Analysts from the Office of State Budget and Management and the General Assembly’s Fiscal Research Division agree that North Carolina is likely to generate almost $69 billion in general-fund revenue over the coming two fiscal years.
The forecast projects general fund revenue will increase 0.5% in fiscal 2026 and decline slightly in 2027, citing a “gradual slowing starting in late 2025.”
Separately, $11.7 billion is expected to flow into the N.C. Department of Transportation’s accounts to pay for roadwork and other projects, mostly from fuel taxes. And the N.C. Education Lottery is expected to post revenue of about $2.3 billion, fueled by gaming fans.
Both general fund revenues (principally income tax receipts) and lottery gaming are exceeding expectations in the current fiscal year ending June 30. The biennial budget legislators passed in the fall of 2023 presumed the state would receive about $67.7 billion in general fund revenue.
Now, revenue in the general fund is about $544 million ahead of previous projections. That’s largely because of “continued growth in wages, profits, and consumer spending and persistently higher short-term interest rates,” the analysts say.
Also, popularity of digital instant games has the lottery running about $168 million ahead of expectations.
But N.C. DOT’s funds are running about $33 million short of their fiscal 2024-25 expectations, thanks to “softer-than-expected collections on highway use tax revenues,” according to the report.
The joint OSBM/Fiscal Research projection provides baseline revenue figures, which informs how much state lawmakers will spend over the next two years. The General Assembly is holding its traditional “long session” this spring, largely to determine spending priorities.
The liberal-leaning N.C. Budget and Tax Center contends that flat general fund revenue stems from previous cuts in tax rates approved by the GOP-led legislature, rather than a weak economy. The center wants lawmakers to suspend further rate cuts and invest more money in public schools, childcare and disaster relief.
“Pausing further tax cuts for corporations and the super-rich is essential to ensuring that North Carolina can fund opportunity for a strong future and well-being that North Carolinians deserve,” Alexandra Sirota, the budget center’s executive director, said in a release.
Senate leader Phil Berger told reporters last week that state government was “pretty much on target as far as what our budget calls for” through the end of December.
The forecasts are subject to revision pending new information.
The initial forecast in the 2023-25 biennium, issued in February 2023, estimated that the state would collect $67.4 million in general fund revenue over the two years. The budget passed several months later was about $300 million larger, reflecting increased revenue as the N.C. economy expanded.
The analysts presume tariffs are going to rise and warn of “substantial uncertainty” about inflation. They expect revenue growth to trigger further cuts to income tax rates in 2027 and 2028, as previously approved by lawmakers.
Republicans in the General Assembly argue that the growing state economy continues to offset any losses in revenue that result from tax cuts.
Gov. Josh Stein, like former Gov. Roy Cooper before him, warns that the state “is approaching a fiscal cliff that threatens our ability to invest in rebuilding western North Carolina, strong public schools, people’s health, infrastructure and other services we need.”
