- Republican legislators kick off the 26th legislative session by quickly solving the state's Medicaid funding shortfall for now.

And with Medicaid funded, the state's political watchdogs begin turning attention to state budget negotiations.

This is "State Lines."

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(upbeat music) ♪ - Welcome to "State Lines."

I'm Kelly McCullen.

Joining me today, Dawn Vaughan of the "News & Observer."

To her right, Representative David Willis, making the drive from Union County.

Representative Phil Rubin of Wake County is in Seat 3, and Colin Campbell of WUNC News in Seat 4.

You seem to camp there, Colin.

- It's my spot now.

- It is your spot.

And Representative Rubin's been on a few times.

Seat 3, it's yours.

- Excellent.

- Always yours.

- I wrote my name on it.

- We're glad to have you gentlemen here because a lot's going on.

The 2026 latest latest session officially opened this week.

Now I have to tell you, they've been working all year long, but it's in session now.

For some reason, that's different.

House and Senate Republicans quickly agreed to fully fund the state Medicaid programs shortfall.

A final vote is expected next week.

This bill is not law yet.

It's a 319 million dollar funding bill.

It will carry North Carolina's Medicaid services through June 30th, 2026.

The deal comes with a directive.

The state auditor look into Medicaid services, look for savings, overspending, or misspending.

This bill would require immigration status verification as part of the enrollment as well, Colin.

So a little bit of that culture war thing in there like that but however, if you're rooting out misspending, overspending, or paying for services for ineligible patients or clients, does this do it?

- I think the goal is to sort of look into it.

I mean, there was a committee hearing in the House just a couple weeks ago that sort of got at this issue of is the Medicaid program doing enough to find people who are billing it for things like travel or cash or I think there was one concern that was raised about well, is this provider for Medicaid actually in an abandoned storefront?

Are they even real?

And so this I think starts the process of looking into that because I think one of the big worries and some of the reluctance to fund this 300 million dollar ask was, well, why does the price tag for Medicaid keep going up at such a dramatic pace and is there a way to sort of rein that in so you're not at this point where, you know, there's so much impetus to pass this bill because you're weeks away from the Medicaid program and totally running out of money and having to make cuts and nobody wants that to happen but lawmakers I think also don't wanna be doing 300 million dollar appropriations bills in April of every year when they start to run out of money.

- Representative Rubin, this state seems to have 2 and 300 million dollars just lying around.

How much more do we have in the reserve to fund these small short term problems to get you to the next budget year?

- Well, I wouldn't say it's lying around.

It's actually kind of curious.

We had about a 370 million dollar surplus, right?

But we're basically paying in arrears 311 million dollars.

So basically our projection of how much revenue we'd have was exactly right and we're just paying it late.

So I'm so thankful that we passed the Medicaid money.

Three million people are counting on that.

But we have to find ways to drive costs down.

Inflation is up across the board and we're 50th in the country in healthcare affordability.

So I'm glad we're gonna talk about waste, fraud and abuse.

But what we really need to talk about is healthcare efficiency because it's not just Medicaid that's costing a lot of money, it's all healthcare.

- Representative Willis, you're a higher ed chair writing the education budgets, but you're on health and human services I don't believe.

However, the bill comes with money, then the audit.

And I've seen online, people have hit me up saying, "Why not do the audit and then find the money?"

- I think there should be a continuous audit.

I mean, we know there's waste, fraud and abuse throughout the system and we've known it for years.

And so finally having a state auditor that's willing to go through and put the time and effort in to dig through not just healthcare, but every aspect of our state has been a tremendous change for us.

And I think it'll be hugely successful going forward.

I think we could have easily paid for the shortfall that we had if we had curbed some of those waste and fraud and abuse cases earlier on.

And so I commend them for stepping up and pushing this forward 'cause it's something we should have been doing all along.

- Dawn, was this deal in the works well before the convening of the session?

The session brings everyone from across the state that's a legislator, it's mileage, it's staying in the hotels, it's eating and all that.

It's more convenient to wait till session than to call special session, I would think.

