House committee substitute to the 1st edition replaces the prior edition in its entirety with the following. Makes conforming changes to the act's titles.

Part I.

Requires the Governor and the Office of State Budget and Management (OSBM) to eliminate vacant positions in State agencies (defined) to achieve a total reduction of not less than $19,742,243 in recurring funds, starting with the 2025-26 year, by October 1, 2025. Excludes the State Bureau of Investigation (SBI) and the State Highway Patrol (SHP) from required cuts. Instructs OSBM to prepare a report on its cuts to the specified NCGA division with the information described by no later than December 1, 2025.

Part II.

Requires the Department of Health and Human Services (DHHS) to eliminate vacant positions to achieve net General Fund savings in the amount of $32,613,493 in recurring funds, starting with the 2025-26 year.

Amends Section 2B.10 of SL 2025-89 (implementing various budgetary adjustments and making other changes in the budget operations of the state), as follows. Increases the recurring appropriation from the General Fund to DHHS’s Division of Health Benefits (DHB) to adjust Medicaid funding, from $600 million to $690 million, now beginning with the 2025-26 year (was, for each year of the 2025-27 biennium). Removes the authorization to use those funds for contracts needed to operate the State’s Medicaid managed care program. Instead, (1) appropriates $38,562,645 from the General Fund to DHB in recurring funds and associated receipts beginning with the 2025-26 year; (2) appropriates $45,437,355 to DHB in nonrecurring funds and associated receipts for 2025-26; and (3) appropriates $11,437,355 in nonrecurring funds for 2026-27 to be used for contracts needed to operate the State’s Medicaid managed care program.

Discontinues Medicaid coverage of obesity management medications that became effective August 1, 2024, effective October 1, 2025. Clarifies that this has no effect on the coverage of GLP-1 medications for beneficiaries managing diabetes.

Reduces funds appropriated pursuant to SL 2025-89 to DHB for Medicaid by $34 million in recurring funds and associated receipts beginning with 2025-26.

Instructs the local management entities/managed care organizations (LME/MCOs) to make intergovernmental transfers to DHB in an aggregate amount of $18,028,217 for both the 2025-26 and 2026-27 years. Specifies that the due date and frequency of the intergovernmental transfer required by the act will be determined by DHB. Specifies the amounts that each of the four individual LME/MCOs is required to make in each fiscal year. Specifies that in the event that a county disengages from an LME/MCO and realigns with another LME/MCO during the 2025-27 biennium, DHB has the authority to reallocate the amount of the intergovernmental transfer that each affected LME/MCO is required to make under the act, taking into consideration the change in catchment area and covered population, provided that the aggregate amount of the transfers received from all LME/MCOs in each year of the fiscal biennium is achieved.

Requires, in GS 108A-70.37 county departments of social services to comply with any deadline imposed by law governing the redetermination of a beneficiary's Medicaid eligibility.

Creates a metric, “percentage of redeterminations processed timely,” in GS 108A-70.40, which is the percentage of cases, out of the total number of cases in a given month for which a redetermination of Medicaid eligibility was required to be completed for a given month as required by federal or State law, regulation, or rule, that were completed by the required deadline. Narrows the focus of the metric pertaining to percentage processed timely so that it focuses on applications. Makes conforming changes. Authorizes DHSS to adopt rules establish a percentage standard for each county department of social services (county DSS) that will be the percentage of redeterminations processed timely for that county DSS. If no rule establishing a percentage standard is in effect, then the percentage of redeterminations processed timely standard 95%. Expands the grounds for a corrective action agreement to improve Medicaid application processing under GS 108A-70.41 to also include when a county DSS fails to meet the percentage of redeterminations processed timely standard during the specified time period (was, just averaging processing time or percentage processed timely standard, or both). Makes conforming and organizational changes. Makes clarifying change to GS 108A-70.42 (temporary assumption of Medicaid eligibility administration). Makes conforming change to the reporting requirements set forth in GS 108A-70.43 to account for new metrics. Effective January 1, 2027.

Requires DHHS to adopt temporary rules to implement the percentage standard provisions by January 1, 2027, or as soon as practicable, and shall concurrently begin adopting permanent rules to replace temporary rules. Specifies that the temporary and permanent rules are not subject to the financial limitations on rules in GS 150B-21.3(b1),(b2), and (b3) and GS 150B-19.4, as enacted by SL 2025-82.

