The State of North Carolina operates on a biennial budget cycle, meaning that every two years, in odd-numbered years, the General Assembly adopts a comprehensive budget that covers two full fiscal years. The General Assembly typically adjusts the budget for the second year to account for updated priorities, revenues, and spending needs. The state’s fiscal year runs from July 1 through June 30, and under G.S. 143C-5-4(a), the General Assembly is expected to enact the biennial budget by June 15 of odd-numbered years and any adjustments by June 30 of even-numbered years.

But what if July 1 of an odd-numbered year arrives and there’s no new budget in place?

Before 2017, when the General Assembly was unable to enact a full budget in time, it had to quickly pass one or more separate stopgap spending bills to keep state government running. These short-term measures, known as continuing resolutions, or CRs, authorized temporary funding based on the prior year’s budget or a reduced spending level.

That process changed significantly with the passage of the 2016 Appropriations Act (S.L. 2016-94). In Section 6.3 of that law, the General Assembly established a Budget Stability and Continuity provision, now codified in G.S. 143C-5-4(b), which eliminated the need for CRs. Instead, the statute authorizes the Director of the Budget to continue funding state operations at the recurring level from the previous year’s certified budget if a new budget has not been enacted by July 1. This statutory fallback ensures that government operations continue without interruption, even if budget negotiations extend beyond the start of the fiscal year.

Continuation Budget

If the General Assembly has not enacted a budget by the start of the fiscal year (July 1) in odd-numbered years, the law allows for a continuation budget to automatically take effect. This continuation authority rests with the Director of the Budget, a role held by the Governor, and it permits allocations to State departments, agencies, and institutions at the level of recurring funds in the prior year’s certified budget.

To understand how spending is determined under this framework, it’s helpful to distinguish between two key budget terms used in the State Budget Act:

• The certified budget is the official budget enacted by the General Assembly, including both recurring and nonrecurring appropriations, along with estimated departmental receipts and the distribution of funds to individual agencies and programs. It represents the legislatively approved financial plan for the fiscal year and serves as the benchmark for compliance with appropriation laws. The University System has some additional authority to make changes to the certified budget.
• The authorized budget builds on the certified budget. It includes any adjustments made after enactment, such as budget revisions approved by the Director of the Budget, budgeting of over-realized receipts, and transfers between line items or programs. The authorized budget reflects the total spending authority available to State departments, agencies, and institutions as they operate throughout the year.

Under G.S. 143C-5-4(b), continuation spending is tied to the recurring portion of the certified budget. This means that State departments, agencies, and institutions can continue only those operations funded on an ongoing basis by the legislature, and may not spend funds tied to one-time appropriations unless specifically allowed by statute. This restriction helps ensure that only core, sustainable government functions continue during the interim period, and that agencies don’t initiate new or expanded programs while the legislature continues to negotiate. (The NC Office of State Budget and Management (OSBM) maintains copies of all certified budgets. For more information about recurring versus nonrecurring appropriations from the prior year, see the Joint Conference Committee Report on the Current Operations Appropriations Act for the prior biennium budget, also known as the Money Report.)

If projected revenues for the coming year fall short, the Director of the Budget is required to reduce spending levels to ensure a balanced budget. Priority must be given to paying the debt service on state bonds and notes, which the law requires to be paid promptly and in full.

The law also makes clear that all limitations and directions on spending that applied during the prior biennium remain in effect during the continuation period. This means State departments, agencies, and institutions must continue to follow the same rules and restrictions on how funds can be used, unless the statute provides otherwise. 

Notably, the Director of the Budget cannot allocate funds for any item that was funded with nonrecurring dollars in the previous year, except in two narrow cases: (1) capital improvement projects, and (2) implementation of information technology projects. 

State Employee Salaries and Hiring Limits

The continuation budget freezes all salary increases—no cost-of-living adjustments, merit pay, step increases, or performance bonuses can be issued without explicit legislative authorization. This applies to all employees, including those exempt from the State Human Resources Act and those covered by statutory salary schedules.

A similar freeze applies to public school personnel. Teachers, school administrators, and other school employees remain on the prior year’s salary schedule and cannot receive step increases until authorized by the General Assembly.

Hiring may also be restricted. If both chambers of the General Assembly have passed their own versions of the budget, then vacant positions that are subject to reduction in either version may not be filled until a final budget is enacted.

Retirement Contributions Stay Level

Until a new budget is enacted, the state’s employer contribution rates to retirement and related benefits remain at the same level as the prior fiscal year. If the new budget changes those rates, the Director of the Budget is responsible for retroactively adjusting contributions so that the total for the year reflects the new rates.

New Grants Are Allowed, With Restrictions

During a continuation period, State agencies are allowed to accept and spend certain new grant funds, but only under limited conditions. Depending on the nature of the award, additional State personnel may be employed on a time‐limited basis. 

Agencies may spend grant awards without legislative consultation or approval only if all the following are true:

• The grant is less than $2.5 million;
• It does not require a state match;
• It is not for a capital project.

Even in these cases, the agency must report the grant within 30 days to the Joint Legislative Commission on Governmental Operations, the chairs of the Senate and House Appropriations Committees, and the Fiscal Research Division.

For all other grants, the agency must obtain approval from the Director of the Budget and undergo consultation with the Joint Legislative Commission on Governmental Operations before spending the funds.

There is a special allowance for emergencies. With the Director’s approval, agencies may spend up to the greater of $10 million or 1% of total emergency-related grant awardsto respond to emergencies, but must report those expenditures to the same legislative committees.

The law prohibits agencies from accepting any grant that would obligate the state to future financial commitments, such as ongoing operational or staffing costs, unless those commitments are already authorized under the continuation budget framework. This careful structure allows agencies to pursue external funding while maintaining legislative oversight and avoiding long-term obligations that have not been vetted through the regular appropriations process.

Mini-Budgets as a Legislative Workaround

While G.S. 143C-5-4 provides a framework for the executive branch to continue operations in the absence of a full budget, the General Assembly is not limited to passing a single, comprehensive appropriations act. During a budget stalemate or delay, the legislature may choose to enact “mini-budgets,” which are smaller, targeted appropriations bills that fund specific agencies, programs, salary increases, or capital projects.

These mini-budgets function as stand-alone laws that override the continuation budget for the specific items they cover. Once enacted, they carry the full force of law and immediately authorize the appropriation and expenditure of funds for their designated purposes, regardless of whether the overall state budget has been adopted.

Mini-budgets have been used strategically in past budget impasses. For example, in 2019, after a gubernatorial veto of the full budget, the General Assembly passed a series of mini-budgets. The bills included funding for various sectors such as healthcare, education, and transportation. 

For state officials, it’s important to monitor enacted mini-budgets closely, as they may provide updated funding levels, new program authority, or salary adjustments outside of the continuation framework. Agencies covered by a mini-budget must implement its provisions even if the rest of their operations continue under prior-year recurring certified budget levels.

Impact on Local Governments

For local governments, the continuation budget provisions offer a measure of stability but also introduce uncertainty. Because the State is authorized to continue spending at recurring levels from the prior year’s certified budget, most state-shared revenues and core intergovernmental aid generally continue without interruption. However, any new or expanded funding, including nonrecurring grants, special appropriations, or salary increases for state-funded local positions and public school teachers and administrators, cannot be disbursed until a new budget is enacted. This means that local governments may experience delays in receiving funds for new initiatives, capital projects, or targeted pilot programs. Local officials should plan conservatively during continuation periods, monitor mini-budgets for potential relief, and be aware that certain pass-through funds or contracts may be held up until the full appropriations act becomes law.