- Yes, there's been a lot of behind the scenes work for a long time with this.

And there were some rumblings of it coming out before it was official.

They didn't even hold a press conference.

It was who's gonna say it first, House versus Senate.

And Senate was going to say it and then at the end of publicly, and then at the end of the House session, all of a sudden, House Speaker Destin Hall goes, "And we're gonna vote on Medicaid rebase on whatever, like the following day or next week."

And so it's the word rebase, it's in the weeds, it's just paying for the extra costs that were needed.

But this was such a sticking point last year as part of the budget fight.

It was run separately where both the House and Senate, which are both controlled by Republicans, but they wanted to add different things.

The House had the Clean Bill, the Senate wanted to tie it to other things like the Children's Hospital.

They were just not getting along at all.

So the fact that they, during this time in between, came together, have a deal, it's what Governor Stein wants, everybody is more or less happy.

Of course, there's policy in it, it's still the legislature, they're gonna put something else in there.

But to start the start of session with an agreement that satisfies it to some point, I feel like is really remarkable.

- And this is interesting, because I think it's the Senate who's giving.

I mean, the Senate was initially insisting that you tie the Medicaid money to funding for the Children's Hospital that's planned for Apex and also some rural healthcare funding.

The fact that this bill doesn't have those is a sign that maybe Phil Berger is not drawing a line in the sand and maybe that's a sign that maybe we get some budget agreements sometime soon.

- But they also have a deadline, like it's time.

It needed to be done.

Everybody agreed in general it needed to be done.

It just finally got to the finish line.

- Are you, are Democrats worried at all about any of the policy pieces in there?

I mean, it's just a little bit, you can kind of see it in there, but overall, it funds Medicaid, it gives Josh Stein what he wants, validates the 319.

So I think this bill goes through pretty easily.

- I mean, I think it goes through pretty easily and in part, as Dawn just said, like there's a deadline.

We're about to run out of money, but there are things in it that I'm really concerned with.

And some of it's about the policy itself.

It's already, you have to have legal status to have Medicaid, that's been true forever.

But the way that it's implemented in the bill is going to cost counties a lot of money and end up sort of being reflected again, like everything else we do in people's property taxes.

It's an unfunded mandate to do this extra work.

And so there's a lot of the details that I think are rushed and we should have thought through more, but I voted yes to it.

We need to fund Medicaid.

- Well, I think it's, I mean, I think it's, you know, if you put the policy pieces that are in there out to the general public, this is common sense stuff.

I mean, we're just asking for the right people to be on it and therefore we don't have to go through the waste, fraud and abuse on the back end.

We're correcting that and preventing people who shouldn't be getting these services up front.

And that's what it should be about.

- Yeah, that term in politics called waste, fraud and abuse, it is much more than a catchphrase.

The Medicaid funding bill advances in the House and Senate.

The Medicaid funding bill directs the state auditor to investigate spending and operations.

Legislators are focused in part on a spike in autism services spending.

Earlier this decade, three, I guess this year, showed hundreds of millions of dollars in spending.

Also, there's lapse salaries identified by the state auditor.

These are permanent jobs that have been left unfilled for years or no one simply applied for them due to pay benefits, what have you, Representative Rubin.

There's a lot you can look at at DHHS, but there's a lot to DHHS.

It's a huge agency.

Tell me about waste, fraud and abuse versus, well, it's just things are expensive.

Things could get misspent and just, you know, inefficient bureaucracy.

- Sure, well, a couple of things.

I mean, we're always, I was a prosecutor, a federal prosecutor for my career.

I'm very anti-fraud.

Our enrollment rate and accuracy rate is 0.46%.

It's very low already.

So like, we can always do better, but we're doing really good on that.

Where we're really struggling, and this is actually across state government, but DHHS is the perfect example.

We underfund these agencies for staff so bad that they cannot hire people at the salaries that they're allowed by the legislature.

And so positions remain vacant.

And what's ended up happening, previous DHHS secretary talked about, he had to use contract workers, hundreds, like thousands of contract workers because he couldn't hire permanent staff.

Not only is that just kind of a silly way to do business, it is actually waste.

