- Legislative Republicans announce a new budget deal and a US Supreme Court ruling on political party campaign financing could affect North Carolina races.

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 PBS NC.

(upbeat music) ♪ - Welcome back to State Lines, I'm Kelly McCullen.

Joining me today, Mitch Kokai of the John Locke Foundation, Dawn Vaughan of the News and Observer, WUNC News' Adam Wagner and Michael McElroy of Cardinal & Pine.

Hello everyone.

Thanks for taking time out of your busy week.

Lots to watch.

I think Mike said it's a 634 page budget.

State House and Senate Republican leaders say they've reached a deal on a $34 billion version of it for '26-'27.

Now it does estimate $35 billion in tax collections leaving a $1 billion financial cushion.

That's an unofficial term.

Personal income tax rates will continue dropping through 2032.

Data centers lose their electricity tax exemption, keep other exemptions.

$450 million goes to the rainy day fund.

State jobs that have been long vacant now cut.

It's the first budget to pass in nearly three years, Dawn.

We'll get into some details later.

Let's talk about the politics.

They've proven they don't have to pass a budget for a few years, but yet this year seemed different.

They cut a deal.

- Well, just wanted to say happy budget week, everybody.

Here we are in time for the 4th of July.

We've only been waiting a year, you know, and it actually came in at the last day of the fiscal year, June 30th.

And we have the actual document.

It dropped on Tuesday about 10 a.m.

because we'd all been waiting since Monday and like just, it was a lot of work, the actual physical work of bill drafting and everything getting this ready after House Speaker Destin Hall and Senate Leader Phil Berger reached a deal.

A lot of the holdup was taxes and raises, which is the big things in every budget.

But Hall was really dug in for this past year.

Berger was really dug in for this past year.

Berger on the taxes side, Hall on the raises side and how they meet in the middle.

So they announced their deal in May, but there was no paper, nothing, no paper at all.

It was just them talking to reporters and now we have the document.

You know, a lot of excitement for those of us in NC poll land going through and reading this.

And it doesn't have the level of controversy that some other budgets have had.

There's a lot of relief of finally, the state employee raises are low except for law enforcement for, you know, some of what people like.

I know we'll talk more about raises, but it seems like they've, you know, the pressure had been on for so long that they finally came together in the form of a document posting on a website.

- Adam, tell me what you're hearing about the dynamic between Phil Berger and Destin Hall.

We hear rumors of people were coming and going.

It comes down to two leaders sitting down to hammer out the, drive the final nails into the deal.

- Sure, so they had been talking for the last, really got intense over the last couple of weeks.

And they just had a laundry list of things they had to get through.

And basically it looks like that they both got some of their chambers priorities.

Notably, Phil Berger didn't get baseball in this budget.

He wanted it, the house didn't want it.

Hall said recently that that issue isn't a dead one.

So there still could be a baseball package.

But Berger also gave a sense and a gaggle that basically his chamber of patience was fed up.

That we have proposals out there, we need to get a budget done.

We are just gonna pass it with the things that we agreed on.

- Sounds like years past, Mike.

Just we'll pass our side, you pass your side.

We hope we can meet in the middle one day.

And they've done that for two cycles of the budget.

They didn't do it this time, why?

- Well, when one digs in, I guess that becomes it.

It becomes something larger than the actual things you're talking about, unwillingness to move.

But I had to say that it's been a year since we've been waiting.

People have been talking about that for a year.

That how long it's been.

And that folks have been saying, we really would love to know whether we're gonna get raises next year, we'd really love to know that while costs are going up.

And then they come back into session and they still kind of amble toward a deal.

They only got intense in the last two weeks over the last year.

And so for them then to pass it, or not to pass it, but to present it and to provide a budget that's 634 pages, and then to say, okay, now we're gonna vote.

Now, now, now, now, now, everybody vote quick.

Everybody vote, we're gonna vote the next day.

I find that hilarious that they waited this long and now we're rushing toward a vote where people are still reading it.

People don't know everything that's in it.

Even the Republicans who kind of helped draft it don't know everything that's in it.

I find that just hilarious.

- That's time honored tradition, actually.

- Right, it's the conference report, which is this procedural, it sounds boring to explain, but it's basically a bill that's the final agreement and it's unamendable, which is the biggest thing that you can't change it.

And it didn't even go through committees.

- Mitch... - You asked earlier, why is this happening now?

One thing we haven't yet mentioned is an election.

There's an election coming up.

