RALEIGH (March 26, 2026) – Stronger-than-expected growth means North Carolina will end 2025-26 with a $370 million (1.1%) surplus, according to a consensus forecast released this week by the governor’s budget office and the legislature’s Fiscal Research Division.
But the state could still face a $360 million (1%) decrease in revenue in 2026-27 due to planned tax cuts, the report says. At the same time, it faces uncertainties stemming from a rapidly growing population, inflation, the war with Iran and a stock market at historically high values.
The report says the state can expect $35.1 billion in general fund revenues in 2025-26, a 1.5% increase, but $34.7 billion in 2026-27, a 1% decrease. Will that serve a growing North Carolina population?
SCHEDULED CUTS will reduce the state’s personal income-tax rate from 4.25% in 2025 to 2.99% in 2028.
The economists who put the forecast together noted more than one assumption, though, about the risks for both North Carolina’s and the nation’s economy:
•“The forecast assumes the ongoing conflict in the Middle East will stabilize and move toward resolution by mid-April. A prolonged Iran conflict could lead to persistently high prices and potential shortages of energy commodities. This would raise prices for businesses and consumers across the globe, reducing business investment and consumer spending on other goods and services and raising the risk of global recession.
•“By many measures, stock prices for major U.S. corporations are historically high relative to corporate earnings. A sustained correction in equity values would lower taxable income from capital gains, slow business investment, and reduce spending by high-income consumers.”1
MEANWHILE, North Carolina’s General Assembly still hasn’t adopted a budget for the fiscal year that began nine months ago on July 1, 2025.
North Carolina remains the only state in the nation that hasn’t adopted a budget for 2025-26. (It’s relatively easy to generate a surplus when you receive 2026 revenues but continue to operate on a budget adopted in 2023.)
While the state Senate wants to maintain the scheduled tax reductions, the storm clouds gathering for the next fiscal year (2026-27) lend weight to the positions of the state House and Gov. Josh Stein to pause the scheduled tax cuts.
Taking inflation and population growth into account, Stein said, “Today’s forecast means that we will soon fall into a budget gap of at least $2.8 billion, causing the state to have to make painful cuts to critical services like public safety, education, and health care.
“There is still time to act to keep up North Carolina’s positive momentum. 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.”2
House Speaker Destin Hall’s office said the numbers in the forecast are “increasing the chances of a significant recurring deficit and underscoring the need for a responsible budget. House Republicans support continuing North Carolina’s successful tax reform model of gradual, thoughtful tax cuts.”3
SO WHAT is wrong with our state Senate? Senate “leaders” tend to ignore revenue forecasts from the people they hire to provide them.
But with all the uncertainties swirling around us these days, the Senate needs to face economic realities and the risks we face rather than blindly push for further cuts to the dollars needed to support North Carolina’s people.
1 https://www.osbm.nc.gov/facts-figures/economy/revenue-forecasting/consensus-revenue-forecast.
2 https://governor.nc.gov/news/press-releases/2026/03/24/governor-stein-reacts-nonpartisan-consensus-revenue-forecast-projections-360-million-less-revenue.
3 https://www.wunc.org/politics/2026-03-24/nc-revenue-surplus-tax-cuts-decrease-state-funding.
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