It is government waste.

It's government waste to keep training highway patrolmen, then have them leave to the Charlotte police three minutes later 'cause they pay $20,000 more.

We actually have to fund these positions enough to hire people for them if we wanna be able to hire people.

- What's the Republican side on the DHHS?

Huge bureaucracy or huge agency serves, what, millions of people?

And it does seem complicated, whether you're a Democrat or Republican trying to sort through it.

- Well, I think, you know, we've created the bureaucracy and the complications within this.

I mean, you know, we were never intended to be this size of a government, even at the state level.

And so for the number of positions that they have, I mean, I'm all for, you know, changing the formula and the way that we calculate this, and I would rather give a lump sum of money in terms of the staffing and the flexibility to those directors to hire the right people to bring them in.

I think we could cut the number of positions that are needed, hire, you know, higher skilled folks to do some of these jobs and these tasks, and we'd be better off.

- Dawn, is anyone out there in the Capitol Press Corps following the autism services, the behavioral type services that went from, you know, tens of millions to hundreds of millions?

They're zeroing in right there in North Carolina.

Even a Democrat, Zach Hawkins of Durham County said, "Hey, there's companies setting up outside of states.

"They're not really providing good quality service, "but they're getting paid full freight rates."

- I was gonna reference Hawkins because he has two children with autism, and he's talked about the need to make sure this money is spent for the best services that the children can get.

On the salary point, I would say that with, we're talking about the budget is a little more promising this year.

State employee salaries are always an issue.

I hear from readers all the time, the rank and file state employees who talk about how they always get the lowest raise of any talk about raises.

There's a lot of attention on teacher raises, which are important, school personnel raises, important.

And then it's always the state employees are like lower down the list, and then retirees after that.

And I hear from them all the time about, you know, what's, they'll say, "What's my incentive "to work in state government, "plan a career in state government "if I'm getting one and 2% raises?"

And it's not enough compared to the private sector when you look at the type of work.

And DHHS, and I believe, and the prisons, DPS, or Department of Correction are some of the hardest jobs to fill because the pay isn't great, and the work is hard.

- Yeah, and if I could just jump in.

You know, one thing, first of all, I wanted to say I agree is about giving more flexibility to agencies, even if that means they hire fewer people, but pay more, 'cause that can get us out of that hole.

I mean, the Department of Adult Corrections is actually kind of a scary situation with their understaffing.

And again, it wastes money.

It wastes money to do it that way.

And the flexibility could actually really help a lot of agencies.

- So, Colin, in the political debate, there will be legislators, Congress members, mayors who will use the term waste, fraud, and abuse, but it's gonna, you know it's gonna slip towards, I just don't like that program.

It's waste, it's fraud, or it's abuse.

How do we keep that term high-minded, if you will, and accurate when you're looking at government efficiency?

- I mean, that's the challenge, right?

You can find examples of things that maybe look a little bit shady, and I think the House hearing we saw recently where I think some members of House Legislature staff had gone through and done some Google searches and said, hey, this doesn't look like it's a legitimate provider for healthcare services.

So, there's the question of, hey, maybe we should look into that more, versus we have done a thorough investigation and established a criminal act has occurred here with taxpayer dollars, and we need to prosecute accordingly and make sure that these people never get Medicaid money again.

I mean, there are sort of two different issues here of there's the criminal level of abuse and fraud, and there's the maybe we didn't spend money on this in quite the right way.

- The old Google Maps go through and launch the old Facebook investigation of.

- Yeah.

- Well, there is something to be said about that.

How do you know that folks trying to lobby and advocate for issues or for positions, that they're giving you solid advice as opposed to laying in bed on a tablet and looking, doing the Facebook investigation, like, you know, like we've all done.

- You know, just as I tell our voters and constituents across the state, do your own homework, do your own research.

I mean, if you're relying on the TikTok headline that you see coming across your screen, then you've only got part of the information and it's usually false.

So we have to be able to do our own homework and do our research, and that's why having credible people in places like the auditor's office and within, you know, our own staffing agencies, that we've, you know, we've got the right people in place to do that work.

