The new year has begun in North Carolina with the same legislative obstacle as in 2025: a budget stalemate.
The Republican-controlled General Assembly didn’t send a comprehensive budget bill to Democratic Gov. Josh Stein last year, leaving the state’s spending levels mostly the same as in 2024.
Left on the table for an uncertain amount of time are spending on raises for teachers and state employees, tax cuts, Medicaid and a children’s hospital.
The News & Observer sat down with Stein in December to talk about 2026 and what he says about those key issues that remain at the forefront of state government business in January.
Where Stein stands on the budget disputes
As the legislature’s impasse drags on, Stein said he’s “here at the table. Whenever the legislature is ready to join me at the table and get to work. I’m ready to welcome them.”
The dispute between the House and Senate centers on the pace of tax cuts, as well as funding the planned Duke Health and UNC Health children’s hospital in Apex. Lawmakers agreed during budget negotiations in 2023 to set levels of state revenue that would trigger further cuts to income tax rates. The income tax rate was just reduced Jan. 1 to 3.99%, so the stalemate is over changing revenue triggers for 2027 and beyond.
Another key aspect is pay raises, particularly for teachers’ starting salaries, which the House prioritizes. Stein says he agrees with the House’s “fiscal prudence” of slowing future tax cuts, though he’d like to see cuts frozen.
“They need to pass a budget that invests in our people in a fiscally responsible way. The irony is, the core dispute is the Senate cares deeply about a children’s hospital and the House cares about fiscal prudence. And I’m with the House on fiscal responsibility, and I’m with the Senate on the children’s hospital,” he said.
“And so I could resolve their disputes immediately, if they would seek my mediation counsel. I’ve been offering conversations with them along the way to fund Medicaid and other urgent state needs. So I’m going to keep pushing them. I’m going to keep letting them know I’m here to be a constructive partner, but fundamentally, we need them to step up,” Stein said.
Stein said the state “desperately” needs a budget, especially one with raises for teachers and law enforcement officers.
Over the summer as the stalemate continued, Stein signed a small spending bill that authorized step increases for teachers and some state employees, though no new money was allocated. The bill also provided funding to solve severe delays at the Division of Motor Vehicles.
Stein called the idea of continued tax cuts “wacky” and said the state is also facing fiscal uncertainty from Washington and a possible recession.
“It’s important that we have a fiscally responsible budget. No matter what is in it. It has to be prudent, and we are on the path to fall off a fiscal cliff for no reason other than there are pre-programmed-in tax cuts that are going to take out billions of dollars,” he said.
Stein also said that while he supports the House’s higher teacher raises, he also supports the Senate’s proposal for higher law enforcement raises.
“But all of these things are resolvable, if we’ll just get around the table and talk about it,” he said.
The Medicaid funding ‘pickle’
Funding for Medicaid is set to run out this spring. Rather than waiting on the legislature to pass more funding, Stein’s administration cut payments to medical providers starting in October.
The N.C. Department of Health and Human Services, facing lawsuits, reversed course on the cuts in December. The N&O asked if Stein would have done anything differently in terms of strategy, now that he knows giving the General Assembly a deadline did not force them to act.
“It just shocked me that the legislature identified this problem, that Medicaid didn’t have enough money. They agreed we needed more money. They actually agreed on an amount to appropriate, and yet they allowed unrelated disputes that were central to this budget negotiation to get in the way of doing the base thing, of solving the Medicaid problem,” Stein said.
The legislature knew the state would be short on Medicaid funds before the end of the fiscal year, Stein said.
“So we told the legislature, we’re in this pickle. We’re in a vise, where we know we don’t have enough money, you know we don’t have enough money, just give us the money,” he said. “And they refused to do it, which to me, tells me that it was actually the right decision for HHS to institute the cuts, because they couldn’t trust the legislature to do the most basic thing, which is to fund Medicaid.”
The governor is hopeful that the House and Senate will reach a deal on Medicaid funding in March or April.
“I think there will be,” he said. “But then again, I thought there would be in August, I thought there would be in September. I was almost certain there would be in October, and I thought there would be in November.”
