Senate budget redirects $400M from NCInnovation to children’s hospital project

The North Carolina Senate’s proposed 2025-2027 budget takes a sharp turn in the state’s approach to NCInnovation (NCI), a nonprofit originally intended to bolster commercialization of research across the UNC System. The new proposal dismantles the organization’s state-endowed structure and redirects nearly all of its taxpayer funding to other public priorities.

In 2023, lawmakers created a $500 million endowment for NCI in the state budget, without putting it through the legislative committee process. The earmark had requirements that the funds be invested by an outside manager and only the investment income be used to fund operations. It also included provisions granting the General Assembly the power to appoint a majority of the nonprofit’s board.

But under the Senate’s new proposal, that framework would be repealed entirely. The budget plan requires NCI to return $100 million to the State Treasury and shifts the remaining $400 million to the UNC Board of Governors to fund North Carolina Children’s Health, Inc. The Senate also proposes $25 million in annual appropriations for four years into a newly activated NCInnovation Reserve Fund — though it remains unclear who would manage these funds.

What is North Carolina Children’s Health, Inc?

The 501(c)3 was formed as a collaboration between the public UNC Health and private Duke Health to build a stand-alone, 500-bed children’s hospital in the Triangle area.

In 2024, the state put $320 million into the project, which, as of yet, does not have a name or site plan. Project leaders say the hospital will operate as an independent nonprofit entity, governed jointly by leaders from Duke and UNC. It is expected to take 6-8 years to complete and will focus on highly specialized services, research integration, and comprehensive pediatric care.

Both health systems cited growing demand and critical gaps in pediatric services as the impetus for the initiative.

“Our state is growing quickly, and so are the needs of our children and families,” said UNC Health CEO Dr. Wesley Burks in January’s project announcement. “We believe this partnership will allow us to expand access and improve care for every child in North Carolina, regardless of where they live.”

The $400 million clawback from NCI under the Senate’s proposed budget brings total funding for the project to $638.5 million in the Senate’s budget, moving it closer to fruition. Included in the joint hospital plans are an ambulatory surgical center, medical office building, and behavioral health hospital. Additionally, leaders say the project will have a 100+ acre campus with play areas; rehabilitation facilities; translational research capabilities with a dedicated “innovation/collaboration zone;” and a mixed-use infrastructure for hotels, retail, and dining.

“This is a tremendous and unique opportunity to work together to reimagine how we deliver life-changing care to our region’s most vulnerable, and we are grateful for the support of our state’s legislature,” said Craig Albanese, MD, CEO of Duke University Health System, in January.

“This proposal from Senate budget writers is definitely a step in the right direction,” said Donald Bryson, CEO of the John Locke Foundation. “A hospital, in partnership with a public university, is a more appropriate use of these public funds. However, I do find some similarities to the history of the state’s film grants, which converted from a very lucrative tax credit to a smaller direct grant program. The optimal situation would be for NCI to float on its own because taxpayers have already funded the universities, labs, and scholarships long before the venture capital phase.”

Continued oversight of NC Innovation

If the Senate’s plan for NCI makes it through the budget process, governance of the organization would now rest solely with its internal bylaws, with no legislative role in board appointments. The revised structure marks a decisive shift away from the original model of a permanent, legislature-controlled endowment to a more flexible, time-limited funding approach.

Critics of NCI’s funding welcomed the change, citing concerns over the initial scope and oversight of the investment.

“NCInnovation was always a financial gamble with taxpayer dollars, lacking the necessary oversight, track record, or justification for such a substantial investment,” said Bryson, who has frequently expressed concerns about large sums of public monies going to private companies and projects.

“Clawing back the vast majority of taxpayer funds from NCI, as we’ve seen proposed in the Senate budget, is not only prudent within context of North Carolina’s present budgetary needs, it’s the right thing for lawmakers to do as stewards of the public purse,” Bryson added.

Despite the dramatic rollback, the Senate proposal preserves some transparency requirements. NCI would still be required to submit an annual report to the legislature detailing its finances, activities, and strategic direction. It would also remain subject to audits by the North Carolina State Auditor. Additional restrictions bar state funds from being used on lobbying, alcohol, luxury travel, or entertainment. Also, any state money used for salaries may only go toward salaries at the four regional hubs established by NCI, rather than its leadership.

Established in 2018, NCI positioned itself as a funding vehicle to close the “commercialization gap” between the private market and research being done at public universities that are underserved for capital investments. The language in the Senate budget appears to broaden that initial scope, now enabling NCI to award grants for research at, more generally, “higher education research institutions” as long as the recipient keeps a headquarters in North Carolina for a minimum of five years.

However, the scale of the state’s original investment — and the degree of public control — sparked considerable debate among lawmakers, watchdog groups, and higher education leaders.

The debate drew attention as some lawmakers’ appointments operated as watchdogs, raising concerns about lapses in transparency and General Accepted Accounting Practices (GAAP). In March, NCI passed a performance audit from the State Auditor’s office, which recommended that its leadership improve communication with its board of directors and make greater efforts to “lower operations risk with private fundraising” and watch for potential conflicts of interest. The state audit did not include reviews of GAAP processes or whether NCI’s selected projects so far were the “most deserving” of selection.

The Senate’s budget proposal is moving quickly through the committee process, potentially facing a full Senate vote late this week.

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