Report: Stein’s budget proposal eliminates school choice and increases taxes

In March, Gov. Josh Stein released his budget proposal for the 2025-27 biennium. The wishlist spending outline includes noteworthy provisions, such as eliminating the school choice program and billions in tax increases. The recommendations were presented to the NC General Assembly, which is currently in discussions concerning the biennial budget. 

Overall, Stein’s proposal recommends $33.6 billion in General fund appropriations for FY26. This would represent a 6.3 % increase from last year and a rise of 54.8% over the previous decade, according to Joseph Harris, fiscal policy analyst for the John Locke Foundation (JLF).

The governor’s recommendations also would halt the scheduled reductions in individual and corporate income tax rates.

The state income tax rate is set to drop to 3.99% in 2026, and the corporate income tax rate is scheduled to decrease to 2% in 2026, phasing out completely by 2030. Stein’s proposal would pause these tax reductions. Furthermore, three additional individual income tax rate reductions were authorized by the legislature between 2027 and 2034, provided certain revenue trigger thresholds in General Fund are met or exceeded. 

“Stein’s proposal would halt these reductions based on the argument that the February 2025 Consensus Revenue Forecast estimated that the state will experience a budget shortfall in fiscal year (FY) 2027,” Harris told the Carolina Journal. “However, the Consensus Revenue Forecast has a history of underestimating the state’s ability to collect revenues. For example, the February 2019 Consensus Revenue Forecast projected FY 2021 revenue to be $25.8 billion; however, it turned out to be $29.7 billion. On top of that, the 2021 Consensus Revenue Forecast estimated FY 2023 revenue to be $28.5 billion; however, it exceeded $33.5 billion. So, these forecasts should be taken with a healthy dose of skepticism.”

Beyond pausing the tax cuts, Stein’s plan proposes a “working families tax credit,” three targeted tax credits modeled after the Earned Income Tax Credit. The targeted credits include a credit for a portion of childcare expenses as well as converting the child tax deduction to a refundable tax credit.

 “While the targeted tax credits would benefit a modest share of North Carolina households, most North Carolinians would experience an increase in their tax bill due to the discontinuation of the cuts to the individual income tax rate,” continued Harris.

Stein’s proposal would further increase funding to the Department of Public Instruction (DPI) by $876.1 million in FY26. Under Stein’s proposal, an appropriation would increase to $12.9 billion and expenditures to $15.6 billion. 

The plan recommends an increase to average teacher pay of 10.6% over two years, requiring additional spending of $1.05 billion. It also aims to provide universal school breakfast at no cost to students, with an annual cost of $85.3 million. Additionally, funding would be allocated for 330 new school resource officers at $63 million per year and for 330 new school health personnel at $32.7 million per year. The plan includes a 6% salary increase for administrators with over two years on the job, costing $60.7 million. Finally, it seeks to reinstate increased master’s pay for teachers, with an annual price tag of $10 million.

According to the plan, the suggested increase to DPI funding would come by drastically reducing and eventually eliminating funding for the Opportunity Scholarship Program (OSP). Stein’s proposal would reduce OSP funding by $783.8 million in FY26 and gradually reduce to zero by 2037. 

“Stein’s budget proposal reveals the Governor’s true priorities,” Dr. Bob Luebke, director of the Center for Effective Education at the John Locke Foundation, told the Carolina Journal. “Funding salary increases for teachers and administrators over providing educational options for families is telling strategy that means the Governor would prefer to fund systems over students.  ‘Why?’ is a question only he can answer.”

In January, a Carolina Journal poll showed that 60.8% of voters said they support the state’s Opportunity Scholarship Program (OSP), which provides state funds for children to attend private school. Only 27.2% said they opposed the program, and 12% said they were unsure. 

According to the report, support for OSP is strongest among those earning less than $40,000 a year (68%) and goes down as income increases, with those earning $100,000 or more being the most likely to oppose the program (31%). Most voters (61.5%) would support allowing businesses and county governments to donate or appropriate funds to OSP, with 22.4% opposing. 

Another noteworthy aspect of Stein’s proposal is that it makes only one appropriation to “reserve funds”  — a $500 million appropriation to the State Emergency Response and Disaster Relief Fund. The budget recommendations do not offer plans to replenish the $1 billion extracted from the Savings Reserve for Helene’s recovery efforts. 

Other highlights of Stein’s budget proposal include increasing funding for government employees, childcare, and unemployment benefits, while maintaining the current funding rate for the state retirement system. 

“Stein’s 2025–27 biennial budget proposal would increase net General Fund appropriations in FY 2026 by $2 billion, or 6.3 percent, and raise total expenditures (including federal funds) above $70 billion for the first time in North Carolina’s history,” wrote Harris about the recommended spending plan. “Although Stein’s proposal would increase funding for DPI, it would do so by decreasing educational opportunities for students. Moreover, despite proposing some targeted tax relief, Stein’s recommendation to halt the reductions to the individual and corporate income tax rates would increase taxes for North Carolinians by billions of dollars annually.”

North Carolinians will see which, if any, of Stein’s recommendations will gain traction with budget writers as state lawmakers solidify their spending plan priorities in the coming months.

The post Report: Stein’s budget proposal eliminates school choice and increases taxes first appeared on Carolina Journal.