The Fiscal Crisis Ahead

April 8, 2024


  • Fiscal irresponsibility is leading North Carolina into a budget hole
  • Lawmakers have cut taxes, but not commensurately cut spending
  • Budget cuts will eliminate already starved public services


In the 13 years since Republicans took over control of the North Carolina General Assembly in 2011, they have held supermajority control for nine of them. After rigging North Carolina’s election maps to make themselves largely immune to the voters’ whims, Republican leaders set about on an ideological quest to transform the state. A large part of that project has been fiscal change.

In the last 13 years, Republican leadership has overhauled income taxes, dramatically reducing them for North Carolina’s wealthiest earners and shifting more burden to lower-income earners through sales taxes. They have also set the state on course to abolish corporate income taxes entirely. All told, the planned tax cuts will reduce the NC general fund by 11% over the next 4 years. Altogether, just the most recent tax cuts will eliminate roughly 13.7 billion of state revenue.

The problem? Those same lawmakers have not been so eager to actually cut spending.

The result is a brewing fiscal nightmare. Recently, the General Assembly’s own nonpartisan staff in the Fiscal Research Division (FRD) projected large structural budget shortfalls of over 2.5 billion dollars by 2030.

By law, the North Carolina state legislature is required to pass a balanced budget. They have two options to fill the structural shortfalls: raising taxes, or making budget cuts massive enough to fill the deficit in the General Fund. Every year the legislature fails to do these things, the remedial measures grow in magnitude (and pain).

Many essential state services are already critically underfunded. The state Department of Health and Human Services already faces a 6-8 month backlog in autopsies due to a lack of resources, which hamstrings not only law enforcement, but hurts grieving families. North Carolina’s recent legacy of (in)famously underfunding its public schools is extremely well-documented; both subject matter experts as well as North Carolina’s own judges have found that the state must raise education funding by 5 billion dollars just to fix remedial issues. Legislative leaders have not only failed to do so, but last year, defunded North Carolina’s public schools by additional $200 million in the form of a private school voucher scheme.

This strategy has been tried before – with disastrous results.

The Kansas Example

In 2012, Republican Governor Sam Brownback of Kansas proposed a “live experiment” with trickle-down economics, and dramatically cut the personal and corporate income tax rates in the state. The idea was to be a “shot of adrenaline into the heart of the Kansas economy, stimulating strong growth in economic output, job creation, and new business formation.”

Even on its own terms, the Kansas experiment plainly failed – and the results were disastrous. The state’s job growth and business formation lagged both the national and regional average. The tax slashing scheme created giant budget shortfalls, and the promised new revenue never materialized, forcing massive cuts to essential services. Kansas’ credit rating was downgraded. It took 5 years, but the Republican legislature was eventually forced to reverse course and raise taxes again, even overriding Gov. Brownback’s own veto to do so.

Times change, but economic reality does not. Politicians cut taxes promising more economic growth; that growth doesn’t materialize, but budget shortfalls do, and essential services and critical infrastructure begin to fail because of underfunding. The same thing has been playing out federally since the Reagan administration. 

North Carolina’s economy is growing, though it has mainly tracked the national average for the last decade (and underperformed our neighbors on some metrics). There is a clear opportunity to harness that economic growth and put it to good use: building out transit systems, raising teacher pay, and resourcing a world-class K-12, community college and UNC system, adding to climate resilience in the coastal plain and bringing broadband internet west of Asheville. Moving to energy independence would be a generational gift to future North Carolinians. There are hundreds of long-term investments that would strengthen the state for the long term ahead.

Instead, the legislature squanders those opportunities in the blind pursuit of an ideological zeal that just happens to enrich its campaign donors.

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