And one thing that the Republicans have seen this year that they really had not seen in past years when they've gone really late and not even come to an agreement, 'cause remember, last time they actually passed a budget was in late 2023.

They decided in 2024 they weren't gonna amend that budget and then they didn't come up with a new budget last year.

So this is the first real new comprehensive budget in almost three years.

And they have been hearing about this even from some of their supporters.

Now, the Democrats have been criticizing them for not doing their job, but even some of the Republicans are like, "Wait a minute, this is the one thing "you're supposed to do.

"Why aren't you getting that job done?"

And I think they've been hearing that and realized they needed to do something.

- Now, I have heard that they were frustrated even in the Republicans, a little bit, because ultimately it's the game that they play.

Let me ask you, how can you benefit from using timing of meetings?

If say, you're just not available, maybe you go a week between negotiations, what does the act of digging in do to craft policy towards a negotiation of a big bill like this?

- Well, it really comes down to who thinks they have the more leverage.

We used to see in the early days of the Republican takeover that it was basically Phil Berger who had the leverage, because then-Speaker Thom Tillis was a deal-maker, didn't wanna be in town, was getting ready to run for the Senate, and didn't want all of this stuff hanging around while he was trying to campaign for higher office, whereas Phil Berger was fine where he was and was sitting there and said, "Okay, well, come to my side "if you wanna get a deal done."

I think Phil Berger got used to that, being the one who was really the one in charge, and Hall has not gone along with that script, and I think Hall has been much more of the, "Hey, I'm," especially after Phil Berger lost his primary election, "I'm here, I'm gonna be here, you're leaving.

"If you want something before you go, "you're gonna have to come to me."

- So Moore figured this out late in his speakership, that Berger's game was wait, wait, wait, wait, wait, and Moore said, "I'm just gonna wait longer," and helped Moore out, and Hall picked up on that lesson, and is willing to wait, and wait Berger until Berger's patience is the one that runs out.

- But Moore also kept a political power of going to Congress, where Berger lost his primary, and he hasn't said what he's gonna do next year yet, but he won't be in the General Assembly as a lawmaker.

- Let's dive a little deeper into the budget.

The headline would be pay raises.

State employees will be receiving various ones in this budget deal.

Public school teachers, you will average an 8% pay raise.

What I understand is the largest percentage of the raise goes to early career teachers, and if you're a veteran teacher, you'll get a bonus, but a lower percentage permanent raise.

If you're a state worker, you can receive a 3% cost of living adjustment.

I call it that because inflation's frankly higher than 3%.

Law enforcement and correctional officers will receive between nearly 10 and 18% raises.

Adam, after what happened in Birdie County at the prison, there's a lot going on with this.

Start somewhere.

Teacher pay raises.

- So I'm gonna actually start with a quick correction there.

It happened at a local jail, not at the prison.

- They made it sound like it was a correctional facility.

- Yeah, it was a very confusing wording.

So the teacher raises, there's been a lot of concern there about this issue where early teachers are benefiting.

It's meant to get more people into teaching, but people later on in their career are, they think frankly that it's an effort to keep them from getting into retirement.

That this pushes them out as their salaries are getting higher, so you're not gonna stay as a public school teacher for the entire year, or your entire career.

Hall has said that he would like to see those raises be higher later in the careers.

His argument is frankly, there's only so much money.

The other point here though is, Kelly, you mentioned that billion dollar cushion that's in the budget.

We've been hearing from like SEANC, the State Employees Association, well if you have a billion dollars you're just not using, why can't you use that for raises elsewhere?

Why can't you use that for these non sort of, they would use the term kind of favored classes of employees that are receiving these larger raises to bring some of these other groups more in line with those?

- Well law enforcement is getting the double digit, which is a big thing, it's been a problem, and what happened at the jail has certainly highlighted the need that short staffing is not good, especially when it comes to law enforcement.

The 3% SEANC is not happy about that, because as you said, it's kind of just like a COLA more or less, it's better than nothing, which is what happened this past year, and the starting teacher pay has been a fight for a long time, pushed a lot by House Republicans, but also Senate Republicans also wanting more of this front loaded pay, but the salary plateau that happens when people are mid career, when you probably have the most financial pressure on you, and that's when you look for like, okay well what else if the legislature sets my base pay, what are the other ways to get more money?

You can get it from having a PhD, being certified, doing these other things, so I went through all those 400 some pages within like two hours of it being posted to check the math on all of these raises, which is, it's all salary schedules, it'd be nice if it was a little clearer, you know, if they just gave a percent across the board.

