- Republican leaders announce a North Carolina state budget deal with pay raises, policies and two constitutional amendment options possibly coming to the twenty six midterm ballot.

This is State Lines.

- Quality public television is made possible through the financial contributions of viewers like you who invite you to join them in supporting PBSNC.

♪ - Welcome back to State Lines.

I'm Kelly McCullen.

Joining me today a true all star panel of analysts.

Donna King, editor in chief of the Carolina Journal is here.

Wake County Senator Jay Chaudhuri to her right.

Representative Erin Pare, also Wake County is here.

Well welcome Erin.

- Thank you.

- And former governor, former seven time Charlotte mayor and current host of Unspun on PBS Charlotte.

Pat McCrory is the rookie.

Treat them well.

Welcome Pat.

- That's been my name all my life, the rookie.

Well this show is all about a state budget.

So Pat will be maybe get nostalgic with us on this.

House and Senate Republican leaders say they have a framework in place.

Following a state budget breakthrough we're told this week.

Government operations in Raleigh have never ceased but North Carolina's last comprehensive budget bill passed back in 2023 will be diving into parts of the proposed budget bill later in this show.

But Republican legislators were increasingly saying on this show and elsewhere that voters had started asking questions.

They were wanting a state budget.

The Carolina Journal has reported that Governor Josh Stein's budget plan somewhere around thirty five billion dollars.

Representative Pare, I did some homework with the Senate.

I contacted someone in the Senate.

They go Stein can have a thirty five billion dollar ask.

Republicans haven't agreed on a final spending number.

It's still being negotiated.

What's the difference in a framework and a deal?

- Yeah very good question.

So this was a great week for the people of North Carolina and I'm happy to be sitting here with all of you talking about this framework budget agreement that happened this past week which really settled two of the biggest pieces of the budget sort of impasse that has been going on over the last year and that is where we with our tax reductions and personal income tax reductions going forward and where we going to be with our salary package for our teachers, our state employees and our law enforcement.

And I'm very pleased about what has happened.

So we have come to an agreement between the House and Senate Republicans on an excellent salary package for our teachers, our law enforcement and of course our state employees.

And and we have also been able to come to an agreement to continue to cut those personal income tax rates into the future which allows North Carolinians to keep more of their hard-earned money in their pocket.

So I think it's a win-win and I'm looking forward to putting forward that framework and then building the rest of the budget around that framework.

- My dear Democratic colleague over on the other side of the aisle in the other chamber.

Excellent budget says Representative Pare.

You feel so rosy.

- I'm here by myself today Kelly.

So I mean number one it's a budget framework.

It's not a budget.

So I mean while they have a breakthrough I think the question is whether it is actually broken through to help the people of North Carolina.

Number two we don't generally the budget also includes policy provisions.

So we don't know what those policy provisions are going to be.

And third to your point we don't have a spending number.

So Governor Stein is actually I think his budget is roughly I mean a lot of things he asked for in his budget are the same that we think we've seen.

But I mean just to remind viewers we had there was generally an agreement between House Republicans, Senate Democrats and Governor Stein on what those priorities are to be.

I think that some of the compromise budgets that we saw came below the lines.

I think on the law enforcement side they were similar.

But I think what we could do for state employees and educators we're disappointing.

- Yeah that's a segment B. Donna the people get confused about budgeting and we'll get to you because you brought some of these triggers in.

The triggers are removed.

The state doesn't need to collect so many billions of dollars in revenue to get a tax cut under this framework.

How does that change the narrative for negotiating everything else the budget.

- I mean this is what's been holding it up because there's been a real disagreement between the Senate and the House about what those triggers mean because we've been on a march to reduce taxes based on these triggers you bring in more revenue it triggers another reduction and that's something that there's been some disagreement in the Senate and House about what that meant what those triggers should look like should they continue.

2 things one I think it's important to note that part of this deal is a constitutional amendment to cap income tax as we go through and North Carolina has already approved that back in 2018 they've capped it at 7 this would cap it at 3.5 it would go before North Carolinians in November the other thing to point out though is we've had a steady climb of how much money we're spending every single year we're up 34% in spending since just 2019 2020.

So that's something that we really need to be focused on because North Carolina is growing and these these numbers keep climbing and climbing and climbing so that final number is exactly what I think a lot of people are going to be watching the spending numbers have been established and passed by the set by the Republican controlled General Assembly right now.

