Revenue Forecast Shows Growth, but Governor Warns of Budget Gaps

North Carolina’s nonpartisan consensus economic forecast, released on March 24, projected hundreds of millions of dollars in additional revenue for the state, but leaders remained sharply divided on its significance. Republican legislative leaders hailed the increase, while Democratic Gov. Josh Stein cautioned that long-term financial challenges persist.

The report, prepared jointly by the legislature’s Fiscal Research Division and the governor’s Office of State Budget and Management, projected a $370 million revenue increase for the current fiscal year, a 1% rise, and a $951 million boost, or 2.8%, for 2026-27, reflecting stronger-than-expected economic growth.

Despite the upward revisions, the forecast predicts a drop in revenue from $35.07 billion in 2025-26 to $34.72 billion in 2026-27. The report also highlighted risks that could reverse gains, including the potential economic impact of a U.S. war with Iran and the possibility of lower-than-expected income tax payments in April.

“It is time to fund Medicaid,” Stein said Thursday in Raleigh. “Because if [lawmakers] fail to do so, people are suffering. And it is unacceptable.” He urged the General Assembly to pause automatic personal income tax cuts previously scheduled under state law, warning that they would create a structural budget shortfall.

The forecast anticipates that North Carolina will reach two revenue triggers for income tax rate reductions this biennium, eventually lowering the rate to 2.99% by tax year 2028. Stein said these cuts would deepen an already looming deficit, projecting a $2.8 billion gap that could force reductions in public safety, education, and health care.

“North Carolina has found a recipe for success, but if we fail to act now, we're going to be several ingredients short,” Stein said in a statement. “As our population rapidly grows and the federal government becomes a less reliable partner, I urge this General Assembly to study these new realities, hit pause on outdated, irresponsible tax triggers, and invest in our most important resource: our people.”

Republican House Speaker Destin Hall of Caldwell County emphasized fiscal responsibility, citing the forecast as evidence of the state’s strong economic performance under pro-growth policies. “Today’s announcement of a surplus demonstrates the success of the fiscally responsible policies enacted by our Republican majority over the last fifteen years,” Hall said. He also highlighted concerns over Medicaid spending, which he said has absorbed much of the revenue increase, and called for gradual tax cuts while maintaining critical state services.

Senate President Pro Tem Phil Berger of Rockingham County, who conceded his primary to challenger Sam Page on Tuesday, framed the forecast as validation of Republican-led economic policies, emphasizing continued tax relief for residents. Berger did not echo concerns about potential budget shortfalls.

North Carolina has operated for more than two years without a full budget, largely due to disagreements between Senate and House Republicans over whether to pause the automatic tax cuts. Both Stein and House leaders agree that pausing the cuts is necessary, but the state Senate has resisted such measures.

Analysts note that while the short-term revenue bump provides a temporary cushion, the structural challenges of automatic tax reductions, population growth, and potential federal funding shortfalls underscore the need for careful budget planning.

The consensus forecast reflects the delicate balance facing North Carolina lawmakers: managing immediate fiscal gains while preparing for structural deficits in the years ahead. Stein and legislative leaders alike are urging caution and strategic planning to ensure the state can maintain essential services without creating future fiscal crises.