State budget and nonprofits

Last updated: July 28, 2020


State budget. It is important for state legislators and the Governor to agree on a state budget each year to ensure that there is adequate state support for current needs in communities throughout North Carolina. Last year, Governor Cooper vetoed the state budget approved by legislators (H.B. 966), and the NC Senate was unable to override his veto. As a result, many state programs and services with increased need did not received increased funding.

  • What happened so far in 2020:
    • During this year’s short session, the General Assembly passed a variety of mini-budget spending bills to provide appropriations for state programs and services for FY2020-21. Legislators did not attempt to override Governor Cooper’s veto of the previous state budget or to pass an overall state budget for the new fiscal year.
    • Because of diminished tax revenue from the current economic recession, the state is projected to have a $4.2 billion budget shortfall for FY2020-21. Legislators have used some of North Carolina’s federal CARES Act money to replace about $1 billion of this lost revenue (S.816).
  • What comes next:
    • Governor Cooper may make recommendations to the General Assembly for a full state budget for FY2020-21 later this summer once more accurate revenue estimates are available.
    • Legislators may use additional federal funding to fill holes in the state budget when they reconvene in September. It is likely that the General Assembly also will consider cutting or eliminating some state programs and services, including some that provide funding for nonprofits, to ensure a balanced state budget.
    • If the recession persists beyond this winter, it is likely that the state will continue to have revenue shortfalls. The Center and other nonprofits will encourage legislators to consider options for new tax revenue to prevent further cuts to programs and services that are important to the well-being of communities throughout the state.​
  • Nonprofits’ role:
    • With the state of North Carolina likely facing significant revenue shortfalls in the coming years, the NC Budget and Tax Center and many of its allies (including the Center) are advocating for legislators to consider new sources of tax revenue to prevent steep cuts to public services.


Prompt payment and full payment for costs. According to an Urban Institute report, half of all NC nonprofits with state grants and contracts are paid late by state agencies, the 11th worst record in the nation. The majority of these nonprofits are not paid the full cost of providing public services, and most are underpaid for their actual, reasonable, documented indirect costs.

  • What didn’t happen in 2020:
    • The General Assembly took no action on these issues.
  • What comes next:
    • The Center will continue to advocate for legislators and state agencies to address the issues of full payment and prompt payment to nonprofits that provide public services through state grants and contracts.


Less red tape. Three-fourths of NC nonprofits that provide public services through state grants and contracts experience problems with the application processes and reporting requirements required by state agencies. Policymakers should find ways to streamline regulations, applications, and reporting and auditing requirements for nonprofit service providers.

  • What almost happened in 2020:
    • A provision in the vetoed FY2019-21 state budget (H.B. 966) would have required DHHS to create a workgroup to address duplicative administrative requirements for mental health, substance use disorder, and intellectual/developmental disability providers (most of which are nonprofits). The House also passed this provision as a separate bill (H.B. 471) this spring, but it was not enacted.
  • What comes next:
    • Legislators could revisit this proposal in 2021. The Center also has talked with DHHS about having a broader DHHS working group to address problems nonprofits are experiencing with overly burdensome application, reporting, and monitoring problems with grants and contracts with any DHHS division. Nonprofits’ input will be essential for this type of working group to develop useful improvements to contracting policies.
  • Nonprofits’ role:
    • Several nonprofits – including the Center – worked with legislators to develop the proposal to establish the DHHS workgroup.


State compliance with federal rules. Policymakers should ensure full and fair implementation of the cost principles and other grants reforms in the new OMB Uniform Guidance issued in December 2014.

  • What didn’t happen in 2020:
    • Lawmakers made no changes to conform state grant and contracting rules to the OMB Uniform Guidance.
  • What comes next:
    • Legislators – or the NC Office of State Budget and Management – could revise state laws or regulations to raise the audit threshold for nonprofits with state grantees to the current federal level of $750,000 per year. They also could require state agencies to pay nonprofits an indirect cost rate of at least 10%, consistent with the federal requirements in the OMB Uniform Guidance.