North Carolina Governor Stein Passes Stopgap Budget, Blocks School Choice Tax Credit

North Carolina Governor Signs Stopgap Budget Amid Legislative Deadlock

North Carolina Governor Josh Stein recently signed a stopgap spending measure, addressing immediate fiscal needs as lawmakers remain locked in a state budget impasse. However, he also vetoed a bill that would have allowed the state to participate in a new federal tax credit program aimed at expanding school-choice options. Stein criticized the legislation as rushed and insufficient, highlighting concerns over its impact on public education and state finances.

The governor announced his intention to sign the so-called "mini-budget" sent by the Republican-controlled General Assembly. This temporary measure is meant to keep state operations running until a full two-year budget can be finalized. However, Stein emphasized that this plan does not adequately address long-term financial challenges or provide necessary support for key state programs.

Stein pointed out that the current budget fails to deliver meaningful pay raises for state employees or fully cover rising Medicaid costs. Health and Human Services Secretary Dev Sangvai noted that the $600 million allocated annually for Medicaid falls short by hundreds of millions, potentially forcing cuts to optional services or provider rates.

"This Band-Aid budget fails to invest in our teachers and students, fails to keep families safe, fails to value hardworking state employees, and fails to fully fund health care," Stein stated in a press release. Despite these concerns, he said he was signing the bill to ensure basic government functions continue.

The new law includes provisions to address anticipated changes in K-12 school and community college enrollments, as well as experience-based pay raises for teachers. It also allocates $800 million for state construction projects and funds for employee retirement and health care. Additionally, it creates a new agency led by State Auditor Dave Boliek, tasked with recommending potential reductions in state offices and positions by year's end.

Some Republican lawmakers have suggested that Medicaid spending could be adjusted later in the fiscal year. However, Stein’s veto of the school-choice tax credit bill highlights broader disagreements over how to allocate resources and support public education.

The vetoed bill would have enabled North Carolina to join a federal tax credit program included in President Donald Trump’s recent tax and spending bill. The program, set to begin in 2027, offers a one-to-one credit of up to $1,700 for donations to certain scholarship-granting organizations. These groups distribute private-school scholarships to K-12 students.

While the federal law requires states to opt in, North Carolina Republicans had previously expanded state-funded scholarships and sought to be the first to participate in the program. Stein’s veto aligned with arguments from Democratic legislators who opposed the initiative, claiming it diverts federal funding away from public schools and benefits wealthier families who already afford private education.

“Congress and the Administration should strengthen our public schools, not hollow them out,” Stein wrote in his veto message. He argued that the program could benefit public school students if properly implemented, but he saw no need to adopt the bill immediately.

The vetoed legislation now returns to the General Assembly, where lawmakers may attempt to override the governor’s decision as early as August 26. Republicans currently hold a narrow majority, and last week they successfully overridden eight of Stein’s 14 previous vetoes with some Democratic support. Two House Democrats supported the tax credit bill.

Republican Senate leader Phil Berger criticized Stein’s veto, accusing him of overstepping his authority. He expressed confidence that the legislature would override the veto to allow North Carolina to participate in the school-choice initiative.

The debate reflects deep divisions over how to balance fiscal responsibility, education reform, and state autonomy in the face of evolving federal policies. As the legislative session continues, the outcome of the veto override will shape the state’s approach to both budgeting and educational policy in the coming years.