By the way, the governor and the rest of the council of state are getting 3% raises too.

- Take us through the pay raise, the politics of pay raises.

No question they'll back the blue in this budget, can other people claim that in the pay raise situation for state government?

- Well, the pay raises for state employees, they're less than what the state employees want, that's typically true, I mean they ask for a certain amount, they tend to get less than what they want.

The teacher pay raise thing is kind of interesting because some of us will remember years and years ago what happened with teacher pay raises is there was a low starting salary, and you basically got about the same amount of increase every year, and you really had to work 25 or 30 years to finally get to a really decent salary.

The general assembly tried to make a change to say, okay, well let's get A, a higher starting salary and ramp people up more quickly so that by 10 to 15 years in the job, they're really at a decent salary, but then they didn't do much beyond that for increases, and that's been one of the concerns for folks who are in the later end of their careers, wait a minute, you're ramping up salaries at the lower end of the scale, what about us?

The challenge is that if you raise the salaries of the ones who are already getting more pay, that's more costly, it's easier to raise the starting pay where it's lower.

- Mike?

- Yeah, go ahead.

- I was gonna say recruitment versus retention, I mean those are the big factors every time.

- Mike, I get more emails, a million topics, but teachers write me, they tweet at me, and they go, I'm a veteran teacher, 15 plus years, and I just wanna know why would they expect me to stay in this career when it's cool you're paying the young teacher to get 'em in the door, but 15 years from now, they're not gonna make a salary they think is fair, and I've positioned it with legislators, and there's nothing, no answer I have ever relayed even on this show has satisfied that question for them, for some of them at least.

- Yeah, I mean, we talk to teachers a lot about this issue, and really when looking at the numbers, I mean, we all know what it costs to live a life, we all know what our expenses are, so if you look at it, $48,000 I believe is now the new starting pay up from 41, that's not a lot, this is really expensive to live in North Carolina, so even though that is a big jump up, it's still not a lot of money, and I believe if I looked at that yearly schedule, it's like $25 more per month per year of experience, right?

So it's like 200 experience, a year's worth of experience in North Carolina for teachers is worth about $250 a year, that's not much, especially when North Carolina teachers spend $1,600 I believe out of their own pockets every year for school supplies for their students.

So if a budget is a testimony of priorities, even still I would argue with younger teachers, it's still not much.

- But Adam, in the market of ideas and job choices, teachers are staying on the job into those veteran years, they can complain about the pay, but they don't quit.

- Unless they do, I mean we've heard situations from school districts around the state's borders where teachers are able to jump into Virginia, jump sometimes into South Carolina, and find higher pay there, so there is a real problem with keeping veteran teachers in some corners of the state, plus you also have the option to go to a private school if that pays more.

- I feel like we should mention the retirees, I hear from retired state employees, people, retired teachers and state employees in the retirement system, they would like to have a recurring COLA, they haven't been getting it in the years I've been carrying it, they are getting a 2.5% I believe one-time bonus, and depending on how things go with pensions, there might be recurring in the future, but not this time in the budget.

- And we don't know what the rank and file retirees are thinking, but we do know that the state treasurer, Brad Briner, put out the, hey, thank you General Assembly for doing something for the retirees.

- So the other thing that Briner mentioned was the state health plan, they got about 5% more money, it's up to about $4 billion in state funding for the state health plan, on the employee side, everyone saw their premiums go up last year, that's eating into these raises significantly already.

- State lawmakers are extending revenue sharing of sports betting tax revenue across UNC system campuses in this state budget deal, what the expansion does is we'll basically see NC State and UNC Chapel Hill receive about $3 million of support on a recurring basis, other campuses will receive between $1.4 and $1.8 million to support athletic department operations, this is a funding source that is permanent called recurring in state budgets, previously betting revenue had not been shared, Mike, with State and Carolina, and the critics of the small schools, like the HBCUs athletic departments, to them they say this money has been a lifeline the last two years, it's not just not to knock UNC and NC State sports budgets, not petty cash.

- Yeah, and the lifeline, I mean it's funny that when a source of new money is found, it becomes a lifeline because these schools need it.

And now NC State and UNC, they are certainly involved in, not involved in the betting, but connected to, right, so like these people are betting on UNC and NC State games, so it makes sense to me that they would have some version of it, but what I think of is they're getting this $3 million, and I think it is pretty targeted of what they're allowed to spend it on, so it's very specific, but UNC will be getting this money while increasing tuition costs for students, and so general students are not gonna get, this money is gonna make, I mean, tickets to these games are already very expensive, so that's what I think about it, the tuition's gonna keep going up, but also the thing that jumped out to me in the budget is the tax deductions for gambling losses.

