Introduction
North Carolina has one of the strictest balanced-budget requirements in the country. State law holds the governor responsible for cutting expenditures to avoid a deficit. Since 2011, Republican leadership in the General Assembly has helped by keeping inflation-adjusted General Fund appropriations per person relatively in check. This spending restraint reversed more than three decades of fiscal irresponsibility, a period when increasing taxes to spend more was standard policy. Restrained spending has also made room to increase savings and cut taxes, leaving state finances better able to weather the next economic downturn.
Yet despite those gains, growth in the state budget has accelerated since the pandemic, increasing from $24.4 billion in fiscal year (FY) 2019–20 to a proposed $32.6 billion in FY 2025–26, an increase of approximately 34 percent (Note: no budget bill has been passed as of this writing).
A close look at recent numbers shows that education, Medicaid, and public safety received 87 percent of the $31.3 billion in FY 2024–25 General Fund appropriations. Taxes on personal income and sales provided 81 percent of the $34.6 billion in FY 2024–25 General Fund revenues.
More specifically, however, the majority of General Fund expenditures are dedicated to paying the salaries and benefits of employees and retirees. A 2022 analysis from the John Locke Foundation found that roughly 73 cents of every General Fund dollar spent goes toward employee salaries, employee health insurance benefits, pension contributions, and retiree health care benefits.
The state government collects revenue to pay for the goods and services it provides, and the state raises that revenue by imposing personal income, sales, and other forms of taxes on its residents. While the General Fund covers a large share of state spending and revenues, it does not account for everything. Transportation is supported primarily by the motor fuels tax and is funded separately through the Highway Fund and Highway Trust Fund, amounting to $3.2 billion and $2.4 billion in FY 2024–25, respectively. Federal funds add about $31 billion. Lottery sales, tuition payments, unemployment insurance, and other sources contribute another $5 billion, bringing total state spending to more than $70 billion.
Each source of funds has intended and unintended consequences. Income taxes — particularly taxes on business income — grow faster than the economy in good times and fall faster during recessions. Federal funds come with strings.
Spending and tax changes made today have long-term implications. Individual bills with fiscal implications receive five-year fiscal notes, but budget bills cover only the one or two years of the budget cycle. This lack of knowledge could make it more difficult to balance future budgets.
Key Facts
- Actual General Fund appropriations in FY 2024–25 totaled $31.3 billion. Actual revenue collected during the year was $34.6 billion, roughly $1.2 billion above projections.
- In FY 1989–90, when the John Locke Foundation was launched, General Fund appropriations per person, adjusted for inflation, were $1,890. After peaking in FY 2008–09 at an inflation-adjusted $2,590, appropriations in FY 2021–22 had dropped back to $2,079, before increasing to $2,186 in FY 2023–24.
- As of this report’s publication, the General Assembly had yet to ratify a 2025 biennial budget. Before 2016, when a budget was not in place by July 1, the General Assembly needed to pass continuing resolutions to maintain prior-year spending levels and prevent a government shutdown. That changed, however, with the adoption of the Budget Stability and Continuity provision in the 2016 budget adjustment. If no budget is enacted by July 1, state agencies are automatically authorized to continue operating at the previous year’s recurring spending levels; no continuing resolutions required. However, this stability has come at the cost of decreasing the incentive for policymakers to finish the budget on time.
- Government savings in the Rainy Day fund, also known as the Savings Reserve, climbed to $4.8 billion before Hurricane Helene in 2024. As of September 2025, it stood at $3.6 billion.
Recommendations
1. Amend the State Constitution to Limit Spending and Spending Growth.
A proper amendment would (1) allow tax hikes or higher spending growth only if approved by public referendum or a legislative supermajority, (2) deposit excess revenue in the Savings Reserve or refund taxpayers, (3) prevent ratchet effects from recessionary spending cuts, and (4) apply to General Fund and total spending. Commonly referred to as a Taxpayer Bill of Rights (TABOR), such restraints would cap annual spending growth to a formula tied to population plus inflation growth.
2. Save for Recession, Natural Disasters, and Variable Revenues.
State government should continue to leave money in an unreserved cash balance or in the Savings Reserve to mitigate the desire for tax increases when storms hit or revenues slow. When recession depletes reserves, the reserve fund should be built back up again once the economy recovers.
3. Implement the “Insko Rule.”
To increase transparency and accountability, every special spending provision asked for in the budget should be accompanied by the name or names of the legislators making the request. The public should know who is requesting that their tax dollars be spent on pork and earmark projects. The rule is named after Verla Insko, a longtime Orange County Democrat legislator who proposed such legislation in 2017.
4. Stop Creating New “Reserves” to Divert Money Off Budget.
Diverting money into various economic development and miscellaneous “reserves” harms transparency. Such spending should be itemized in the General Fund rather than sent into a reserve where the expenditures become nearly impossible to track. Also, the diversion of such funds masks the true amount of spending occurring.
