North Carolina governor, treasurer argue over funding for retirement system

North Carolina's governor and treasurer, both newly elected, argued over whether the governor's budget was fully funding the state's retirement system.

Democratic Gov. Josh Stein submitted a proposed biennial budget for fiscal 2025 to 2027 to the North Carolina legislature Wednesday.

"We are disappointed the governor is proposing for only the second time in 83 years to not fully fund our state's retirement system," Republican State Treasurer Brad Briner said in a statement. "This proposal sent to lawmakers today would create a $206 million shortfall in the funds for our retirees over the next two years."

A spokesman for the governor responded, "The governor respects and values retired state employees, which is why his recommended budget more than fully funds the state retirement system. Gov. Stein's proposal holds the state's contribution rate steady, which will provide over $380 million more than what actuaries say is necessary in fiscal year 2025-26 and over $551 million more than recommended for the biennium."

A spokesperson for Briner responded, "Under the process long used for measuring these types of proposals, the governor's budget proposal calls for $0 in new money for Teachers and State Employees Retirement System over the biennium. That is because it would make no increase to the contribution rate for already-promised benefits (as a percentage of salaries.)"

North Carolina's general obligation debt is rated triple-A by Moody's Ratings, S&P Global Ratings and Fitch Ratings.

Moody's said in a June report the state's Moody's-adjusted net pension liability was $9.5 billion in 2023, equal to 22% of revenues and down from 36% of revenues in 2020. The state's other post-employment benefits liability is "minimal" at $4 billion, Moody's said. The state's ratio of adjusted long-term liabilities to own-source annual revenue is 52%, which Moody's said was a Aaa level.

"One challenge for the state going forward is a series of enacted income tax rate cuts, which all else equal could reduce revenue from current levels by 20% or more," Moody's said in June. The tax cuts are scheduled to be phased in through 2031 if financial conditions are met.

Stein called for the freezing of individual and corporate tax rates "so that the state can keep up with its rapid population growth and avoid a fiscal cliff."

However, he also proposed $530 million a year in tax cuts, including tax credits targeted to low- and moderate-income workers. For comparison the state had $42.6 billion in own-source revenue in fiscal 2022-2023.

Stein is proposing 2% raises for state workers in 2025-2026 but no raise in the following fiscal year. An exception are more substantial raises for state law enforcement officers.

The governor's budget also includes $4 billion in bonds for schools, which voters would have to approve.