursday over provider fraud and abuse — that lawmakers are clear-eyed on the need to fully fund the remaining rebase shortfall before the end of the fiscal year.
Campbell said he wants rebase funding to be one of the first issues lawmakers take up after reconvening next week, and believes there is “a lot of alignment” among House and Senate Republicans on how to proceed with allocating the money. He also said he thinks there is a “strong possibility” that the funding will be passed through a standalone bill relatively early in session.
Moving forward, Campbell said he wants to see a “philosophical change” within Health and Human Services and other state agencies in how they oversee taxpayer dollars.
“Rigorous oversight and efficiency in avoiding waste has to be an integral part of your operations, and if it’s not, you can’t keep coming to the General Assembly, saying more and more and more,” Campbell said.
Property taxes
Both chambers have identified property tax reform as a priority during the pending short session. House Republicans have a bit of a head start; their select committee has already met several times and advanced a draft constitutional amendment that would require the General Assembly to act to curb rising property taxes.
Multiple lawmakers on Wednesday said it will be a yeoman’s job to make any substantial progress in the short session. House Democratic Leader Robert Reives said the ballot measure proposed by Republicans is a “political stunt” stemming from chronic underfunding of local services.
The League of Municipalities has urged local government officials to contact state lawmakers and ask them not to move forward with the ballot measure and interim report recommendations. Rep. Julia Howard, R-Davie, chair of the House Select Committee on Property Tax Reduction and Reform, has said hospital lobbyists were successful in eliminating a proposal to reduce tax exemption loopholes that benefit hospitals.
Ten Republican senators, including Finance Appropriation Chairs Ralph Hise, R-Mitchell, and Michael Lee, R-New Hanover, have been tapped to examine property tax reform.
Involuntary commitment reform
A House committee formed by Speaker Destin Hall, R-Caldwell, last year to study possible reforms to the state’s involuntary commitment system released a draft report this week with more than a dozen recommendations for actions the General Assembly and state agencies can take.
Committee Co-Chairs Tim Reeder, R-Pitt, and Hugh Blackwell, R-Burke, have said they are engaged in ongoing discussions with their counterparts in the Senate to determine areas where both chambers may have agreement. Blackwell also raised the idea of lawmakers drafting standalone bills to advance some of the recommendations if they can’t be combined into an omnibus measure.
“I will be disappointed if we don’t have legislation that we can move on a number of things in the short session,” Reeder told the committee this week.
Hall said in a recent statement that lawmakers must pass reforms to the state’s involuntary commitment system “to ensure that individuals who pose a danger to themselves and others are taken off the streets so we can make our communities safer.”
Data centers and energy demand
The state’s fast-growing demand for more energy — stemming from an influx of data centers, the rise of advanced manufacturing and a large contingent of newcomers moving here each year — is expected to be top of mind for lawmakers this year.
They are already facing significant public concerns about higher electricity bills and pending requests from Duke Energy, the state’s largest utility, to raise rates by 15% over the next two years and recover $800 million in fuel costs incurred during a cold snap that hit the state this past winter.
A bipartisan task force created by Stein last year endorsed several policy measures aimed at shielding ratepayers from the additional energy costs driven by data centers, and Stein has pointed out that the recommendations mirror planks of a plan released by the Trump administration last month.
Stein has also questioned the continuation of sales tax exemptions for data center electricity, equipment and construction. State officials estimate the exemptions could cost North Carolina hundreds of millions of dollars in revenue, if not more, in the coming years.
Teacher, state worker and law enforcement pay
Lawmakers’ failure to agree on a new budget last year denied teachers, state employees and state law enforcement officers pay raises that both chambers recognized were sorely needed, as salary levels in North Carolina continue to lag behind those in several other states.
Everyone seems to agree that beleaguered teachers need a raise; the question is how much. House Republicans have proposed an average 8.7% raise over two years, even higher than Stein’s request. Senate Republicans have proposed a 3.3% raise over the same span.
At the Public School Forum Eggs & Issues breakfast earlier this month, Rep. Brian Biggs, R-Randolph, said the House is not interested in settling for the Senate’s proposed figure, according to WRAL-TV.
The divide is already playing out, with some school districts canceling classes May 1 because of a scheduled mass teacher protest in Raleigh organized by the North Carolina Association of Educators. The impetus for the rally is teacher pay.
State leaders, including Stein and Department of Adult Correction Secretary Leslie Cooley Dismukes, have also urged lawmakers to boost starting pay for law enforcement and corrections officers amid “dire” and “dangerous” staffing shortages. Stein has repeatedly said North Carolina ranks 49th in the nation for entry-level salaries for corrections officers and state troopers.
