North Carolina lawmakers gave final approval Thursday to a more than $34 billion state budget that includes one of the most sweeping changes in the history of the state ferry system: requiring tolls on all routes beginning next year while providing millions in short-term funding to keep the system afloat.
It’s the first time since 2023 that the Republican-controlled House and Senate have been able to reach an agreement on a full state government spending plan and send it to the governor.
Each of the last two fiscal years, state government has been operating on spending dictated by the Fiscal Year 2023-24 budget, with a series of “mini-budgets” approved by lawmakers to address specific needs.
Among the provisions in the $34.37 billion budget is an order that the N.C. Ferry Division begin collecting tolls on every route in the system, ending free passage on routes including Hatteras-Ocracoke and Currituck-Knotts Island.
It marks a dramatic escalation in a long-running debate over how to fund North Carolina’s ferry system, and has drawn strong opposition in coastal communities where ferries are considered essential transportation links, not optional services.
That is especially true on the Outer Banks, where the Hatteras-Ocracoke route serves as Ocracoke Island’s primary connection to the northern Outer Banks, and the Currituck Sound route provides the only direct connection between Knotts Island and the rest of North Carolina.
Residents on Knotts Island rely heavily on the ferry for commuting, school transportation, medical appointments and emergency access.
Sen. Bobby Hanig, R-Currituck, emerged as one of the budget’s most vocal opponents because of the ferry toll provision.
Hanig had previously voiced his opposition when the tolling proposal first surfaced in the Senate last year.
In a text message to SamWalkerOBXNews.com after the final spending plan surfaced late Monday, Hanig said simply, “Here we go again.”
“I believe no North Carolina citizen should have to pay a toll to ride on a ferry. They are, by all accounts, a part of the North Carolina highway system,” Hanig told fellow senators during Wednesday’s debate.
“We’ve done an amazing job in lowering our tax rate. Now we’re proposing to tax the hardworking people of eastern North Carolina to go to work, go to school, go to doctor’s appointments,” he said. “I made a promise to my constituents a long time ago that I would not vote for a ferry tax, and I will not vote for a tax. So, for that reason, I have to be no on this budget.”
Hanig and Sen. Norman Sanderson, R-Pamlico, became the first Senate Republicans in over than a decade to vote against a state budget, breaking with GOP leadership over the issue.
Sen. Michael Lazzara, R-Onslow, defended the move, saying toll revenue is needed to address the Ferry Division’s long-term financial challenges.
“It requires the ferry division to develop a plan for long-term vessel replacement of the division’s aging fleet, and requires tolling, which will increase recurring revenues dedicated for that essential purpose,” Lazzara said.
The budget does not specify toll rates for the division’s seven vehicle routes and one passenger route, leaving that decision up to the Ferry Division and North Carolina Board of Transportation.
“A non-elected agency setting a tax rate, call it a fee, but it is a tax, should scare everyone in this room,” Hanig said.
It does, however, exempt school buses and allows coastal county residents to purchase commuter passes that would waive additional fees, reportedly at a cost of $150 per year.
Hanig and Sanderson argued lawmakers should wait for the results of a statewide audit of the Ferry Division before imposing new costs on daily riders.
That review will examine the system’s finances, maintenance practices, route structure, vessel replacement needs and possible revenue sources, with a report due Jan. 15.
House Bill 1094, which requires the audit and includes other transportation-related items, cleared the legislature on Thursday and is headed to Gov. Stein’s desk.
The budget also provides short-term relief for the Ferry Division, including about $15 million in non-recurring funding — $12 million for operations and fuel costs and $3 million for maintenance and capital needs.
Ferry Division Director Jed Dixon has warned lawmakers the system faces mounting pressure from rising fuel costs, aging vessels and increasing maintenance demands.
About 70% of the ferry fleet is more than 20 years old, and the division faces more than $92 million in additional operational, maintenance and capital needs, including upgrades at the Manns Harbor shipyard.
“We’re at the place where the fleet is aging faster than we can service it,” Dixon told lawmakers earlier this year.
Without additional recurring funding, Dixon warned the Ferry Division could eventually be forced to reduce service by as much as 43%.
The spending plan allocates approximately $101.1 million to ferry operations within the Highway Fund for fiscal year 2026-27, part of a total Highway Fund budget of about $3.38 billion.
It also includes $1.5 million for dredging the Currituck-Knotts Island ferry channel in Currituck Sound.
The budget also adds new oversight requirements for ferry capital spending, directing the Ferry Division to provide quarterly reports to lawmakers detailing how dry dock funding is being used, including which vessels are scheduled for maintenance, projected repair costs and actual expenditures.
Lawmakers also redirected $1.5 million previously set aside for traffic-stacking lanes and a concrete barrier at the South Dock ferry terminal on the Ocracoke side of Hatteras Inlet to instead rehabilitate the terminal’s ramp, citing safety and reliability concerns.
The spending plan allocates $1.5 million for dredging of the Currituck Sound ferry channel, and also $1.25 million for a second dredging project this decade in Shallowbag Bay.
The “Elizabeth II” is once again unable to navigate away from its dock at Roanoke Island Festival Park for necessary maintenance, or to make appearances elsewhere along the North Carolina coast, due to shoaling that has clogged the channel previously cleared five years ago.
And the Currituck County Sheriff’s Office and Nags Head Police Department were appropriated $400,000 each to purchase or upgrade vehicles or equipment.
The broader budget includes 3% raises for most state employees, average teacher raises of 8% with starting salaries increasing to $48,000 a year, raises ranging from 10.1% to 17.7% for prison and law enforcement workers, and a reduction of 755 state positions.
The House sought to make the raises retroactive to the previous fiscal year, but agreed with the Senate to start them on July 1 while giving many state workers and teachers one-time bonuses.
The budget also speeds up a planned cut in the state income tax rate from 3.99% to 3.49%.
About half of the Democrats in the House and Senate went along with the Republican colleagues to vote yes. The final votes on Thursday were 88-21 in the House and 35-10 in the Senate.
Sen. Hanig was absent from the session on Thursday, while Sen. Sanderson eventually relented and voted yes.
The budget now heads to Gov. Josh Stein (D), who has 10 days to sign it, veto it or allow it to become law without his signature.
At a bill signing ceremony Thursday afternoon, Stein was noncommittal on his decision.
“At this point, it’s premature, but in the coming days, I will surely do my homework,” he told eporters. “As I said, it’s a long bill, so we need to do the thorough read, and then we will let you know as soon as I know what I’m going to do.”
