NC revenue forecast shows an extra $1.4 billion as ‘slow-cession’ doesn’t materialize

When North Carolina state lawmakers return to Raleigh next week for the new legislative session, they arrive with more than a billion extra dollars to spend.

The state’s consensus revenue forecast is brighter than economists predicted a year ago, when a “slow-cession” was expected. That didn’t materialize.

Wages and salaries, retail sales and the number of people employed are all up compared to last year, and unemployment is down. However, inflation and interests rates are also up, the report shows.

The current state budget is about $30 billion a year. The new report shows an extra $1.4 billion in revenue for the state.

It summed it up this way:

“Strong labor market = higher wages = increased tax collections.”

Budget season priorities

Republicans, who hold a supermajority in the General Assembly and write the state budget, took credit for the surplus.

“Today’s revenue forecast is a sign that North Carolina is on the right track. Our conservative approach to responsible spending has been effective in strengthening our economy and attracting business to our state,” House Speaker Tim Moore said Thursday in a statement.

Moore told reporters recently that Republicans plan to give new raises to state employees and teachers in this year’s budget, but didn’t say how much.

Agencies have already started making their pitches to legislative leaders for this year’s budget. The 2023 budget was a two-year spending plan, so this year’s budget bill will make adjustments to already-planned spending.

Revenue risks

While the state economy’s outlook is sunny, the legislature’s Fiscal Research Division, which is nonpartisan, cautioned that a few factors could change things.

Revenue risks, they report, include inflation and supply: If inflation stays elevated, interest rates may stay higher for longer, and the Federal Reserve could rate rates.

Supply issues could result from the war in Gaza and a “wider regional war,” economists cautioned. The report also listed an “April surprise” as an unknown factor.

Tax Day was just a few days ago, so the revenue forecast could change once those collections come in. A new forecast will be issued in May.

In 2023, the Office of State Budget and Management, which puts out the consensus revenue forecast with the legislature’s Fiscal Research Division, predicted a “slow and mild” recession was coming.

The state had a surplus last year, too. Republican budget writers tend to put the extra money in reserves for capital improvements or a rainy day fund. While tax rebates have happened before, it is still to be determined if lawmakers will consider that this year.

Democratic Gov. Roy Cooper is expected to release his budget proposal before lawmakers start writing the budget this session.