- I blame the Democrats.

We've had a stepper steady climbing spending Pat you are there day one when they were at putting in these triggers you're right there with them I think speaker Tom Tillis and Phil Berger triggers are now gone they lasted 14 years was my administration put in the triggers.

Our budget director, Art Pope we demanded the triggers because we had a reserve issue we had a reserve issue where we're down to one to 2% reserves which was against the law at least with all cities in North Carolina.

And we we've established the trigger so we wouldn't deplete reserves anymore for hurricanes and we had both Democrats and Republicans during that time period wanted to steal from the reserves and we wouldn't allow that to happen.

The Democrats wanted to use it for pay raises we wanted Republicans to use it for hospitals or something else like they're doing now which is ridiculous.

So I think it's mistake take out triggers.

It was a good idea 14 years ago with me and Art Pope and I'm surprised they're taking - it's a good conservative concept.

- You're the governor in the middle of 2 chambers that could that could do what they wanted with or without a governor most years even through the Cooper administration how frameworks work out of the how does the dialogue go when you're trying to interject what you need -- - Some things never change in Raleigh you have a power struggle between the House and Senate lot of its ego a lot of its personal projects.

A lot of its philosophy, the big philosophy difference 12 years ago with me and the Senate at the time and Phil was corporate taxes and I didn't think we I think it's foolish for Republicans to keep cutting corporate taxes they got no credit for it.

I never had a corporation tell me an economic recruitment we're not coming because of corporate taxes income taxes is a smart move that's when we first started reducing them during my administration but I think that's always been the fight between the House and Senate to is the corporate taxes so that the devils in the details we used to during my 4 years.

We brought them all in the back room.

Of the old state Capitol building and locked the door and brought baloney sandwiches and when we would leave until we got a deal done.

Governor Stein don't have that advantage at this point in time and the other big question is will governor Stein sign any of this.

- State employees teachers and law enforcement officers are receiving pay raises in the proposed budget framework but a differing race, the average public teacher pay raise could be around 8% of the deal holds if you're an a L e officer you work for the SBI some of you can see an upward of 20% pay increases in nearly 18% raises for the state Highway Patrol if you're ranking file state employee, you can see a 3% raise in a one-time bonus with retirees getting a bonus but not a permanent increase in benefits the state employees Association in North Carolina saw tweet they want to see how many jobs need to be eliminated to cover those salary hikes for who's left over working for state government and the North Carolina Association of educators called the teacher 8% pay raise insufficient as we have had inflation for the past few years Senator Chaudhuri now we're diving into the budget what everyone's talking about is what hundreds of thousands of people poised to get some sort of - don't want to want to call it a pay raise a cost of living adjustment.

- Yeah, so I that it's as representative already mentioned salaries are really big part of the budget.

I know governor Stein has recommended significant pay raises for law enforcement officers that include ALE, SBI agents we see significant pay raises because recruitment and retention and public safety is really important.

But the criticism from the budget certainly comes from state employees who believe that the pay raises don't even keep up with inflation, a one-time bonus for retirees may not is certainly not enough and then obviously teachers have been critical because they believe that those pay raises don't keep up with inflation either.

- Representative.

- Yeah, so I would just point out that at the beginning of this entire process, you know there was a proposal made by both the governor and the House and the Senate on state employee pay re raises and I think the House is at 2 and a half percent the Senate was maybe around one and a half percent the governor was at 2.

So here we have 3 that we came together on and I think that that's for state employees.

I think I want contextualize that with teachers I I think we have some more work to still do, I'm happy with what we've come up with me now we're number one in the Southeast for starting teacher pay as we all know with every sector competition for talent is regional so we need to be competing with our neighboring states which makes a lot of sense and that's where we are now we have to get there because if you have a talented person that's coming out of college who wants to be a teacher high aptitude individual we want them to choose North Carolina to teach that is the number one in school related factor determining student achievement in the classroom is a great teacher we don't them going to Virginia or South Carolina.

So that beginning teacher pay is important the average teacher pay spans all years of service for veterans average of 8% but we still have the rest the budget to go and I think we can incorporate some more programs like advanced teaching roles which does pay a lot more to veteran teachers to do what they're doing now which is being a mentor to younger teachers so there's other ways that we can help our veteran teachers in the budget process we're like the first step in that process.

