(NORTH CAROLINA) – North Carolina House and Senate Republican leaders announced a May 12, 2026, budget framework agreement that pairs state employee raises with phased tax cuts after a yearlong standoff over state spending.

Legislative leaders described the deal as a “starting point” and said the pay increases would take effect for the fiscal year beginning July 1, 2026. The state has operated without a new budget since July 2025, and final policy details still need to be settled.

The agreement gives all state employees a minimum 3% raise, below the April 2026 inflation rate of 3.8%. It also sets one-time bonuses for the fiscal year ending June 30, 2026, with $1,000 for employees earning over $65,000 and $1,750 for those earning less.

Teachers would receive an average base salary increase of 8%. Starting teacher pay would rise to $48,000 before bonuses and local supplements, a 17% increase for new teachers, while veteran teachers with 15+ years of experience would receive about 5.5%.

Governor Josh Stein welcomed the pay provisions while pressing for stronger increases. “It is past time that our teachers, state law enforcement officers, and state employees get a meaningful pay raise and recognition for their service to the people of North Carolina.”

State law enforcement officers would receive “sizable bumps” under the framework, though the agreement did not attach exact figures to those increases. Retirees would receive a 2.5% bonus.

None of the raises would be retroactive. They would apply from July 2026.

The tax side of the deal continues North Carolina’s long-running reductions in the individual income tax rate. The current rate stands at 3.99%, down from 4.25% in 2025.

Under the framework, the individual income tax rate would fall to 3.49% in 2027, 2028 and 2029. It would then drop to 3.24% from 2030 through 2032, and to 2.99% in 2033 and 2034.

Republican lawmakers left the corporate income tax schedule unchanged in the agreement. The corporate rate is now 2% and is still set to phase down to 0% by 2030.

The plan reflects a compromise inside the Republican caucus. Senate fiscal conservatives had pushed faster tax cuts, while House leaders weighed pauses to finance raises for public workers, including teachers raises that had become a central point in the budget framework talks.

Another piece of the agreement reaches beyond the spending plan and into the state constitution. House Republicans advanced a property tax cap amendment that could reach a vote as early as the week of the announcement.

Lawmakers also want voters to consider a constitutional amendment setting the income tax rate cap at 3.5%. That would prevent future legislatures from raising the rate above that level and would build on a 2018 voter-approved cap that lowered the maximum from 10% to 7%.

If approved by legislators, those questions would head to the November 2026 ballot. The tax cap proposal would lock in a ceiling below the current constitutional limit even as the state continues scheduled rate reductions.

Stein has laid out a different approach for the next fiscal year through the Office of State Budget and Management. His FY 2026-27 recommendations call for average teacher raises of 11%, starting pay of $56,338, restoration of master’s degree pay, and $1,000 teacher bonuses.

Those recommendations would put North Carolina’s starting teacher pay at the highest level in the Southeast. They also set up a clear split with the legislative package, which offers a lower starting salary and a smaller average raise while tying the broader plan to tax reductions.

The gap matters most in the classroom payroll numbers. Under the legislative deal, a new teacher would start at $48,000 before local supplements and bonuses; under Stein’s proposal, the starting figure would be $56,338.

North Carolina’s negotiations have unfolded against the unusual backdrop of running state government without a new budget for months. The May 12, 2026 agreement breaks that impasse in outline form, but it leaves lawmakers to fill in the final language on pay, taxes and constitutional questions.

Republican leaders presented the package as an opening agreement rather than a finished product, and that leaves room for further negotiation with Stein and within the legislature itself. The broad tradeoff is now on paper: smaller raises than the governor sought, continued cuts in the income tax rate, and ballot measures that would tighten future tax limits.

State workers, teachers, retirees and taxpayers now have the first concrete outline after months without a new spending plan. The next test comes as lawmakers decide whether to turn that framework into a final budget and whether to send the property tax and income tax cap amendments to voters in November 2026.