North Carolina’s budget basics
According to the National Association of State Budget Officers (NASBO), North Carolina’s total expenditures in fiscal year (FY) 2019 were $51.5 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2019 were $2.1 trillion, ranging from $4.5 billion in South Dakota to $311.3 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 $80.6 billion in FY 2017 (the most recent year census data were available), or $7,848 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 $9,446.
North Carolina’s largest spending areas per capita were public welfare ($1,473) and elementary and secondary education ($1,465). 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 $85.1 billion in FY 2017, or $8,283 per capita. National per capita general revenues were $9,592. North Carolina uses all major state and local taxes. After federal transfers, North Carolina’s largest sources of per capita revenue were charges ($1,817), such as state university tuition and highway tolls, and individual income taxes ($1,177).
North Carolina’s politics
Governor Roy Cooper, a Democrat, was elected in 2016 with 49 percent of the vote. The next gubernatorial election is in 2020.
North Carolina has a divided government. Republicans control both the House of Representatives (65 Republicans to 55 Democrats) and Senate (29 Republicans to 21 Democrats). The entire legislature is up for election in 2020 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 Roy Cooper released his FY 2020–21 budget in March 2019. The governor’s budget and state of the state address focused on his plan to expand Medicaid eligibility, allocate more funds for community college programs, and increase spending for K–12 education and teacher pay raises beyond what was enacted in the previous budget.
The Republican-controlled legislature passed its FY 2020 budget on June 27, 2019. The budget lowered business taxes and did not expand Medicaid. Governor Cooper vetoed the budget on June 28, saying the state should invest more in schools and limit tax cuts. Governor Cooper also continue to insist that the budget fund a Medicaid expansion, but Republican legislators remain just as opposed, warning that additional Medicaid spending could strain future budgets.
The governor also vetoed the legislature’s budget in 2018, but the legislature overrode that veto. However, Republicans lost their veto-proof majorities in the 2018 election.
As of January 2020, North Carolina had not enacted its FY 2020–21 budget.
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 $47,803 in 2019, ranking 41st among the states. It was below both the national average of $56,663 and the Southeast regional average of $49,145. The state’s median household income (five-year estimate) was $52,413 in 2018, ranking 40th among the states and below the national average of $60,293. North Carolina’s poverty rate was 15.4 percent in 2018 (five-year estimate), above the national rate of 14.1 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 $31,981, and its poverty rate was 29.4 percent; the city of Apex’s median household income was $105,404, and its poverty rate was 5.1 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.)
The major industries that contributed the most to North Carolina’s gross domestic product (GDP) in 2019 were finance, manufacturing, government, professional services, and social services (i.e. health and education). Manufacturing contributed more to North Carolina’s GDP than it did to the nation’s and region’s GDP, while professional services and social services were less important to North Carolina than they were to the nation and region in 2019.