NC lawmakers just got a $2 billion bump as budget talks progress

North Carolina lawmakers should expect to have about $2.6 billion extra as they work to finalize a new state budget, according to a new state revenue forecast.

The $2.6 billion would be spread over both years of the biennial budget: The current 2025-26 fiscal year, and the 2026-27 fiscal year that begins in July. Only about half that extra money was expected, a new state budget document shows. Tax collections in April exceeded expectations and have also led state economists at the Office of State Budget and Management to revise next year’s predictions upward.

State Senate leader Phil Berger said the larger-than-expected revenues flowing into the state underscore the ability of the GOP-controlled legislature to fund state government even as they've pushed for year after year of tax cuts.

“North Carolina’s economy is strong, and we continue to bring in substantial revenue surpluses thanks to Republican-led tax and budget policies,” Berger wrote. “Our formula of low taxes, responsible spending, and reasonable regulations has led to one of the most prosperous decades in our state’s history.” 

Berger is also pushing a new constitutional amendment to prohibit future state legislators from raising the state’s income tax rate above 3.5%, an idea Democratic Gov. Josh Stein and others oppose. The current tax rate is 3.99% and is planned to drop to 3.49% in 2027. If the amendment passes the legislature, it would be put on the November ballot for voters to approve or deny.

Senate Republicans floated a similar tax-cap amendment in 2024 but their fellow Republicans in the House of Representatives shot it down. However, House Speaker Destin Hall has agreed to support it this year in exchange for other concessions he wanted in the new budget deal.

Stein previously said capping the income tax rate could force large cuts to state government in the future, and on Friday he said that while the news of the higher tax revenues is promising, it shouldn’t dictate big future decisions.

“With the strong stock market, revenues have exceeded our forecast,” Stein wrote. “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.” 

It’s unclear how much the revision might change in the budget negotiations. A Berger spokeswoman said the initial framework of the budget deal announced earlier this week, concerning state employee raises and income tax cuts, will remain unchanged.

The new forecast anticipates overcollections of $979 million in taxes for the current fiscal year — about $609 million more than previously projected. Meanwhile, expected general fund revenues for the 2026-27 fiscal year were also revised upward by $713 million, or 2.5%, from a March forecast, which is $1.66 billion, or 4.9%, higher than certified revenues.

The $2.6 billion would be spread over both years of the biennial budget: The current 2025-26 fiscal year, and the 2026-27 fiscal year that begins in July. Only about half that extra money was expected, state budget documents show. Tax collections in April exceeded expectations and have also led state economists to revise next year’s predictions upward.

It comes as Republican lawmakers are hashing out the finer points of a new state budget — after announcing earlier this week that they had agreed to a deal including raises for state employees, reduced income tax rates and more funding for a planned children’s hospital. 

Lawmakers had been expecting good news from the revenue report when they announced the deal earlier this week.

Berger alluded to it Wednesday, telling reporters that “we are expecting to get some good news from a revision to the forecast revenues.”

Friday’s announcement made it official. State lawmakers had previously been planning on spending roughly $68.5 billion, combined, in the two years of the budget, so an extra $2.6 billion gives them more flexibility to fund more programs, cut more taxes or put more money into the state’s rainy day fund.