North Carolina

State Budget Practice Report Cards and Budget Resource Guide

North Carolina’s B average in reserve funds for 2017 through 2019 was bolstered by two major policy improvements. The first was adoption in 2018 of a link between historical revenue volatility and the state’s goals for its reserves, a best practice cited in the recent Volcker Alliance working paper, Rainy Day Fund Strategies: A Call to Action. The state now must deposit into the Savings Reserve Account 15 percent of each fiscal year’s estimated growth in state tax revenues. Annual evaluations of North Carolina’s revenue structure and economic volatility are used to adjust the account’s cap. The state also established clear rules specifying when the reserve can be tapped. 

North Carolina averaged a B in budget maneuvers, which tracks the use of one-time measures to achieve balance. The grade reflected the state’s use of money from special funds, including transfers from the Department of Insurance to the general fund. 

The state’s lowest average was a C in legacy costs, which cover public worker pensions and other postemployment benefits (OPEB), principally health care. North Carolina regularly provides the annual actuarially determined contribution for pensions, which were about 89 percent funded in 2018, about 19 percentage points above the total for all states. But it does not make such contributions for OPEB. For example, in fiscal 2017, the state contributed only 35 percent of the $2.73 billion that actuaries determined was needed to achieve full funding over time. 

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To emphasize the need for clear and comprehensible budgets to inform citizens, promote responsible policymaking, and improve fiscal stability, the Volcker Alliance in 2016 began a study of budgetary and financial reporting practices of all fifty states. The Volcker Alliance’s mission is to improve the effectiveness of the administration of government at all levels. Making state budgeting more transparent and accountable is an important part of that goal.

The report cards presented here are taken from the 2020 Volcker Alliance report, Truth and Integrity in State Budgeting: The Balancing Act, which proposes a set of best practices for policymakers. For those wishing to gain greater insight into state fiscal issues, the accompanying budget resource guide is derived from the Alliance publication State Budget Sources: An Annotated Guide to State Budgets, Financial Reports, and Fiscal Analyses (2016). 

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