- The widely reported state budget spending total is not truly representative of the actual spending total
- Budget writers play a shell game that obscures the actual total: Set aside money into reserve funds, and then pay for budget line items from those funds, which doesn’t count as General Fund spending
- Transparency in budgeting should be a high priority, but this practice does a disservice to taxpayers
The recently introduced FY 2026–27 state budget proposal totals $34.37 billion in state spending. That’s the bottom line of General Fund appropriations universally being reported on.
But is that figure really the true amount of state spending?
The Locke Foundation reported more than two years ago about a deceitful practice that serves to obscure the total amount being spent and strikes a blow against budgetary transparency. It’s happening again.
The $34.37 billion figure represents total net spending included in the budget. Spending supported by “receipts” is not counted against the General Fund’s bottom line because it supposedly does not use General Fund revenue sources, such as income or sales taxes. For instance, if a Medicaid program spends $10 million, but $5 million of that is supported by receipts from the federal government, that line item counts as only $5 million in net spending.
As a means of exploiting this accounting process and concealing billions in state spending, the legislature has increasingly resorted in recent years to a shell game of sorts with state revenue.
The practice involves setting aside money raised from state revenue sources into a special “reserve” fund and then making those set-asides not part of the “General Fund Availability” line item. So this $34.47 billion spending total is money that is available to be spent after that money is set aside into these reserve funds. In this year’s budget proposal, $3 billion would be set aside into reserves.
It’s treated as if the money were diverted to a different bank account and no longer available to pay the bills.
But then budget writers use the money from those reserve funds to pay for state budget line items. When they do so, they classify the spending as “receipt supported,” which is therefore not counted in the General Fund’s spending total.
For example, suppose budget writers send $1 million into the “Regional Economic Development Reserve” fund. It is not counted as General Fund spending. Then the budget allocates $1 million for, say, an athletic field in a representative’s home district that is paid for with “receipts” from that reserve fund.
It would be a $1 million appropriation using state taxpayer dollars, but thanks to this shell game, it would not count in the official state budget spending total.
This is not a traditional practice, but it has proliferated in recent years.
For FY 2018–19, there were only two reserves, and they totaled just under $300 million: the Savings Reserve and the Medicaid Transformation Reserve.
Now there are a total of 33 active reserves, 20 of which have been created since 2020.
Looking at the money report for this budget proposal provides a glimpse of the scale on which this shell game is being played. Here I focused on three significant special reserve funds: the Regional Economic Development Reserve, the Economic Development Project Reserve, and the Stabilization and Inflation Reserve. The budget would sets aside $200 million, $170.9 million, and $1.3 billion into these reserves, respectively.
I conducted a search of appropriations funded by “receipts” from these three reserves to learn more. All $200 million of the Regional Economic Development Reserve is appropriated, directed toward the 727 earmarks that would send money to local governments, charities, and miscellaneous pork projects, which I wrote about in my budget summary article. The majority of these earmarks should either not be funded by government at all or just be funded by local governments.
I found $37 million in “receipts” from the Economic Development Project Reserve, which was dedicated to two line items. Twelve million dollars would be sent to Wilson Community College for a biologics center, and $25 million would go to the Economic Development Partnership of North Carolina for its Selectsites Readiness Program, which helps pave the way for sizeable corporate welfare programs.
By far the most active of the three is the Stabilization and Inflation Reserve. I was able to find 55 line items funded by so-called receipts from this fund, which would total more than $1.4 billion. The largest line item is $350 million, which would go to the Department of Public Instruction. Another $116 million would be slated for the UNC Board of Governors. These “receipt-supported” appropriations are sprinkled throughout most state agencies and are not designated for any specific purpose, just general support.
Just between these three reserves, $1.7 billion would be appropriated that wouldn’t count against the $34.37 billion General Fund bottom line.
Transparency in budgeting should be of utmost importance. Taxpayers should easily be able to see a true representation of how and how much of their money is being spent by their elected representatives. This multibillion dollar shell game disappointingly obscures the true amount of state budget spending and does the taxpayers a disservice.