So to go back to teachers very briefly, teachers can write off about $300 on non-reimbursable expenses that they have for their classrooms, and I bet that then with the amount of money, you're gonna be able to write off a lot more by losing gambling bets than teachers are for stocking their classrooms.

- I don't even know where to go with that, Adam, but the colleges are generating sports gaming revenue because we choose, nobody forces us to bet, it's very, very popular.

Fair game to spread this over in a measurable amount across UNC system campuses, sport ball?

- I think so, I mean, the argument would be that State and UNC have dramatically larger athletic operations, they've got the NIL structures in place, that'd be the argument against it, the argument for it would be, well, they are a state institution, why aren't they part of this?

- I remember the sports betting debate in the House and how, like, did it not pass by one vote or something and it took so long, and they were talking about the benefits to the HBCUs and the other schools, so that was a couple years now, so it just shows that you support something when it passes, and a few years later, things are gonna switch up a little bit, that's kind of how it works there.

- Mitch, when that camel's nose gets under the tent, it will be modified once we get used to the revenue stream and the act of sports betting, among other things.

- Sure, speaking of betting, we remember that from the state lottery, when that was passed, there wasn't supposed to be advertising that tried to get people to bet on the lottery.

Well, you see those ads all the time telling you how great it is that you're gonna add the lottery, my guess is, when this was initially passed and UNC and State were kept out of it, people said, all right, just sit back for a little while, once this gets going for a while, we'll bring you back in and that's what's happening now.

- Mitch, you get it, don't you, you really get it.

- On the broader point, we're seeing these state income tax cuts phased in, the legislators are going to be looking for more revenue, this is a source of revenue.

- And it's revenue generated from the activity of the sports departments, is that fair to say?

And then you can drive some of it back.

- Revenue generated from anyone that wants to gamble in the state, on anything.

- But you said there's some tax write-offs in there, too.

- For deductions, yeah.

- Losing gambling is deducted, okay.

- And honestly, for people, the horse is out of the cat, that's not an expression.

- The horse is out of the cat.

- The horse is out of the bag, so gambling is here, that's not going anywhere, so it's definitely here now.

But people are worried about some of the incentives, making it, the taxes going up for betting now and driving people to maybe illegal things, it's cheaper to do it the way you're not supposed to do it.

And say, hey, do you wanna go lose money and get tax write-offs on it?

That's just, I wanna encourage it, but again, that's out of the bag.

- And I've heard one interesting argument from someone who's right of center, who's followed taxes for many years, Paul Skip Stam, who says, look, this tax that they're putting on the gambling, that violates the state constitution's ban on having income taxes higher than 7%.

While they're calling this a different type of tax, he's saying it really is an income tax, you shouldn't be able to tax them more than 7%.

I wouldn't be surprised if some enterprising lawyer somewhere would take this all to court.

- The US Supreme Court ruled 6-3 Tuesday that political parties can now actively coordinate at a grander scale with congressional and presidential campaign operations.

The ruling removes limits on how much political parties, the Democrats, Republicans, can spend in open coordination with political campaigns.

The Trump administration just would not oppose the lawsuit.

They've asserted it was a free speech matter.

Opponents say this will further allow the big money to influence elections.

Bloomberg Law reports the Republican National Committee has over $256 million in its war chest.

Twice the Democratic Party's amounts.

That is now free to be spent in coordination with campaigns across America, but let's bring it back to that so-called one billion dollar Senate race.

- Yeah, I don't think it's gonna have a major impact in our Senate race because any money that people want to flow into the race between Roy Cooper and Michael Whatley, it's gonna happen.

We had been talking before about potentially this being the highest spending US Senate race ever, but that looks less and less likely as we get closer to November because Michael Whatley looks less and less like a viable candidate to beat Roy Cooper.

If he can get the margins within three or four points, then it probably will be a really hotly contested, high spending race, but if Roy Cooper continues to lead by five, six, seven, even double digit points in some of these polls, Republicans are gonna throw good money after bad and back Whatley, and it won't have that much impact.

But I think that the most interesting thing to me about that decision is basically the Supreme Court said, we got it wrong 25 years ago.

They overturned a precedent that came out from a 5-4 ruling in 2001 that blocked the parties and the candidates from coordinating, and this time around it was a 6-3 majority basically along the ideological line saying, look, parties, candidates, they work together anyway, why wouldn't they work together on these funding issues?