Navy Deal
North Carolina has inked a deal for the U.S. Navy to maintain and fix aircraft at a large industrial park near Kinston, solidifying a partnership officials expect will create around 400 jobs in the eastern part of the state. Positioned within 100 miles of both Fort Bragg and Camp Lejeune, the Global TransPark spans 2,500 acres and counts Airbus and the private jet company flyExclusive among its tenants. It was built around one of the longest civilian runways in the eastern United States, allowing companies to shuttle parts in and finished goods out. In 2023, the North Carolina General Assembly loaned this state-owned business park $350 million to prepare the U.S. Navy’s Fleet Readiness Center East, or FRCE. The Navy plans to ready HH-60 Black Hawk helicopters and 130 transport aircraft at the site 80 miles southeast of Raleigh. For eight years, North Carolina will allow Global TransPark to reinvest most of its Navy tenant revenue back into the site to build additional hangars and warehouses. The Navy has leased space at the Kinston park before; in 2020, it occupied a hangar to work on H1 helicopters. This experience encouraged the military to expand outside military bases, Global TransPark executive director Jeremy Stroud told The News & Observer.
Workforce Study
North Carolina’s economy is growing faster than its population of skilled workers, according to a new study from the University of North Carolina System. The study, 2026 UNC System Workforce Alignment Report, predicts significant talent gaps in critical fields such as nursing, engineering and education, and shows job growth across most sectors. North Carolina is expected to add approximately 260,000 new jobs by 2034, according to the report, which references employer data from the North Carolina Department of Commerce. And when North Carolina needs talent, it largely comes from the state’s public universities, according to data from the UNC System and the Integrated Postsecondary Education Data System. UNC System institutions provide 71% of all North Carolina degrees at a bachelor’s level or above. In critical fields, that number is higher still. Statewide, the System provides 75% of all bachelor’s-and-higher degrees in areas such as nursing, engineering and education. Even so, job openings are projected to exceed the number of people with the skills to fill them. The study finds a need for 5,000 to 10,000 additional college graduates annually over the next few years.
Duke Increase
North Carolina residents who saw unusually high electric bills during this winter’s cold snap could soon pay more as Duke Energy seeks to recover the cost of the extra power it had to buy to meet heating demands. Duke Energy is asking state regulators to approve roughly $800 million in additional charges tied to fuel and power costs from the winter, a move that would raise monthly bills for customers across the state if approved and has already drawn opposition from Gov. Josh Stein amid ongoing backlash over rising utility costs.
The request, now before the North Carolina Utilities Commission, would increase residential bills by about $6.90 to $7.88 per month starting as soon as June 1 and lasting for roughly 19 months, according to a news release. The costs would apply to customers served by both Duke Energy Carolinas and Duke Energy Progress.
Duke says the additional charges are needed to recover the cost of supplying power during an extended stretch of extreme cold this winter when demand surged and the company had to purchase electricity from other providers to keep the grid running.
The proposal also comes on top of a separate pending rate increase request of about 15% that has already drawn heavy criticism from state leaders and customers. If both requests are approved by the utilities commission, households could see higher bills both for the energy they use going forward and to cover previous winter costs.
Stein has called on the North Carolina Utilities Commission, a regulatory agency tasked with overseeing public utilities in the state, to reject the request and prevent additional costs from being passed on to customers. “The Utilities Commission should step in to secure an affordable energy future for North Carolinians,” Stein said in a statement. “We must do everything we can to make life more affordable for families, not more expensive.”
Duke Energy has pointed to record-breaking demand during the winter cold snap as the primary driver of the additional costs. During that period, the company said it exceeded its own generation and storage capacity and had to rely on electricity purchased from neighboring utilities at elevated market rates to meet demand and avoid outages.
“When customers need power the most – during extreme cold or heat – reliability is not optional,” Kendal Bowman, Duke Energy’s North Carolina president, said in a news release. “Our responsibility is to deliver electricity safely and reliably, even when demand exceeds what our system can supply on its own.”
Duke Energy said in a news release this winter’s temperatures were “extreme.”
Temperatures were 10 to 20 degrees below normal and Jan. 27 marked the highest day of winter energy demand in Duke Energy Carolina’s history. Meanwhile, Duke Energy has added 150,000 customers in North Carolina over the past two years. The proposal seeks to bill the costs, $500 million for Duke Energy Carolinas and $309 million for Duke Energy Progress, over a period of 19 months rather than a year.