North Carolina’s latest revenue forecast shows stronger-than-expected economic growth and tax collections, with projected General Fund revenue revised $2.6 billion above the certified budget.
The revision comes less than a week after Republican legislative leaders announced a budget framework agreement.
The revenue forecast now estimates $71.1 billion in General Fund revenue over the biennium, up from $68.5 billion, with $35.7 billion expected in fiscal year 2025-26 and $35.4 billion in 2026-27.
The revised numbers are expected to shape negotiations at the General Assembly as lawmakers work through competing priorities, including state employee raises, teacher pay, infrastructure needs, and the future of North Carolina’s scheduled income tax reductions.
Senate Leader Phil Berger, R-Rockingham, said the forecast validates the Republican-led fiscal policies enacted over the past decade.
“For years, we’ve seen these revenue forecasts significantly underestimate our state’s economic outlook,” Berger said. “North Carolina’s economy is strong, and we continue to bring in substantial revenue surpluses thanks to Republican-led tax and budget policies. Our formula of low taxes, responsible spending, and reasonable regulations has led to one of the most prosperous decades in our state’s history.”
State budget officials said the upward revision was driven by several factors, including stronger individual income tax collections, corporate profits, sales tax collections, and insurance premium taxes.
Income growth from capital gains and bonuses, along with higher corporate income and franchise tax receipts, also contributed significantly to the higher collections.
Gov. Josh Stein struck a more cautious tone, saying the stronger revenue picture is good news but should not lead lawmakers to make long-term decisions based on volatile market activity.
“With the strong stock market, revenues have exceeded our forecast,” Stein said. “That is good news, but we can’t stake our future on stock market volatility. We need to make fiscally responsible decisions and continue to invest in what makes our state so strong: our people.”
The disagreement previews a familiar budget debate in Raleigh. Republican legislative leaders have argued that repeated revenue overcollections show North Carolina can continue reducing taxes while maintaining core government services. Stein and other Democrats have urged caution, arguing the state should preserve revenue for education, health care, public safety, and other long-term obligations.
Brian Balfour, senior vice president of research at the John Locke Foundation, said the latest revision continues a long-running pattern of forecasters underestimating state revenue and overestimating the effect of tax cuts.
“This latest revision continues a long-term trend of state revenue forecasters significantly underestimating revenues,” Balfour said. “This can largely be attributed to the forecasters overestimating a negative impact on revenue due to tax cuts. Lower tax rates stimulate greater activity and can often result in more tax revenue, not less. This also underscores why budget writers should take revenue projections predicting a ‘fiscal cliff’ years into the future with a grain of salt.”
The forecast gives lawmakers more flexibility as they consider spending and tax changes in the short session. It also strengthens the hand of Republican budget writers who have pushed to continue lowering the personal income tax rate.
A first draft of the state budget is expected to be completed in June.