Widespread financial unpredictability is complicating budget negotiations at the North Carolina General Assembly, as lawmakers are becoming increasingly uncertain about what they might need to pay for in the near future — and how the state will afford those payments.
Much of the uncertainty is driven by Republican President Donald Trump’s attempts to slash federal spending, since federal funds pay for many jobs and services at the state and local levels. North Carolina could see several billion dollars dry up if Trump is successful in his efforts.
If that happens North Carolina lawmakers will find themselves under pressure to replace at least some of the funding for the various programs and jobs that might otherwise be eliminated.
The quandary comes as Republican lawmakers, who control the state budget process, implement corporate and individual tax cuts at the state level — a long-running GOP priority, but one that the legislature’s own economists now say is putting the state on a path toward budget deficits.
The state has a roughly $30 billion budget, and proposed federal cuts could total several billion dollars. The state almost certainly wouldn’t be able to cover all the potential federal losses, never mind the coming loss of state tax revenue, without either raising taxes, finding new sources of revenue or cutting existing expenditures.
Lawmakers had planned for the tax cuts, but not the loss of federal funding.
“That is the elephant in the room,” said Sen. Natalie Murdock, D-Durham. “The uncertainty in federal dollars impacts every single department we have.”
Democrats such as Murdock have little power in North Carolina politics. Republicans hold strong majorities in the state legislature. Murdock said state GOP leaders need to be pressing their colleagues in Congress — where Republicans also control decisions over spending — to recognize what federal cuts will do at the state and local level.
“Their districts, their rural constituents, will suffer more than anyone as a result of these cuts,” Murdock said. “So I want them to collectively use their political power to stop the madness.”
Some Republicans are also worried — especially since if state lawmakers do take over responsibility for some of the programs or jobs that Trump wants to cuts, it might threaten state-level tax cuts that are set to phase in over the next few years. It might also force them to support revenue-generating proposals that have failed to gain enough support from GOP lawmakers, such as allowing more casinos or legalizing marijuana.
Democratic Gov. Josh Stein’s budget proposal, released this month, calls on Republican lawmakers to freeze state tax rates at their current level. State Senate leader Phil Berger, R-Rockingham, has said he’s not interested in that conversation, but Republican state House Speaker Destin Hall has said it’s something his caucus might consider.
One potential political consideration is that if Republicans freeze tax rates now, that might prevent them from having to break campaign promises and raise taxes in the future. Unlike the federal government, North Carolina can’t engage in deficit spending.
“You'll have members taking a look to see if we want to turn the dial, the knobs, a little bit on tax cuts,” Hall said earlier this month. “I think we want to continue to go down. We're definitely not going up.”
Berger wants State Auditor to recommend cuts to North Carolina government
Senate Republicans plan to propose their budget before the end of April. But that won’t be the final say; the House will propose its own budget, and then the two chambers will negotiate a final spending plan.
State budget analysts recently told lawmakers that even if the economy doesn’t enter a recession, the state would likely start running a deficit by 2026 because of current and future tax cuts. And nationally there are growing fears of a recession as consumer confidence slips and executives’ outlooks dip amid new economic policies focused on increased tariffs.
Republican legislative leaders in North Carolina have dismissed budget analysts’ forecasts, however, saying the projections have been wrong in the past.
Spending cuts to pay for tax cuts?
Trump’s efforts to cut costs — or shift them onto the states — come as he plans to ask Congress to extend tax cuts passed during his first term in office.
Trump’s 2024 presidential campaign was heavily funded by a handful of billionaires who stand to gain from further tax cuts. According to Open Secrets, a nonprofit that analyzes campaign finance records, the world’s richest man — Elon Musk — spent nearly $300 million to elect Trump and other Republicans in 2024. Six other billionaires also spent at least $100 million each.
Due to a combination of tax cuts and increased spending, the national debt grew by 40% during Trump’s first term in office, from $20 trillion in 2017 to $28 trillion by the time he left office in 2021. And key policy proposals he campaigned on in 2024 would grow the national deficit by an additional $7.5 trillion, the Wall Street Journal estimated in October.
That has led to some consternation from fiscal conservatives in Congress, who could now be reluctant to vote in favor of even more deficit spending under Trump. Cutting spending, however, would make any tax cuts add less to the deficit. The tax cuts Trump championed in his first term added $1.5 trillion to the national deficit.
But it remains unclear how successful Trump and Musk, who Trump put in charge of the efforts to cut spending, will eventually be. Their proposal to slash billions of dollars in federal grants for medical and scientific research, for instance, has been temporarily blocked due to a lawsuit by North Carolina Attorney General Jeff Jackson and other Democratic attorneys general.
If Trump wins that lawsuit — or if North Carolina’s Republican state legislature forces Jackson to withdraw from the lawsuit — then thousands of jobs at local universities, hospitals and businesses could be eliminated. Those grants pump more than $1.5 billion annually into the North Carolina economy.
Trump is also attempting cuts to other programs that directly affect North Carolina, including money to hire teachers, subsidize farmers and improve public health.
Berger told reporters Thursday — after the state Department of Health and Human Services said it had been informed Trump intends to slash its budget by $100 million — that he and other GOP leaders are watching the news but still haven’t decided what, if any, action they’ll take in the state budget to plug holes like that.
“We're starting to look into it,” Berger said. “We'll try to figure things out. Obviously, if there are things that need to be done, we'll take the appropriate steps.”
DHHS is the biggest state agency, and it’s heavily reliant on federal aid. But many other state agencies are facing cuts as well.
Fear of Medicaid cuts
In addition to other health care spending, the federal government pays for nearly all of the state’s Medicaid and Medicare expenses.
Donald Bryson, who leads the conservative John Locke Foundation think tank, said in an interview that even though Trump is publicly saying he won’t touch Medicaid and Medicare, he’s not sure if that will remain the case.
“Where I am concerned about some of the Trump cuts — and this is something the John Locke Foundation has warned the legislature about for a decade — is if you’re looking to save money, one of the easiest ways to do that is to change Medicaid funding,” he said.
For most people on Medicaid, the federal government pays two-thirds of the costs and the state pays the rest. For the 600,000 North Carolinians who recently received coverage when North Carolina expanded Medicaid access, the federal government covers 90% of the costs.
Even though Trump has said he won’t slash entitlement programs such as Medicaid, Medicare and Social Security, Bryson says there’s simply no way to achieve serious federal budget cuts without tackling those programs. Nearly 70% of the entire federal budget goes to Social Security, health care, the military and veterans’ benefits.
And while state law technically says that Medicaid expansion will end in North Carolina if the federal government ever stops paying at least 90% of the costs, Bryson said he doesn’t see a world in which even his fellow Republicans allow that to happen.
If Trump makes states start paying more for Medicaid, Bryson expects North Carolina lawmakers to agree to pony up a few billion dollars a year extra rather than end Medicaid expansion — which disproportionately helps people in rural, politically conservative areas.
“The question is whether our politicians will have the political fortitude to kick hundreds of thousands of people off their health insurance,” Bryson said.
Berger downplayed those concerns, saying he’s not overly worried it’ll actually happen.
For years, Trump and other Republicans campaigned heavily on repealing Obamacare — the program that allows for Medicaid expansion — but when Republicans finally had full control of Congress and the White House during Trump’s first term in office, they failed to do it.
“The folks in Washington have a long history of talking about a lot of things, and a very short list of things they actually do,” Berger said.
WRAL Capitol Bureau Chief Laura Leslie contributed to this report.