- And, you know, I don't disagree with that.

I do think it's something that the legislature needs to look at itself about, because we legislate by conference report now.

We legislate by bills.

That Medicaid bill was released to the public the night before it was voted on.

And so if people are gonna do their own research, they're gonna need to be able to see the bill.

They're gonna need to be able to come to a public hearing on the bill, and they don't have that opportunity with major legislation that goes through in this state.

Other states have constitutional limits on that.

You can't vote on a bill that hasn't been released to the public in advance.

You can't go and change the entire subject of a bill at the very last second and rewrite it and then put it through for a final vote.

We need those kinds of protections so that people can do their own homework.

And because otherwise, it's the lobbyists in the room who get to write it and nobody else gets to say it.

It's not okay.

- Get in line with that line of talking.

I've heard it for 20 years.

It's one of the things that legislators who come in, especially newer, younger, say, "Hey, we should do this a certain way."

But there's a certain way it's done, unfortunately.

- But the key thing is other states have fixed this.

It's not like this is just legislation, how it works.

Go to Virginia.

Everything I just said is in their constitution.

We could do it too.

- Virginia, good reference point for Republicans?

- No, I just can't do that.

- House and Senate budget writers say a deal in a broad budget bill could be closer now that Medicaid funding has been largely addressed.

The state is collecting a tax revenue surplus, which by state law, automatically approves income tax rate cuts in the future.

Senate leaders are confident in that process.

House budget writers support tax cuts.

They want some revised revenue expectations before automatically triggering them.

And back to Medicaid, the state will have pumped, what, about $817 million, Dawn, into expanded Medicaid in 2025.

And now the worry is the bill will top $1 billion for the budget year that starts July 1st.

319 million this week sounds like a lot, and they go, "Well, it only gets you to June 30th."

- Yeah, the state is gonna be expected to pay for a lot more things.

So I think, like, especially with this Medicaid rebates this week, every dollar is going to be scrutinized when it comes to everything, like the raises we were talking about, and also spending for this coming year.

I feel like the biggest thing, though, is that there's finally movement between Senate Leader Phil Berger and House Speaker Destin Hall, where it had just been this full-on stalemate.

I've called it trench warfare, where they don't wanna move.

This week, they were both optimistic, but they're still not there.

I asked Berger where he was on the individual income tax cuts.

He doesn't seem like he's moved that much.

So there might be another factor in there with if there's gonna be even more revenue than we expect.

The great thing about North Carolina is this is a wonderful state.

People are always moving here.

There's lots of tax revenue.

There's going to be a little less tax revenue, or maybe a lot less, depending on whatever the final deal is.

But also, it's, you know, a lot of people are paying these taxes.

- Your piece of the budget writing process is chairing the Higher Ed, which is the UNC system, which is in part PBSNC.

We're wrapped up in that web of an organization.

How are budget negotiations going with higher education?

Because the last few cycles has been asking UNC system to find reductions, to find efficiencies.

- Well, first, I'd like to commend the UNC system for doing just that.

I mean, they've gone through campus by campus at the head office as well, and have identified a number of areas, and have cut significantly from their budget going forward.

We think they're getting down to where we would say they're being efficient, finally.

And so, when we talk about waste, fraud, and abuse, those areas where it could, maybe it's not fraud or abuse, necessarily, it's just government bloat over a number of years that is being pared back now, and they're being finally efficient with their fiscal responsibility, which is what we expect of them.

In terms of the tax cuts and the effect on revenue, I mean, we've been cutting taxes since 2011, and every time we've done so, the sky's falling.

We're gonna create a huge hole.

And what have we seen?

Every single time, we've had a surplus.

And so, I think there's certainly a discussion to be had about where we finally hit the right number, and those discussions are happening, as you mentioned, between the Senate and the House leadership.

But we've continued to grow.

We've got people clamoring to come here, businesses.

We've got more jobs than we can fill at this point, and we continue to be one of the largest influx states in terms of population.

People are clamoring to come to North Carolina, and that's for a very specific reason.

