State revenues continued to outperform last year’s collections in January while appropriations fell, adding over $1 billion to the unreserved fund balance, according to the latest monthly report from the Office of the State Controller. Despite the good news, it is not clear why appropriations fell or what any of this actually indicates for the next two years.

Total tax revenue for since last April is 3.2% higher than the prior year period, $680 million. Personal income tax is up 2%, sales tax 2.6%, and corporate income tax 14.4%. Looking at FY2020-21, which started July 1 and is forecast to have revenue of $27.6 billion, total revenue is $16.1 billion through January. The consensus forecast for FY2021-22 and FY2022-23 are back on pace with pre-Covid trends.

The bigger surprise is that General Fund appropriation expenditures for January were $457 million less than January 2020. Since July, appropriation expenditures are $952 million less than FY2019-20.  State spending on Medicaid is down $541 million (23%), Department of Public Safety down $468 million (38%), and Commerce Department Economic Development down $77 million (57%).

Medicaid is clearly using Covid relief money to reduce state spending because 300,000 more people are enrolled this month compared to February 2020, a 14% increase. Unfortunately, Medicaid’s expenditure dashboard has not been updated since July 2019. OSBM’s OpenBudget tool does not provide a way to compare year-to-date receipts, appropriations, and expenditures. And the North Carolina Pandemic Recovery Office (NCPRO) has not provided much detail of how the Coronavirus Relief Fund has been used by agencies. Its most recent report was December 22.

Before debating the budget for the next biennium, there needs to be a better accounting of how money is being spent this year.