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North Carolina’s budget basics
According to the National Association of State Budget Officers (NASBO), North Carolina’s total expenditures in fiscal year (FY) 2020 were $60.2 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.
Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.
Per the US Census Bureau, North Carolina’s combined state and local direct general expenditures were $84.6 billion in FY 2018 (the most recent year census data were available), or $8,149 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,801.
North Carolina’s largest spending areas per capita were elementary and secondary education ($1,495) and public welfare ($1,484). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.
North Carolina’s combined state and local general revenues were $88.0 billion in FY 2018, or $8,474 per capita. National per capita general revenues were $10,071. North Carolina uses all major state and local taxes. After federal transfers, North Carolina’s largest sources of per capita revenue were charges ($1,930), such as state university tuition and highway tolls, and individual income taxes ($1,215).
North Carolina’s politics
Governor Roy Cooper, a Democrat, was elected in 2020 with 52 percent of the vote. The next gubernatorial election is in 2024.
North Carolina has a divided government. Republicans control both the House of Representatives (69 Republicans to 51 Democrats) and Senate (28 Republicans to 22 Democrats). The entire legislature is up for election in 2022 because both representatives and senators serve two-year terms.
North Carolina’s budget institutions, rules, and constraints
North Carolina uses a biennial budget. The legislature must pass a balanced budget and is prohibited from carrying a deficit over into the following year. State spending growth is limited by a budget rule based on personal income growth, but the legislature can override the rule with a simple majority vote. North Carolina limits authorized debt incurred by the state, but not debt service.
(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)
North Carolina’s recent fiscal debates
- North Carolina passed major tax reform in 2013 and additional tax changes in subsequent years. The largest tax changes over the period included reducing individual income tax rates and eventually creating one flat 5.25 percent rate, increasing the state’s standard deduction, reducing the corporate income tax rate to 2.5 percent (the lowest rate in the nation), making more goods and services eligible for the state’s general sales tax, and repealing the state’s estate tax.
- Teachers in North Carolina protested in the summer of 2018 over the state’s education spending. The state’s per capita and per pupil elementary and secondary education spending are among the lowest in the nation, but the link between K–12 spending and education outcomes is highly unclear. The governor and legislature disagreed over how to change education spending in 2018, but the enacted budget included K–12 education spending increases.
- North Carolina is one of 14 states that have not expanded Medicaid as part of the Affordable Care Act. The Urban Institute estimates that if North Carolina accepted Medicaid expansion, it would receive 27 percent more federal Medicaid funds ($4 billion) and increase its state spending on Medicaid 2 percent ($100 million). As with other states, Urban estimates North Carolina’s savings from expanding Medicaid (e.g., lower spending on uncompensated care) would fully or largely offset the additional increase in direct state spending.
North Carolina’s current budget
Governor Cooper released his FY 2020-2021 biennial budget proposal in March 2019. Over the two-year period, the governor’s proposal called for $51.2 billion in general fund spending. However, Cooper and North Carolina’s Republican-controlled legislature never agreed on a budget. The legislature refused to approve the governor’s major budget priorities, specifically Medicaid expansion, and the governor vetoed the legislature’s enacted budget. In fact, during the current biennial budget period (FY 2020 and FY 2021), the state government was funded by a series of “mini” budgets. However, in September 2020, the governor and legislature agreed on a $1.1 billion pandemic relief package that included a $50 boost to state unemployment insurance benefits and a $335 check to any individual or married couple with children. The relief package was funded mostly using federal aid from the CARES Act.
Governor Cooper released his FY 2022-2023 biennial budget proposal in March 2021. The governor’s proposal, which includes the federal funds North Carolina will receive from the American Rescue Plan, calls for $56.0 billion in general fund spending over the two-year period. The plan includes significant pay increases for teachers and other education employees (both K-12 and higher education), reinstatement of the state’s earned income tax credit (which was repealed in 2014), and Medicaid expansion. The governor has not yet given his State of the State address.
For more on North Carolina’s budget, see
North Carolina’s economic trends
North Carolina’s per capita income (per the Bureau of Economic Analysis) was $50,086 in 2020, ranking 39th among the states. It was below both the national average of $59,729 and the Southeast regional average of $51,796. The state’s median household income (five-year estimate) was $54,602 in 2019, ranking 40th among the states and below the national average of $62,843. North Carolina’s poverty rate was 14.7 percent in 2019 (five-year estimate), above the national rate of 13.4 percent.
Although North Carolina’s averages tell a story about the entire state, North Carolina is composed of diverse localities. For example, the city of Kinston’s median household income was $33,066, and its poverty rate was 27.8 percent; the city of Holly Springs’s median household income was $112,029, and its poverty rate was 3.4 percent.
North Carolina’s unemployment rate historically tracks the national rate. The state’s rate was slightly above the national average following the Great Recession, but it has again paralleled the US rate for the past few years. (See how COVID-19 is affecting state employment and earnings data.)
Unemployment rates (like other economic indicators) often vary significantly by race and ethnicity. In North Carolina, the average unemployment rate in 2020 was 6.4 percent for white residents, 9.6 percent for Black residents, and 8.6 percent for Latino residents.