We've had good fiscal leadership throughout that process, and we will continue to do so.

- And I just wanna add, though, that the forecast for the next couple years is really dire.

We're talking at least $3.5 billion if we don't change the way these revenue, these trigger tax cuts are calculated.

So the forecast has been dire every time we've cut taxes.

- No, it has been accurate.

It was accurate this time too.

- It's never been accurate.

- So when you take a look, as I said earlier, at the forecast for revenue this year, it was basically spot on other than we didn't pay for Medicaid until the last second.

That makes it basically spot on.

The only time it was really off was COVID, but we hear this every time, no, no, no, except House Republicans agree with what I'm doing, with what I'm saying here.

You're trying to push back the triggers.

So I didn't think this was gonna be an area that we disputed, right?

It's only the Senate that is doing that.

What is at stake here is all of North Carolina's future.

$3.5 billion in cuts to a $35 billion budget that is already basically smaller than the state budget was per capita when it was much smaller is a disaster in the making.

We are already spending billions less a year than South Carolina on education, and we cannot afford that kind of cut.

And those cuts were put in, frankly, in a reckless way.

Putting automatic tax triggers when you don't know what the economy is gonna look like in the future is astonishing.

Even right-wing economists are saying, I don't really know what North Carolina thinks it's doing on taxes.

And I'll say this, there is one area where I think people are saying the sky's falling elsewise, property taxes.

Your average North Carolinian on their income tax cuts gets like 80 bucks a year.

It's not much, it's rich people that get those.

But what everyone is getting is property tax increases.

In Wake County, a third, more than a third of its budget is state costs that were passed down.

That's how we're paying for the tax cuts.

- Well, I find it interesting, and this is the same argument we've been having, the Democrats have been wrong since 2010.

We have not seen the sky falling.

We have seen budget surpluses, sometimes excessive budget surpluses throughout that time period.

The argument that only the rich are getting the tax cuts is because only the most wealthy are paying the taxes.

I mean, we've reduced the amount of people in the state of North Carolina that are paying a single dime in taxes.

The vast majority of folks in this state are not even paying North Carolina income tax.

And so the argument that only rich folks are getting that is just a completely false argument.

- I mean, that, first of all, like, I mean, facts matter.

Only 20% of people don't file an income tax return and don't pay taxes.

- Well, filing and not paying are completely different.

- No, no, I think working families who are paying taxes deserve to be respected for the fact that they're paying them.

And they are paying taxes.

They are paying North Carolina income tax.

What they're not getting is material changes in that income tax bottom line due to these tax cuts, but they are seeing it in their property taxes.

So the very same people who have pushed all of these costs down to the counties by cutting the state government, we're talking hundreds of millions of dollars to my county, to Wake County, that the state is not paying that it should.

And now everyone on that side of the aisle is saying property taxes are too high.

We gotta find out who did it.

We already know.

You push the cost down to pay for the income tax cuts.

I want to see lower property taxes because I wanna see more money in working people's pockets.

- I'd suggest you look outside of Wake County and maybe Mecklenburg County 'cause Union County's doing just fine.

Our property taxes have not increased and we're happy about that.

I mean, we've got one of the largest growing counties in the state and have for the last 20 years for very specific reasons 'cause we've got fiscal responsibility with our county commissioners and how we run our county.

And so the reason that we were looking at the taxes right now because we've got runaway county commissioners who are increasing the cost of living and what are the people getting for it?

I think they've got a very legitimate question as to what are we getting for the taxes that we're paying because it's not being used wisely in those counties.

- Colin, I do wanna ask you about that.

There's federal mandates coming down with the one big beautiful bill on Medicaid, for example, that's gonna push costs through the state down to the local government.

And it looks like there will be a statewide referendum on our property tax cap of some degree or allowing lawmakers to do that.

How important is voter information right now?

Voters will ultimately decide whether there's state income taxes, federal income tax cuts or local property tax caps.

But if the feds won't pay it, the state won't pay it, counties got it.

- Counties end up with the bill because I mean, just sort of look at specifics with the original one big beautiful bill act, you've got counties that are probably gonna have to do extra work to verify who's eligible for Medicaid, who's eligible for food stamps.