- Pat as governor I was running for reelection I would give pay raise a hundreds of thousands of votes out there and it seems pay raises only are important during election years we are here again 20% for the high patrol or 18% was the politics of a pay raise state.

- Everyone's for the pay raise to toward those professions that have the biggest political influence.

I want to mention one thing that I the first people I gave pay raises to 14 years ago was prison guards.

They don't have a voice, and frankly I hope, I don't know where they are now but that the lowest of the scale 12 month a year job hardest job in North Carolina.

Prison guards and we better - someone better start talking about them because they don't have a special interest group.

The other thing I wish the language would change again here in Raleigh with all due respect.

It's not just about salaries, it's about total compensation and no one's talking about the real total compensation you better start talking about that in honor of Dale Folwell the pension program is still underwater, it's 20% of our budget is unfunded liabilities toward our pension program and told the employee health program for retirees to no one talks about it because politically it doesn't sell.

But frankly we I just I'm at the town for the hunt Institute, one of the things some superintendents just told me this morning was we can sell total compensation more than we can salaries because the total compensation package with pensions and health care which the private sector done have is pretty good and I wish the politicians of both sides of the aisle would be a little more truthful.

- Can I just say what you just say say we go to Governor McCrory, when you're talking about compensation, you're absolutely right.

I think one of the challenges we know state health plan premiums are going to go up right so trying to to adjust with pay raises when you're looking at increased state health premium premiums it becomes a real challenge.

- I mean it's still underwater because your operating budget is composed of supplementing what the employees are paying it's nowhere close to what is needed and every state is not talking about their unfunded liabilities and you better start talking about it because it could affect impact your triple A or your ratings for future bonds in the future, but it's not politically viable to talk about it.

- Donna went on it went on the benefits packages and the pensions why doesn't that earn votes and credit or why does it not get attention as opposed to a cash pay out for a higher salary that adjust for inflation?

- It doesn't make us a headline, I mean that's basically what it is can you communicate that one to voters and to teachers and it's really not about the political value it's more about can you make that case to voters and the teachers union and all of these other folks who just want to see that final number because this does bring North Carolina to number one in the South.

That's huge but another problem that they're dealing with I think that lawmakers are struggling with is that our funding formula are funding formula for education is antiquated it just doesn't work anymore and there are a lot of changes that need to happen as part of this.

- I've seen on your website the Carolina Journal website or they consider reformulating or reforming how public schools in general are just -- - In general yes, the funding formula needs to change there are way too many variables that each individual school administrator has to deal with that revamp is really going to be key to making these long-term success -- - The numbers were always inaccurate being presented to the budget office before I did budget almost every county overestimated the number of students they were going to have.

- On purpose or is it in good faith and they were just - I don't know -- - We have declining enrollment and they don't know how to factor for it and who gets the money if the child that gets pulled out halfway through the year and goes private or homeschool or it's just it is a big old-fashioned antiquated system.

- I mean what one thing Kelly that it's it's hard for me not to point this out so the teacher pay raises are also based on the supplement supplement that the counties provide I think when you're passing property tax reform and you're capping that you're also handcuffing the local counties and their ability to provide the supplement.

- The good news is some decisions hopefully are going to be made.

I mean it shouldn't have gone this long.

- Legislators claim credit for the highest starting teacher salaries in the South if the relying on the local government supplement to get the salary to that level.

- Well you have to also this - Is county government doing that for you?

- Right, but the state has also contributed to those local South supplements through a teacher supplement fund for low wealth County so it's not just the local governments that are doing that.

- Had to ask the question Pat to you want to talk about this tax cap can't ignore it.

House and Senate Republican leaders some of your old colleagues appear to be rolling constitutional questions into the budget so voters you out there statewide across North Carolina.

Would could consider the fate of a constitutional amendment to cap personal income tax rates 3 and a half percent.

It appears the amendment would allow rates lower than 3.5% but not higher budget deal would call for an additional lowering of the personal income tax rate down to 2.9 9% by 2033 as it is in a budget law there would be no revenue triggers we discussed that for the state to meet before activating these tax cuts so Pat triggers are gone to in the state law.

The income tax rate goes below 3.5%.

But, Phil Berger can leave office with a vote of the people to say state income tax rates can get above 3.5%, Why the amendment when the law does so much better.

- First of all everyone's for lower income tax, so politically the surveys, I'm sure very favorable to this.

