What happens if there is no state budget?

5 minute read
Last updated: September 14, 2023

David Heinen, Vice President for Public Policy and Advocacy

Nearly three months into the state’s fiscal year, leaders of the NC Senate and NC House of Representatives remain at an impasse on negotiations on the state budget. After three months of negotiations, House and Senate leaders have agreed on all but one item in the budget - whether to include a provision that would allow for casino gambling in North Carolina. Senate leadership is insistent on including casino language in the budget, but House leadership is unwilling to do so since there is not a consensus on the issue within the House Republican caucus.

Because neither chamber appears willing to make concessions on the issue of including casinos in the budget, legislative leaders have begun to raise the possibility of not passing a state budget this year. North Carolina law allows state government operations to continue at their current funding levels if legislators and the Governor are unable to agree on a new state budget, so a state budget is not technically a "must pass" bill since the state government would not shut down without a new state budget. However, the lack of a budget would have a variety of consequences for state government operations, for nonprofits, and for North Carolinians. The following chart highlights what would happen if legislators don’t pass a state budget this year and what the implications would be for nonprofits.

Note: The Center has not seen the details of budget provisions that legislative leaders have negotiated, so the information in this chart is based on the details of the budgets passed by the House and Senate this spring, mediareports about budget negotiations, and our conversations with lawmakers about the budget.



What a state budget would include

What would happen without a state budget

Implications for nonprofits

State government operations

State government operations would continue with increased spending for a total of $29.8 billion in FY 2023-24 and $30.9 billion in FY 2024-24.

State government operations would continue at current spending levels of $27.9 billion per year.

There is no threat of a state government shutdown. However, without a state budget, state spending – and therefore state investment in nonprofits – would not be adjusted for inflation and population growth.

Medicaid expansion

Medicaid expansion would begin in North Carolina in December 2023 or in early 2024, depending on when a budget is enacted and how quickly the NC Department of Health and Human Services can work with the federal government to begin Medicaid expansion.

North Carolina would not have Medicaid expansion.

More than 600,000 North Carolinians would continue to go without health insurance. Without access to adequate health care, these North Carolinians will rely more on nonprofits to provide them with a wide variety of basic services, putting further strain on nonprofits that are already struggling to meet the demand for services.

Nonprofit appropriations and grant funding

State funding would increase for a wide variety of nonprofits, including local Smart Starts, free and charitable clinics, food banks, community health centers, Boys and Girls Clubs, arts organizations, crisis pregnancy centers, domestic violence and sexual assault agencies, and volunteer fire departments and rescue squads.

There would be no increases in state funding for nonprofits.

Lack of increases in state grants and appropriations could force some nonprofits to cut services at a time when need is growing and nonprofits’ operational expenses are increasing.

Nonprofit earmarks

The budget would include a variety of direct appropriations to specific nonprofits.

There would be no new state funding for nonprofits.

No nonprofits would receive new - and often unexpected - one-time state funding over the next two years.

State employee pay

The budget would include significant increases in pay for state employees and public school teachers.

There would be no pay increases for state employees or public school teachers.

Higher salaries could help many state agencies fill some of their vacant positions. Fewer vacancies in state jobs – particularly among positions that work with nonprofit grants and contracts – could help alleviate some of the challenges nonprofits are experiencing with severe delays in getting contracts and payments from state agencies.

Tax rates

The budget would include further reductions of the state income tax rate, perhaps dropping it as low as 2.49% in the future.

The state would maintain its current schedule of reductions in the individual income tax rate. The current rate is 4.6%. The rate is scheduled to drop to 4.5% in 2024 and 2025, to 4.25% in 2026, and to 3.99% in 2027 and future years.

The tax rate cuts in the budget could reduce future state revenue by as much as $7 billion per year by the end of the decade. This could mean future reductions in state grants and contracts for nonprofits and more future threats to nonprofit tax exemption to make up for lost revenue from reduced individual income tax collections.

Nonprofit salaries

The budget would allow nonprofits to spend up to $140,000 per year in state funds on any individual's salary.

Current law allows nonprofits to spend up to $120,000 per year in state funds on any individual's salary.

With a state budget, some nonprofits would be able to spend more state funds on salaries of key employees, potentially helping with staff recruitment and retention.

Child care and early childhood

The budget would include some increases in state support for child care through increases in the child care subsidy rate and investment in public-private partnerships to provide more affordable child care.

There would be no new state funding for child care or early childhood programs.

While the budget is likely to include far fewer investments in child care and early childhood programs than nonprofit advocates suggest are necessary, it would still be an improvement over current funding levels.

Smart Start

The budget would include additional funding for Smart Start organizations and could increase the cap on administrative costs for local partnerships to 10% of total funding.

Funding levels would remain the same as FY2022-23, and the cap on administrative costs for local partnerships would remain at 9% of total funding.

A state budget would likely improve both funding and financial requirements for Smart Starts.

Nonprofit hospitals

The budget could repeal some of the state's certificate of need laws and could require urban hospitals to reduce costs to the State Health Plan.

There would be no changes to existing laws for hospitals

Provisions in the budget could create additional new financial challenges for some nonprofit hospitals.

Grants management

The budget could include funding for an additional grants management position at the NC Office of State Budget and Management and for a new grants management system and additional grants management staff at the NC Council for Women and Youth Involvement.

There would be no new funds for additional grant management systems or staff.

The additional funding in the state budget may help alleviate some of the challenges that nonprofits have experienced with state grants and contracts.

Opportunity Scholarships

The budget would significantly expand this scholarship program for students and private (mostly nonprofit) K-12 schools. Starting in the 2024-25 school year, virtually all North Carolina families would be eligible for Opportunity Scholarships.

There would be no expansion of the Opportunity Scholarship program.

The expansion of the Opportunity Scholarship program would provide cost savings and additional financial support for nonprofit K-12 schools and would increase the number and economic diversity of families that can afford to send their children to nonprofit K-12 schools.

Lobbying fees

The budget could double the fees for registered lobbyists and lobbyist principals from $250 per year to $500 per year.

There would be no changes to lobbying fees.

The potential increase in lobbying fees could create additional expenses for nonprofits that lobby the state.

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