The decision follows months of opposition from conservative members of the state House, who balked at the idea of authorising four new casinos and regulating video gambling machines.
Medicaid expansion has been a top priority for Democratic Governor Roy Cooper.
The final budget will be released on Wednesday, with floor votes scheduled for Thursday and Friday.
The decision to abandon gambling expansion is a significant setback for supporters of increased gaming options in North Carolina. The state currently has three casinos operated by Indian nations, and the gambling proposal would have created "rural tourism districts" for additional venues and development.
Each location was required to generate at least 1,750 jobs and $500m in private investment.
Video gambling machines authorised in the proposal would have been licensed by the state's lottery commission.
Berger, a vocal supporter of rural casino districts, cited the success of a casino in nearby Danville, Virginia.
He expressed disappointment that an effort that could have created over 5,000 jobs and boosted local tax bases was derailed.
