New state budget forecast has Stein raising concerns over NC's ability to pay for Helene recovery, public schools

The state's top budget writers believe tax cuts favored by Republican legislative leaders are setting North Carolina on a path toward lower state revenues within the next year or two, according to a new budget forecast released Friday.

The budget forecast was created by a team of economists, some of whom work for the GOP-dominated state legislature and others who work for the administration of Democratic Gov. Josh Stein.

Stein used the new budget document to call on the legislature to re-examine its priorities. Republican lawmakers have consistently cut the state’s income tax rate since winning control 15 years ago.

The rate dropped from 4.5% in 2024 to 4.25% in 2025. More rate cuts are scheduled if the state meets certain revenue thresholds.

"North Carolina 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 to make North Carolina safer and stronger," Stein wrote. "With a growing economy and population, it doesn’t have to be this way. I am committed to working with the legislature to develop solutions that allow us to continue to invest in our state’s future."

Shortly before Stein publicly announced the budget forecast Friday, North Carolina State University — the state’s biggest public university and a major employer — announced a hiring freeze for much of campus

The university blamed “financial challenges that the state government is dealing with,” as well as uncertainty caused by potential cuts by Republican President Donald Trump to the research grants that fund many positions on campus.

A spokeswoman for Senate Leader Phil Berger declined to comment on the N.C. State claim and dowplayed the broader budget forecast, pointing to the surplus it anticipates over the next few months.

"Today’s consensus forecast confirms that North Carolina’s economy continues to grow and that the General Assembly’s fiscal policies and tax cuts are a success," Berger spokeswoman Lauren Horsch said. "The anticipated surplus reflects that. Gov. Stein’s fearmongering is nothing more than an attempt to pull our state back to an era of reckless tax-and-spend policies."

The state’s forecast for the next few months looks good, Stein acknowledged Friday. The report says North Carolina will likely collect more than $500 million extra in taxes than originally anticipated for the current 2024-25 fiscal year, which ends on June 30.

But in the 2025-26 fiscal year, the report says, revenues will likely be stagnant despite the state’s growing population and economy. And by July 2026, when the 2026-27 fiscal year starts, it predicts that revenues will begin dropping.

The budget forecast predicts North Carolina will collect $34.7 billion in taxes this fiscal year, $34.8 billion in 2025-26, and $34.1 billion in 2026-27.

It places the blame for those dropping revenues on tax cuts — the main political priority of Republican state lawmakers ever since they flipped control of the legislature in 2011. Most recently, the legislature approved a plan to gradually drop income tax rates further, including a 0% corporate income tax rate by 2030. Democrats criticized the plan as unsustainable but lacked the votes to stop it from becoming law.

The report concludes that even if the economy continues booming, the state will start seeing less money coming in. That contradicts a key argument of GOP leaders, who have pointed to budget surpluses in recent years as proof that tax cuts have boosted the economy enough that government cuts haven’t been necessary for North Carolina to afford the lowered tax rate.

“Economic factors exerting upward pressure on the forecast are outweighed by downward pressure from reductions in the individual and corporate income tax rates, resulting in negligible growth in FY 2025-26 and a decline in FY 2026-27,” the budget forecast states.

They have dismissed such concerns, saying critics have been predicting financial doom throughout an extended period of growth. There have been recent disagreements between House and Senate Republicans over how quickly to cut taxes.

A shrinking government isn't a bad thing, in the eyes of many conservative politicians. But decisions over what to cut — if cuts are required — could be politically tricky, especially as public education already takes up about half of the roughly $30 billion state budget.

The state also spends billions each year on courts, prisons and other public safety requirements.