RALEIGH, N.C. (WNCN) — Following a new report this week that North Carolina is on track to have a surplus of more than $3 billion this year, state leaders weighed in on what should be done with that money as Republican legislators begin crafting their two-year budget proposal.  

An updated economic forecast from economists in the State Office of Budget and Management and the General Assembly’s Fiscal Research Division projects the state will take in about $3.25 billion more than budgeted in the current fiscal year, which ends June 30. That’s 10.7 percent above what was expected. 

The economists said the surplus is driven by a few factors, including corporate profits, consumer spending and “a smaller-than-expected decline in individual income tax collections.” 

“There are three things that should happen. We should budget for necessary increases, that would include salary increases. We should put some away for a rainy day. And, we should give some back to the people in the form of tax cuts,” said Senate leader Phil Berger (R-Rockingham). “And, the size of the surplus just tells me that our capacity to do all of those things should be greatly enhanced.” 

In the budget the General Assembly passed two years ago and Gov. Roy Cooper (D) signed into law, the state’s personal and corporate income tax rates will be reduced incrementally over the next few years, with the personal income tax rate dropping to 3.99 percent in 2027 and the corporate income tax rate being phased out altogether in 2030. 

“One of the big reasons that you’re seeing these kinds of positive revenue numbers are because of the decisions, in large part, made right here in this General Assembly,” said House Speaker Tim Moore (R-Cleveland). “Definitely want to look at ways to that we can reduce the tax burden on North Carolinians, particularly in ways that will incentivize even further investment in our state.” 

Some education advocates pushed back on the idea of tax cuts, arguing the state has underfunded schools for years.  

“The tax ‘surplus’ was built by failure to uphold commitments in funding support to students, teachers, state workers and retirees. It’s not extra. Return it to them,” tweeted Kim Mackey, a high school teacher in Wake County.  

Gov. Cooper urged lawmakers to invest more in education, childcare and workforce development. At an event in Raleigh this week focused on challenges in the labor market, he urged lawmakers not to pursue tax cuts beyond what’s already scheduled to occur. 

“And, in North Carolina, if we continue on this road of reducing taxes for the very wealthiest among us and for corporations, we’re going to have a big problem,” he said. “We will not be able to afford these investments that we have to make. We will not be able to afford to educate that adult workforce that we have promised these businesses that we would deliver to them.” 

The news of the surplus comes as the state government is facing significant challenges in hiring and retaining employees. The vacancy rate across state government exceeded 20 percent late last year, according to data from the Office of State Human Resources.  

“This money is good news. We can increase salaries. We can fill those jobs. We can get the work of North Carolina done,” said Ardis Watkins, executive director of the State Employees Association of North Carolina. “We’re going to have to find some retention incentives, which will cost money. And, we’re working hard with agency heads. We’re gonna work with the General Assembly and make that happen. We can’t keep losing people.” 

Speaker Moore said he expects the budget will include pay raises but did not suggest anything specific.  

“We want to be able to do a lot when it comes to salaries for our teachers and our state employees. It costs them more to go to the store like it does everybody else,” he said.