Capital and Infrastructure

Introduction

The state government owns more than 132 million square feet of space across 11,700 buildings worth $40.9 billion. The state budget includes approximately $350 million per year to pay the principal and interest on money it borrowed to build and maintain these facilities.

The 2017 budget bill, passed over Gov. Roy Cooper’s veto, created the State Capital and Infrastructure Fund (SCIF), a pay-as-you-go fund that sets aside 4 percent of annual state tax revenue and one-fourth of any year-end unreserved cash balance for construction, repairs, and debt payments. As the state pays off existing debt, more money becomes available to build new facilities, maintain what already exists, and address other pressing liabilities such as benefit costs related to retired state employees.

The 2021 biennial budget, however, changed the General Fund statutory contribution to the SCIF from 4 percent of General Fund revenue to a set amount ranging from $1.4 billion in fiscal year 2021–22 to $1.1 billion in fiscal year 2025–26. The contribution will grow by 3.5 percent each year after fiscal year 2025–26.

Advocates of using the pay-as-you-go method of financing capital projects via SCIF point out that it saves taxpayers millions of dollars in avoided interest payments that would be owed if the capital projects were debt financed. Paying for capital projects in real time also frees up future budgets, which will be unburdened by debt payments.

Key Facts

• As of 2025, the state government has $40.9 billion in facilities, and in fiscal year 2024–25, it allocated $450 million for the renovation and repair of state-owned facilities. A general rule of thumb suggests setting aside 2.5 percent of a property’s value for maintenance and renovation, which would total $1.02 billion per year in North Carolina’s case.
• Principal and interest payments on state debt supported by the General Fund amounted to $466.1 million in the 2024–25 budget, down from roughly $650 million two years prior.
• Liberal leadership ballooned tax-supported General Fund state debt from $2.83 billion in 2001 to $6.49 billion in 2012, a whopping 129 percent increase. Conservative leadership elected in 2010 began to reverse that trend, dropping the debt to $2.48 billion by 2024, a decrease of 62 percent.
• The State of North Carolina continues to maintain its AAA credit rating from the three primary credit rating agencies. This is the highest possible rating, and currently, just 14 other states enjoy the same rating from all three agencies. This rating means that North Carolina — when it chooses to do so — can issue debt at the lowest possible interest rates, thereby saving taxpayer dollars.
• The recommended target for tax-supported debt service payments by state government is 4 percent of General Fund revenues. Thanks to prudent, conservative fiscal management over the past decade, the state is well below that target.

Recommendations

1. Continue to use the State Capital and Infrastructure Fund (SCIF) to pay for construction, repairs, and renovations of state property.

Paying for capital from current revenue ensures that construction, repairs, and renovation happen on schedule and provides more flexibility in the future instead of tying up hundreds of millions of dollars in debt payments.

2. Consolidate state-owned facilities.

Sell what is not needed, improve what is left, and consider ways to use space more effectively in prime locations for retail. This is especially crucial in the modern era that features more and more work
from home arrangements.

3. As debt is paid down, use more money for unfunded liabilities tied to retired state employees.

According to the State of North Carolina Annual Comprehensive Financial Report for the fiscal year ending June 30, 2024, the unfunded liability for the Teachers’ and State Employees’ Retirement pension system (TSERS) is $14.8 billion. The unfunded liability for retiree
health benefits, the largest portion of other post-employment benefits, is $34 billion. These figures represent the amount of benefits that have been promised to current and future state retirees over the next 30 years for which no funding has been set aside.