I strongly disagree with taking out triggers because I'm protective of reserves and I'm damn glad I did it excuse my language.

But you know because if I had not done that we wouldn't have the money for 3 hurricanes during the last 8 years and someone better start thinking about future governors and Legislature when the next natural disaster comes.

The other point is it the only other negative thing about this again I think the income tax reductions, one of the reasons for incredible economic prosperity because we're competing against Texas were competing against Tennessee were competing against Colorado and Florida.

That's our major competition.

The corporate tax stop it, just stop it.

You don't get political credit for it, corporations really aren't thinking about it.

- What about using the state Constitution to cap -- - Mixed feelings about this just because it ties the hands of future legislators and God knows what situation might - I personally philosophically believe we ought to have a low income tax Iran on that and succeeded in doing that at that time we're at 7 90%.

So we've done a great job and I commend the Legislature for doing a good job on that I think there is a constitutional issue of how do you tie future elected officials hands and dealing with some crisis that you might have in the future.

- Representative Pare?

- Yeah so I don't think the tax triggers after a certain point are completely gone, number one, so just keep that in mind but the the tax cap I mean we're going to go down to 3 and a half percent 3.49%.

I mean I think that any argument to not adopt a tax cap would be from someone who maybe would is looking forward to raising taxes so for us if you're going to go down to 3.49 anyway and then trajectory downward from there.

I think that you know that's from for our perspective that cap makes a lot of sense.

- Let me throw in one other issue very quickly.

If we continue to do this do we still need economic incentives in the future.

But the liberals and conservative been very very hypocritical on economic incentives.

Roy Cooper gave more economic incentives probably than any other governor in the past 8 years.

Conservatives support them but they come from you know don't give breaks the rich we've been doing that and conservatives also, I mean, so I think that's another issue that needs to be discussed as we need future infrastructure.

- I mean look I agree with Governor McCrory here.

I mean taking the triggers away were real safeguards to protect the fiscal responsibility for for the budget.

I mean we've now had three 500 year disaster natural disasters that can put us in a position to have to raise revenue to deal with those.

- Three in five years.

- Three in five years.

- Not three and five hundred but three - Three five hundred year floods right or natural disasters.

So and secondly you know I think if you if you look at what rating agencies say about about constitutional amendments.

I mean it is taking a tool away from the tool kit.

I mean it is handcuffing future legislators.

I think of the General Assembly wants the tax cuts.

We can obviously make that happen.

Those are things that can we can do.

But I think fiscally handcuffing us for future legislators I mean is a problem and it's going to be very difficult to undo those when we face natural disasters going into the future.

- Donna to that point there hasn't been precedent if not other legal means to say the legislature today can't bind future legislatures of tomorrow.

But a constitutional amendment passed today.

I guess the people do it though.

Sidesteps that.

- I was going to say, I mean it's up to the people and I think that's why the constitutional amendment is there.

Folks want it and right now our CJ poll says 62 percent of people want lower taxes to be the priority of the state legislature.

And this puts that in their hands.

It would go on the ballot November and it's but it still faces of course getting through the legislature.

It needs three fifths three fifths to get through the legislature of the vote.

So there's a few more steps.

- Polling questions can be designed to get the response you need right?

I mean I think if you frame it to say if there was a natural disaster and you had to raise revenues to provide support in western North Carolina.

- That's where we don't steal from the reserves.

With all due respect to both parties.

- We gave them a choice of seven to ten priorities and had them pick two.

And 62 percent picked lower tax.

- So representative if a deal on a budget deal comes through with two constitutional amendment questions.

We're talking three bills two of which the constitutional amendment referendum would need 60 percent.

And there's the simple majority to pass the state budget.

Is that accurate?

- Right that's accurate.

- It wouldn't be rolled into a Senate into a full compromise budget bill.

Just to make sure people ask that question because it can get complicated.

Right now that House and Senate budget compromise would also bring property tax reform to statewide voters.

That second constitutional amendment referendum would permit lawmakers to cap local property taxes.

I don't think that it.

I don't think it sets a rate lower.

Right.

That could further lower taxes.

But.

I'm going to explain it.

Why don't you go for this Donna.

It's just one of these things where it allows them to cap and lower does not allow them to raise property tax rates and setting policy for every county.

- Right.

So it's a called a levy limit.

And basically what it is it sets up a formula that says you can't doesn't cut.

But it says you can't raise taxes more than the formula that includes inflation and population growth.

