North Carolina Gov. Stein signs stopgap budget bill but vetoes tax credit helping school choice

RALEIGH, N.C. (AP) — North Carolina Gov. Josh Stein signed into law on Wednesday a stopgap spending measure while lawmakers remain in a state budget impasse. But he vetoed legislation that would direct state participation in a yet-implemented federal tax credit program to boost school-choice options, suggesting state Republicans acted hastily.

The Democratic governor signaled this week he would sign the “mini-budget” that the GOP-controlled General Assembly sent him last week. But he called it a poor substitution for a full two-year budget that House and Senate negotiators were unable to finalize before the new fiscal year began July 1.

Instead, Stein said, the spending plan fails to provide substantive pay raises or the full amount needed to cover increased Medicaid expenses. Health and Human Services Secretary Dev Sangvai said the additional $600 million provided annually for Medicaid is hundreds of millions short and unless addressed would require reducing optional services, provider rates or both.

“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 said in a news release. “Despite these serious reservations, I am signing this bill into law because it keeps the lights on.”

The new law does cover anticipated enrollment changes for K-12 schools and community colleges, as well as for experience-based pay raises already in state law for teachers. There is also $800 million for state construction projects and funds for state employee retirement and health care. It also creates a new agency for State Auditor Dave Boliek, who is tasked by year's end to recommend which state offices and positions should be eliminated.

Some Republican budget-writers have said that Medicaid spending could be adjusted later during the fiscal year.

Stein's veto seeks to block a decision by North Carolina legislative leaders to join the tax-credit program contained in President Donald Trump’s tax and spending bill that he signed into law last month.

The program provides starting in 2027 a one-to-one credit equal to up to $1,700 for those who donate to certain “scholarship granting organizations,” with those distributing K-12 private-school scholarships among them.

The federal law said each state must opt in to the program, and North Carolina Republicans who have already greatly expanded state-funded scholarships wanted North Carolina to be the first to do so.

Stein's veto message aligned with arguments by Democratic state legislators who voted against the state measure last week that the program shifts federal funding away from helping public schools and helps wealthy people who can already afford private school for their children.

“Congress and the Administration should strengthen our public schools, not hollow them out,” Stein wrote.

By opting in, North Carolina-based scholarship organizations would benefit while costing state government no revenues.

The tax credit program is also designed to benefit organizations that provide aid for services for students who attend public schools. Stein said he would opt in to the program for the state once the federal government issued sound written guidance on program rules because he sees opportunities to “benefit North Carolina’s public school kids.” So, he added, the bill on his desk is “unnecessary.”

The vetoed bill now returns to the General Assembly, where override votes could happen as early as Aug. 26. Republicans are but one House seat shy of a veto-proof majority, and last week lawmakers were able to gain the Democratic support needed to override eight of Stein's 14 earlier vetoes. Two House Democrats voted for the tax credit bill.

Republican Senate leader Phil Berger said Wednesday that with the veto Stein is "attempting to usurp the General Assembly’s authority to set tax policy” and anticipated a veto override "to ensure North Carolina can participate in President Trump’s signature school choice initiative.”