The 2026 Short Session will feature budget battles, Medicaid compromises, and additional Helene relief, but whether lawmakers can agree on property tax reform, income tax cuts, or a final budget deal remains to be seen.
State lawmakers returned to Raleigh last week to kick off the 2026 Short Session, the final regular session in the 2025-26 biennium. On paper, the North Carolina House and Senate rosters remain unchanged from last year’s Long Session, but the results of the March primary elections will reshape dynamics in both chambers.
Primary Challengers Bring Significant Change to Both Chambers
As we discussed in our last article, the biggest election shockwave hit the Senate, where the chamber’s eighth-term leader lost his District 26 primary. Senator Phil Berger will continue to serve as the Senate’s President Pro Tempore through the remainder of the biennium, but his status as an outgoing legislator will certainly influence dynamics between the chambers and within his own caucus in the Short Session. Three of his colleagues, Senator Michael Lee, Senator Todd Johnson, and Senator Ralph Hise, have expressed an interest in filling his shoes in 2027. Caucus elections in December and January will determine who leads the Senate in the new biennium, and we expect the leadership contest to color each candidate’s priorities throughout the Short Session.
House members will also be grappling with their own primary fallout. Three moderate Democrats, Representatives Carla Cunningham, Shelly Willingham, and Nasif Majeed, lost their seats after Governor Josh Stein endorsed their primary challengers. These three lawmakers each had a track record of crossing the aisle to join Republicans on swing votes and veto overrides. With several bills still awaiting veto override votes from last session, all eyes will be on these three outgoing Democrats as they decide whether to stand with their Republican peers on the override votes or close ranks with their own party.
The veto override queue includes a suite of bills prohibiting DEI in educational institutions and local government settings, constitutional carry legislation for firearms, and a proposed law to require local law enforcement agencies to cooperate with Immigration and Customs Enforcement (ICE). House Speaker Destin Hall indicated this week that he is optimistic that lawmakers can execute those veto overrides this session.
State Budget Uncertainty
When asked about his goals for this year, Speaker Hall named the enactment of a state budget with robust pay raises for teachers and state employees as his top priority. Lawmakers from both chambers and both sides of the aisle share his goal, particularly since North Carolina has not enacted a comprehensive State budget since 2023. With November elections looming and state needs shifting considerably since then, lawmakers face mounting pressure to negotiate and enact a budget compromise before the current fiscal year ends on June 30th.
Tax Cuts Complicate Budget Politics
Unfortunately, the same key obstacles that impeded budget progress in 2024 and 2025 persist today. House and Senate leaders remain sharply divided over whether to pause income tax cuts that lawmakers pre-scheduled in statute years ago. Economists warn of a fast approaching “fiscal cliff” if the cuts are not paused, but Senate President Pro Tem Berger is adamant that they stay on track. Without agreement over revenue generation, it is difficult to proceed with revenue allocation, hence the prolonged impasse.
In an April 17th statement, Senator Berger struck a cautiously optimistic tone when he wrote that “circumstances do exist for us to reach an agreement on a comprehensive state budget.” Yet the same statement stressed the need for tax reduction and spending restraint, leaving little clarity on where compromise might land on the question of pausing future income tax cuts.
Debate Over Medicaid Reforms and Funding
In addition to working on a state budget, both parties have repeatedly flagged Medicaid reform and rebase funding as top priorities for the Short Session. We have already seen significant progress on this item in the first week, with lawmakers announcing and then releasing a package of Medicaid funding paired with program compromises in a conference report for House Bill 696. The conference report delivers the $319 million Medicaid rebase funding that Governor Stein and Democrats from both chambers requested, ensuring that the State meets its Medicaid funding obligations through June 30th.
The bill also includes a suite of Medicaid reforms targeting program sustainability, including: federally required work requirements; six-month eligibility redeterminations; stronger evidentiary requirements for establishing Medicaid eligibility; and citizenship checks at the point of eligibility. The legislation also directs the Department of Health and Human Services (DHHS) to devise a plan to achieve additional cost savings within the program, a topic that also came before the House Select Committee on Oversight and Reform last week. The House approved the bill by a margin of 112:1 on Wednesday, April 22nd, and the Senate will take its final vote on the measure this Tuesday. Meanwhile, the State Auditor is also currently conducting a waste and efficiency audit of the State’s Medicaid program.
Speaker Hall cautioned that the $319 million Medicaid rebase payment combined with the projected needs of the Medicaid program in FY 2026-27 could consume most – if not all – of the State’s surplus as we enter budget negotiations. If history is any indicator, surplus paucity tends to have a chilling effect on budget negotiations rather than accelerating them. We hope this year breaks that pattern.
Hurricane Helene Recovery Remains a Priority
We expect lawmakers to follow through on their 2025 pledge to enact one final round of Helene relief in the Short Session. Early projections pegged the package at $500-600 million in relief spending, but lawmakers told us last week that the total spend could land closer to $400 million. We expect this legislation to be a top priority of both chambers and both parties. Governor Stein submitted a $792 million Helene relief request in March and has publicly called additional Helene relief his number one goal for the year.
Competing Proposals on Property Tax Reform
Property tax reform is another topic that we expect will command significant attention at the Legislature in 2026. Speaker Hall appointed a House Select Committee on Property Tax Reform last year and the group held several lengthy meetings through the interim before unveiling four proposed bills in March. In April, the Committee scrapped its two hospital taxation proposals and chose to proceed only with a bill to call for a ballot referendum on a constitutional amendment to impose levy limits and a separate bill to close loopholes tied to low and moderate-income housing tax credits.
The Senate has not released its own draft legislation on the topic but convened a private working group to examine the issue. The working group later announced its plan to pursue a twelve-month moratorium on property tax revaluations. We expect legislation on this topic to be introduced soon and predict that it will be limited in application to the twelve counties scheduled for 2026 revaluations. Whether either chamber will embrace the other’s property tax reform proposal remains an open question, but the House Select Committee has already announced plans to continue working on the topic through the fall so this discussion appears far from over.
And Still More To Do
Other topics likely to appear this session include data center tax incentives, a review of the State’s county tier designation system, and renewed debate over funding for a children’s hospital in Apex. Lawmakers have also signaled interest in reforming the State’s involuntary commitment statutes and building upon the public safety reforms enacted last session through Iryna’s law. We also expect an omnibus elections bill to surface at some point this session. Speaker Hall’s widely celebrated House voting calendar targets an early July adjournment.
With influential lawmakers in both chambers now serving their final months in the Legislature, expect twists, turns, and surprises ahead.