So it gives them a it gives them guardrails for growth of property taxes rather than cutting or capping.

So but I think one of the most important thing is state law says and it because what's happening a lot is these revaluations.

If you own any property you know this is happening all the time the state law says that they can read they must re-evaluate every eight years.

But if you live in a place like Wake County you're getting a lot more often than every eight years.

And what that really is this is one tool in the toolkit to address housing affordability.

Keeping people in the houses able to afford the houses that they've already invested so much in.

And people are getting priced out just by the growth of property tax.

If you know you'll hear a lot of county county folks saying oh well I've never voted for a tax increase.

But they're encouraging these constant evaluations re-evaluations of property values which triggers a tax increase.

If you need to make the case you've got a lot more people moving you need more roads you need to really invest in schools.

Make that case rather than raising property taxes.

- Well as a former mayor it's discouraging for me to see the major big cities including my own of Charlotte.

- Right.

- Forget about revenue neutral.

- I mean I believe you need to re-evaluate property so no doubt about it.

But the concept flatly with blue leadership in our major cities now.

The concept of revenue neutral is about over.

Now whether the state should have control now over that issue.

But it needs to be more transparent that so many of these cities are increasing taxes beyond revenue neutral.

And people don't understand what's happening until they get the tax bill.

And including my own city.

- Again this is a question that's going to be put to the voters in the form of a constitutional amendment so they can decide that.

But the concept the limit what the actual limit is going to be hasn't been defined yet.

So whenever you know a lot of people are talking about well if you put a limit on this is going to result in X Y and Z. There's no way to really determine that unless you know what the definition of that limit is.

And that's going to be for legislature if they get a mandate from the people to determine what that is.

- The amendment sets gives you permission to set it.

It does not in the Constitution establish a limit like a personal.

That's where I get tongue tied.

- It creates a formula.

So it creates it creates some guardrails that says population plus inflation.

That's what your limit will be.

- Let me make a couple of points.

I mean number one given given the General Assembly in the state's decision to really shift a lot of the expenses to local municipalities like in Wake County for example it is incurred an additional half a billion dollars in additional expenses that typically been picked up by the General Assembly.

Right.

So when you talk about revenue neutral a lot of that is being pushed down to local municipalities.

And secondly look I think if there is problems with blue leadership on raising revenues they can the voters can take it to the ballot boxes to change that.

Well our cities are not gerrymandering.

Yes they are.

State legislature.

The cities are very gerrymandering.

With all due respect the cities are gerrymandering.

But I think the idea to I mean we're talking about teacher supplements.

I mean the idea that we're going to we're going to hand and handicap or handcuff our local decision makers about what they're going to be able to provide for for teacher supplements.

- But they're hiding behind this property tax issue as a way to not be accountable for how they're making decisions at the county level.

In the ballot box.

- But this effort is sort of a dual track.

I have to remind you about this.

I know you know this but we're talking about looking at existing exemptions like for Wake County like the affordable housing exemptions already getting taken advantage of.

- That's right.

- Maybe some non-profit exemptions that are a little bit too generous.

- Very supportive of that.

- So we're doing that and we're looking at reasonable limits on property tax increases at the same time which is good for the people.

- And we've only got a minute left but I want to bring up the Carolina Journal poll through Harper polling just very quickly over 40 percent of those you've polled 600 likely voters said affordability and inflation is an issue.

Nothing else I saw on your list was over 19 percent.

Climate change is at the bottom of the list.

Now we care about the wallet only.

- Absolutely.

That's exactly what we've been talking here and how can lawmakers and our state government help answer those calls for North Carolinians.

- Yeah.

Affordability.

Everybody here.

Got 30 seconds.

- I mean look I think on affordability we talked about property evaluations but I mean I think the one good news in the housing space there's a lot of bipartisan support to look at things we can do in housing.

- I think affordability is top yes and I think the Republicans are leading on that.

- Ten seconds Pat.

- Watch where the money is coming from in Raleigh.

Crypto money, gambling money and pot money.

See what's trying to influence these policies that impact affordability.

- If you've got half the opinion Pat McCrory had on this show today email me at state lines of PBSNC.org.

I'll read it and send it to the crowd.

Pat thanks so much.

All of you.

Appreciate it.

We'll see you next week.

- Quality public television is made possible through the financial contributions of viewers like you who invite you to join them in supporting PBSNC.