Stein on taxes: Property reform, sales tax and freezes
The General Assembly has not officially adjourned its 2025 session, and has procedural votes scheduled for a few days in January, February and March. The new short session starts in late April.
Income taxes aren’t the only front in the 2026 tax battle. One bill that could be sent to Stein’s desk this year involves reforming property tax law, a new priority of House Republicans. A study committee began meeting in December to look at ways to give homeowners relief.
Stein said he’s open to a conversation about property taxes, but wants to make sure it holds local governments harmless, since property taxes fund things like law enforcement, parks and recreation and garbage collection.
As far as overall tax policy, Stein offers two ways to alleviate “the consequence of taxes on working folks” and the high cost of living.
“One is you help them get more income — better paying jobs, good jobs,” he said. “And we’ve been working so hard on that side of the equation. We had the best jobs year in North Carolina history — 34,000 new jobs. We’ve announced $23 billion in capital investment, and they’re spread out around the state, which is great. So we want people to earn more money, but we have to address the cost of living, whether that’s housing or child care, health care or electricity. And one way you put more money in people’s pockets is through the tax system.”
Stein opposes reducing the corporate income tax and individual income tax rates, which are both priorities of legislative Republicans.
“Let’s freeze the taxes where they are, keep the personal income tax where it is, the corporate income tax where it is,” Stein said. But he wants tax cuts he’s previously proposed, including a child and dependent care tax credit.
Asked about cutting sales taxes, Stein noted that he proposed bringing back the back-to-school sales tax holiday, which is also in the House’s budget proposal.
”Let’s not put more of the burden on people who are struggling with the cost of living,” he said.
Balance of power shifts toward Republicans
The General Assembly overrode a veto by former Gov. Roy Cooper in the waning days of his administration after the 2024 election, passing a law that took more power away from the governor. Once Stein took office in January 2025, the governor no longer had a majority of appointments on the State Board of Elections. That was shifted to a different, elected member of the executive branch: Republican State Auditor Dave Boliek.
And this fall, at the behest of Republican President Donald Trump, GOP lawmakers redrew a congressional map to favor their party in the 2026 election. North Carolina governors do not have veto power over redistricting.
The N&O asked Stein about changes in the state’s balance of power and his office.
“I think it really just comes down to priorities,” Stein said. “Why are you in your position of authority, which comes with some power? Why are you doing it? Is it to help other people, or is it to amass more power?”
“And the reason why our founders created three branches of government, separating the power among them, is so that it all balances each other out and there’s not too much power concentrated in one set of hands. And one of the greatest, I think, demonstrations of wisdom is if you have power, to not exercise it to the fullest, if it is not in the long term interest of others,” Stein said.
“And the (Republican-controlled) legislature has been all about trying to take power away from me because I’m a Democrat,” he said. “They’ve been trying to take away power from voters, because sometimes they choose to elect a Democrat. You know, we have one congressional district that was competitive in the last cycle and (voters) chose to elect a Democrat. The Republican legislature said, No, you were wrong in making that decision. We’re going to draw the districts in such a way to make it really hard for you to exercise your own will. We want to decide for you who your representation is. That is arrogant and misguided.”
Stein said that while he was grateful to the legislature for Helene recovery, economic development and the DMV, he wishes there was more of that and less focus on amassing more power.
Stein on working with Berger and Hall
The three most powerful politicians in state government are the governor, the House speaker and the president pro tempore of the Senate. Stein’s counterparts in those jobs are Senate leader Phil Berger and House Speaker Destin Hall, both Republicans.
The N&O asked Stein about working with Berger and Hall. He and Berger have known each other for several years. Stein previously served in the state Senate and as attorney general. Hall is newer to state leadership.
Stein characterized his interactions with them as “constructive,” with some issues they align on and others where they have “strong differences of opinion.”
Stein praised their honesty.
“But one thing I can say about both of them is that everything they’ve said has been true,” he said. “They’ve been frank, they’ve been honest. And I don’t think you can have a constructive working relationship if you can’t believe what the other side is telling you.”
Listen to the full interview with Stein on our Under the Dome podcast.
Dawn Baumgartner Vaughan
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