Changes the names of the county DSS Medicaid eligibility determination audits that are the focus of GS 108A-70.46 to (i) Medicaid applicant eligibility audits (was, audits for initial Medicaid eligibility determination) and (ii) Medicaid beneficiary eligibility redeterminations (was, Medicaid reenrollment determinations). Makes conforming and technical changes to the reporting requirements on those audits under GS 108A-70.51, applicable to reporting for calendar years beginning with 2025.

Instructs the Office of the State Auditor (Auditor) to conduct performance audits of a sample of county DSS’s on the following matters:

• Administration of the federal Supplemental Nutrition Assistance Program (SNAP), also known statewide as the food and nutrition services (FNS) program, including accuracy in determining eligibility and benefit amounts for SNAP, as described.
• Administration of the North Carolina Medicaid program, including accuracy and timeliness in determining and redetermining eligibility for Medicaid.

Requires DHHS and county DSS’s to provide the Auditor with the described information that the Auditor deems necessary to conduct the audits within 30 days of the request. Requires a report to the specified NCGA committees and division by May 1, 2026. Appropriates $1.5 million from the General Fund to DHHS to be transferred to the Auditor for the SNAP/FNS audits. Appropriates $1.5 million from the General Fund to DHB to be transferred to the Auditor for the Medicaid audits. Both appropriations are retroactive to July 1, 2025.

Part III.

Reduces the funds appropriated beginning with the 2025-26 year to the Future Building Reserves by $42,206,909 in recurring funds.  Reduces the amount transferred from the General Fund to the State Capital and Infrastructure Fund by $34 million for the 2025-26 year. Specifies that the amount transferred from the General Fund to the State Capital and Infrastructure Fund for 2026-27 will be governed by GS 143C-4-3.4, as described.

Specifies that unexpended bond proceeds comprise the following five sources:

1. Any funds obtained from issuing General Obligation bonds authorized pursuant to SL 1998-132.
2. Any funds obtained from issuing indebtedness authorized pursuant to SL 2006-146, Section 19.13 of SL 2007-323, or Section 27.8 of SL 2008-107.
3. Any funds obtained from issuing General Obligation bonds authorized pursuant to SL 2014-100.
4. Any funds obtained from issuing General Obligation bonds authorized pursuant to SL 2015-280.
5. Interest earned on any indebtedness authorized by any of the above funds.

To the extent action can be taken without (1) resulting in adverse tax consequences to the State or (2) violating, where applicable, the categories of uses contained in the bond question approved, authorizes OSBM to use unexpended bond proceeds not reasonably anticipated to be needed for completion of the projects and purposes for which they were issued:

• Redeem or otherwise retire certain bonds, as described;
• Reimburse the State Capital and Infrastructure Fund (SCIF) for expenditures incurred for a State agency capital improvement project so long as the amount of unexpended bond proceeds used does not exceed expenditures incurred; or
• Pay expenditures authorized but not incurred for a State agency capital improvement project so long as the amount of unexpended bond proceeds used does not exceed the difference between the maximum amount authorized for the project minus the expenditures incurred. Clarifies that these are not an appropriation made by law under the State constitution.  

For the described proceeds of public improvement bonds and notes, including  premium thereon authorized in SL 2015-280 and allocated to the Department of Environmental Quality (DEQ) for the described grants or low-interest loans, authorizes DEQ to repurpose repaid loan funds as grants that are deemed to comply with SL 2015-250.

Part IV.

Specifies that if any of the act’s provisions are in conflict with GS 143C-5-4, the act’s provisions prevail. Instructs that the appropriations and the authorizations to allocate and spend funds which are set out in the act remain in effect until the Current Operations Appropriations Act for the applicable fiscal year becomes law, at which time that act will become effective and govern appropriations and expenditures. When the Current Operations Appropriations Act for that fiscal year becomes law, directs the Director of the Budget to adjust allotments to give effect to that act from July 1st of the fiscal year.

Contains a severability clause.

Part V.

Effective retroactive to July 1, 2025, unless otherwise specified.