North Carolina budget gets tighter in latest economic forecast

As North Carolina legislative leaders begin to negotiate a spending plan for the next two years, they’ll have a little less money to work with than expected.

Economic forecasters who work in state government have revised their budget projections downward for the next two years.

Forecasters at the legislature and the Office of State Budget and Management come to what’s known as a consensus revenue forecast every year. Then they revise it after the April 15 tax deadline.

The forecasters tend to take a conservative approach, so revised budget projections often provide good news for the state in the form of more revenue coming in than initially anticipated.

But that wasn’t the case this year.

The budget forecast released in February projected the state would collect $544 million more in taxes than expected this fiscal year, but after tax season. Now they expect collections total to be about $364 million. The state’s budget is about $32.6 billion. Forecasters say business tax collections are down slightly because rising costs are cutting into taxable revenues.

The forecast for surplus tax collection in the 2025-26 fiscal year has also been revised downward slightly by $217.6 million or 0.6%. And the forecast for 2026-27 is down a bit more, by $222.4 million or 0.7%

The Office of State Budget and Management ascribed the revision in part to “a weakening outlook for wage and profit growth.”

“Recent business surveys show fewer businesses expect to raise workers’ wages, with many expressing renewed focus on cutting costs to support profitability amid higher prices for imports,” OSBM said in a statement.

Forecasters also predicted slower growth in sales taxes due to lagging wage growth, tariffs and heightened economic uncertainty.

Larger-than-expected tax collections in years past have helped North Carolina build a rainy-day fund — which in turn has helped the state quickly react to unexpected events such as Hurricane Helene, the September storm that caused about $60 billion in damage and left more than 100 North Carolinians dead.

Democratic Gov. Josh Stein seized the news of the budget revision to call on Republican state lawmakers to drop their plans for future tax cuts. His budget proposal called for freezing taxes at their current levels.

“This news comes in the midst of an uncertain economy and federal budget pressures that may put funding for critical resources including Medicaid and SNAP in jeopardy,” Stein said. “It also comes as we find ourselves on the hook for even more Hurricane Helene recovery expenses.”

“We need to balance our books, not bury our heads in the sand,” he concluded.

Demi Dowdy, a spokeswoman for Republican North Carolina House Speaker Destin Hall, provided WRAL News with a statement on Thursday.

“Joe Biden’s legacy of sky high inflation continues, but we’re confident President Trump’s policies will bring economic growth just as they did in his first term,” Dowdy wrote. “Meanwhile, the North Carolina House will continue to pursue fiscally conservative state budgets.”

Republican Senate leaders didn’t immediately respond to requests for comment.