- Why wouldn't they work together, Dawn?

I mean, I remember the state has done things where you had these new forms of fundraising come out, and the political parties took a beating in importance and influence over, at least in the public sense.

- Yeah, I think campaign finance, there's always something at the federal and state level as far as what you can and can't do and the jockeying to whatever can benefit you the most, but I think Mitch's point on, does this make things better for the Senate race and more money, maybe not.

If it's, the way it's looking now, Whatley's been a candidate for about a year, just hasn't really gotten that name recognition yet, is there gonna be an influx of money to help him with that or no?

- Does this affect state legislative races?

You're the legal, you're my legal eagle watching all these court cases.

Does it affect anything with, can the party work better with the legislative, the Democrat and Republican side?

- I don't think this ruling has anything to do with legislative, this is the federal, this is the parties coordinating with congressional candidates.

One of the things that was noted in Justice Brett Kavanaugh's decision on this was that they looked at the states and said, most of the states don't have anything like this and we aren't having the problems that people say that you'll have in this.

I think the other thing to know is the Democratic Party is gonna look at this ruling and say, okay, well now we can have our party funded so they will do what Republicans have been doing.

It's not as if this is gonna be a lifelong Republican party advantage from this ruling.

What will happen is, they're smart people in charge of both of these parties.

They will figure out what the law allows them to do and will take full advantage of it.

- And this comes with advance, just J.D.

Vance was bringing this law, people around his orbit.

So, we're just gonna move on to November, just a slight shift in the rules and we'll expect the parties to just be closer coordinated with campaigns, which I would expect Democrats to support Democrats and Republicans.

- I think that's basically right.

Again, they're just gonna, this is now the rules and everyone will adjust.

- That's politics, Mike, that's the rules now.

What do you think?

- Well, I think the politics of it, to expand on what you said, it's not only that maybe it won't have an effect on this race, the vast amount of money that's already been spent haven't had an effect on it.

That $71 million that the outside group committed to spending that, obviously they haven't spent it all yet, but it hasn't helped it.

So, I think at the end of the day, it's gonna make it more messy, noisier, whatever, but there's still gonna be folks coming together, talking about ideas.

I mean, that amount of money that's already being spent hasn't changed the narrative about the issues that are most important to voters.

- Very quickly, we gotta go around the horn with this one.

House Republicans overrode four veto bills last week when two, I would say Democratic Party aligned legislators missed a floor session.

That's not exactly, one was an independent.

The two absences gave the GOP a 3/5 majority.

It then took advantage to override vetoes to enact anti-DEI legislation and to require law enforcement cooperation with ICE.

The one final vetoed bill out there, Dawn, would allow legal gun owners to carry concealed firearms without the permit.

A big deal for Second Amendment advocates.

They've pushed this.

Lawmakers have acted as if they're gonna drive this through.

It gets to this point, gets a veto.

No vote, they could've done it last week.

- It's not popular with enough Republicans.

It was popular last year, you know, when people had primaries coming up, but it's not as much.

There are two Republicans who are not running for re-election in the House that are opposed to it.

They said you should have some basic training to carry a concealed gun.

There are other Republicans that took a walk when it was in Rules Committee, and it just doesn't have the support.

- Adam.

- I have wondered if, the two Republicans that are not voting for this, I've wondered if they're kind of being the sin eaters for the party on this bill, and if there are a lot of other people running for re-election that don't like it too.

- Mike, 10 seconds.

- Yeah, the safety aspect of that permit is a big part of it.

I spoke to a lot of gun loving, always having strapped on, and they said we have to have it because of the training that goes on.

- The grassroots are not gonna be happy about this.

It looks like there is gonna be no vote.

- Yeah, no vote, and that's 'cause they don't have the votes.

If they had the votes, they would've passed it when they did the others.

- If they had the votes, would they still have voted on it, do you think, and passed it through?

- If they had the votes, they would've passed it, but they didn't have it because there were the two Republicans who had already voted no, and 10 Republicans, we didn't know where they were.

- All right, thank you so much, panel.

Busy week, hope you earned your overtime.

Thank you, folks.

Email me your thoughts and opinions at statelines@pbsnc.org.

We'll read the emails and share them.

I'm Kelly McCullen, thanks for watching.

See you next time.

(upbeat music) ♪ - Quality public television is made possible through the financial contributions of viewers like you, who invite you to join them in supporting PBS NC.