NC has more than $4 billion in unspent revenue but no immediate plans to spend it

Thanks in part to the budget stalemate, state government now has more than $4 billion in unspent revenue, and the total is growing every month — even amid the pandemic’s economic slowdown.

For now, though, the legislature has no immediate plans to spend the funds on COVID-19 relief or other priorities, although some Democrats want to see it used for an economic recovery package.

The latest available snapshot of the state’s finances is in an Office of State Controller report, which reflects revenues and expenses as of Oct. 31.

The report shows an unprecedented amount of money in the “unreserved” category, which means it’s not allocated toward any budget items. It’s the result of two years in which the legislature and Gov. Roy Cooper could not agree on a formal budget bill, instead passing a series of “mini-budgets” to address the state’s most pressing needs.

But while much of the state’s spending has been frozen at a 2018 level, tax and other revenues have increased substantially.

According to the State Controller, the new fiscal year began July 1 with $1.47 billion in the bank. Between then and Oct. 31, the state has taken in an additional $2.91 billion that hasn’t been appropriated. That amount is in addition to the $1.1 billion in the state’s “rainy day” fund.

With Congress still unable to agree on a new coronavirus relief package, Sen. Wiley Nickel, D-Wake, said lawmakers should use some of the excess state revenue to address the effects of the pandemic.

“North Carolina has close to $4.5 billion dollars sitting on the table that could be used to provide immediate relief for businesses hardest hit by the COVID-19 pandemic as well as jobless workers who continue to struggle,” he said.

“Legislative Republicans have no plan to offer meaningful assistance to those who are suffering and continue to prioritize more tax cuts for corporations and the wealthy instead of throwing small businesses and jobless workers a lifeline,” he said. “We should return to Raleigh for a special COVID-19 session to address the immediate needs of our state.”

So far, legislative leaders have no plans for such action. Asked about the high revenue surplus, a spokesman for House Speaker Tim Moore indicated that the funding will be used as legislators develop a new two-year budget bill — a process that typically begins in the spring and ends in June.

“We are in a strong cash position despite the pandemic, which demonstrates the resilience of our economy after Republican reforms to our tax code, regulations and state budget,” Moore spokesman Joseph Kyzer said in an email. “These available funds will help drive more powerful investments in critical state services like school systems, public safety and infrastructure needs in the upcoming state budget process.”

Kyzer noted that other states may need to raise taxes, cut services or pay off debts as a result of the economic conditions next year, but that won’t be a consideration in North Carolina.

A spokesman for Senate leader Phil Berger also said no short-term budget actions are currently in the works, but the surplus will mean that lawmakers can avoid cuts to education that North Carolina saw during the last recession in 2009 and 2010.

Cooper, who has the power to call the COVID-19 special session that Nickel recommends, also hasn’t voiced any plans to do so. Asked if the governor plans to request that the surplus revenue be spent on COVID-19-related needs, spokesman Ford Porter said in an email that “we are hopeful that Congress will provide additional COVID relief funding in the coming weeks.

“In anticipation of this, (Office of State Budget and Management) has also asked state agencies to identify additional COVID-related needs as part of the long session budget development process,” Porter said.

Cooper typically releases his budget proposal in the spring.

Another factor driving the surplus is that North Carolina continues to see tax revenue higher than 2019. For example, the state got $1.14 billion in individual income tax revenues in October, up from $1.08 billion in October 2019, according to the State Controller’s report.

Sales tax revenues increased from $708 million in October 2019 to $760 million this October.

The report shows drops in revenue from 2019 in state treasurer financial investments and in court fees, the latter likely because many court proceedings have been canceled or delayed. Overall though, much uncertainty remains in the current fiscal year’s revenue picture.

In August, the Office of State Budget and Management and legislative economists announced that their usual consensus revenue forecast would need to be delayed until at least late September. That forecast continues to be on hold due to the economic uncertainty.

This story was originally published December 9, 2020 at 5:14 PM.