And that's gonna probably require more people hired.

At the same time, I think if you end up putting a property tax cap on the ballot, people are seeing-- - They're gonna vote for it.

- They're gonna vote for it.

I mean, the odds are that's gonna pass because people feel like they're getting squeezed on property taxes and their property taxes are going up because they are.

So, it's the question of then who funds this stuff if the feds don't do it, if the states don't do it, and the locals are constitutionally prevented from doing it, what happens next?

I don't know.

- I can tell you what happens next.

You fire police officers, you fire firefighters.

That's what happens next and that's what we have to avoid.

I'm sorry.

- There's another thing with the House Committee on property tax and reform are looking at these exemptions.

And it seems to have pretty wide bipartisan support to close this Blue Ridge, it's called the Blue Ridge loophole, that gives too much of a tax break for some of these actual businesses that are tied to non-profits with housing.

There are other property tax exemptions that are being scrutinized that could change the amount of incomes that local governments get.

And another big development is the fact that Senate Leader Berger is more interested in looking at revaluation.

And as local governments are in their budget processes, right now, they'll be holding their public hearings next month, he wants a law by May to pause all the property tax revaluations.

- And that bill seems like it's got juice to go in the next week or so.

- I think so.

- So it'll be interesting to see how that plays out with some of the House proposals out there.

- I got two minutes.

I do wanna touch on something I've noticed about the General Assembly.

They post a daily calendar of bills.

You can look up ncleg.gov is the website.

The bills on the calendar, it could or could not be voted on, which is important for veto override attempts.

So some veto legislation that could face a veto override vote includes enrolling North Carolina in a federal school voucher or scholarship tax credit program.

Second amendment advocates, they're already in Raleigh watching a constitutional carry bill that would allow you to permit free possession of a concealed firearm if you're a legal gun owner.

DEI restrictions on local governments and universities, stalled right now by Governor Stein's veto, as is legislation demanding local governments cooperate with ICE.

Too much to go through in two minutes, but the veto override sentiment with some disgruntled Democrats who are leaving office after this session.

What can you get done or will you try?

- Well, I can't speak to the mindset of any of my colleagues across the aisle, but we've been adamantly optimistic that we can get these overrides done this session, whether it's with the help of some of our friends on the other side or it's just through the normal process.

I mean, what we've got out there, past the House and the Senate, and we feel like this is common sense stuff that North Carolinians want to see happen, and we need to try to override those.

- First of all, the gun ban, the concealed carry bill, for example, three quarters of North Carolinians don't want it, and states that have passed bills like that have seen gun assaults and gun deaths skyrocket.

So I think the governor has vetoed these bills because they are to the extreme, and that's why, I mean, there were even Republicans who rejected that bill when it came through.

And so these bills are really extreme.

They're culture war stuff.

They're dangerous for the state.

I don't like our process here where they sort of sit on the calendar forever.

It is the one area where notice is required, so at least that's why they're on the calendar.

But we had that awful incident a few years ago where a veto was overridden because members were told that there wouldn't be votes, and they were at a September 11th memorial, and vetoes were overridden.

I'm hopeful we're not gonna see anything like that.

- I thought they were in the basement drawing maps, but I don't know.

- I got 20 seconds.

- It's actually 2019, and only a couple people were in there, and that was a communication issue.

- Half a minute, you'll get the last word.

Give me 10 seconds.

- Yeah, there's two ways these bills become laws.

If you convince a couple of the moderate Democrats who are now lame ducks to go with Republicans, or you wait until a couple Democrats are out of the room and then call the vote.

- Yeah, you have to be in your seat, Dawn.

I mean, that's legally true.

- Right, it was on, I saw on a lawmaker's desk that said, you know, your attendance matters, and that's what it's gonna come down to, being on the floor for every single session.

- All right, folks, what do you think?

Email your thoughts and opinions to statelines@pbsnc.org.

You've heard our take.

We wanna hear from you.

I'm Kelly McCullen.

See you next time.

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