State Appropriations Act Shifts Potential Federal SNAP Benefit Cost-Sharing to North Carolina Counties

The 2026 Appropriations Act (Session Law 2026-41) contains a provision that could significantly alter the fiscal responsibilities of counties with respect to the Supplemental Nutrition Assistance Program (SNAP). Section 9J.14(a) of the Appropriations Act creates G.S. 108A-52.2, which establishes a mechanism for funding any future state obligation to contribute toward SNAP benefit costs imposed by Congress under recently enacted federal law. That mechanism includes withholding funds from county sales tax allocations, as will be explained in more detail below.

The Federal Background: SNAP and H.R. 1

To understand why the General Assembly enacted this legislation, it is helpful to begin with recent changes in federal law.

SNAP is a federally funded program that provides food assistance to low-income individuals and households. In North Carolina, this program is referred to as “Food and Nutrition Services” (FNS) and was historically known as the “food stamp” program. Eligible families and individuals receive SNAP benefits through a monthly allocation on an Electronic Benefit Transfer (EBT) card, which can be used to buy groceries. In North Carolina, a family or individual that wants to apply for SNAP benefits must do so through their county department of social services, which is responsible for determining whether that family or individual is eligible for SNAP.

Historically, the federal government has:

• paid the full cost of SNAP benefits, meaning, 100% of the amount that gets loaded on to the EBT card each month for eligible individuals; and
• paid 50% of the administrative costs for operating the SNAP program (in North Carolina, the state and counties have been required to pay the other 50% of those administrative costs).

That funding structure changed with Congress’s enactment of H.R. 1, the “One Big Beautiful Bill Act” (Public Law 119-21), in 2025. Among numerous changes to the SNAP program, which I have discussed previously in this blog post, Congress established two significant changes to the federal-state funding model for SNAP:

1. Shift in Responsibility for Administrative Costs. Beginning Oct. 1, 2026, the portion of administrative SNAP costs funded by the federal government will decrease from 50% to 25%, meaning states will become responsible for 75% of the administrative costs to operate the program. In North Carolina, the state and counties will be responsible for shouldering those added administrative costs. For the state, that increased cost is approximately $12 million in state FY 2027 (July 1, 2026-June 30, 2027) and $16 million in state FY 2028 (July 1, 2027-June 30, 2028). For all counties, the total administrative increase is $52 million in state FY 2027 and $69 million in state FY 2028. For individual counties, that estimated increase in annual SNAP administration costs for state FY 2027 ranges from approximately $44,000 to over $6 million per county, based on NCDHHS estimates. For state FY 2028, NCDHHS estimates that the increase in annual SNAP administration costs will range from approximately $58,000 to $8 million per county.

• Benefit Cost Responsibility Based on Payment Error Rates. Beginning Oct. 1, 2027, states will be required to pay a percentage of SNAP benefit allotments if they have a SNAP payment error rate above 6%. The applicable percentage the state must pay increases as a state’s payment error rate increases. The state cost share will be 5% of benefit costs if error rates are 6- 8%, 10% of benefits costs if error rates are 8- 10%, and 15% of benefit costs if error rates are over 10%. For federal FY 2028 (Oct. 1, 2027-Sept. 30, 2028), a state may elect either the federal FY 2025 or FY 2026 payment error rate to calculate its state matching fund requirement. For federal FY 2029 and each federal fiscal year thereafter, to calculate the applicable state share, the federal government will use each state’s payment error rate for the third federal fiscal year preceding the fiscal year for which the state share is being calculated (looking back to the error rate from three years prior to determine cost sharing for the upcoming year).

In the 2026 Appropriations Act, the General Assembly addressed the second change—specifically, how North Carolina will fund any future amount it owes towards SNAP benefit costs based on the statewide SNAP payment error rate as a result of Public Law 119-21.

What’s the SNAP Payment Error Rate?

“Payment error rate” refers to the percentage of SNAP benefit payments that were made incorrectly based on a sample of participating households, which includes both overpayment and underpayment of benefits. See 7 USC § 2025(c)(2). According to USDA data, the national average for state payment error rates in federal FY 2025 was 10.62%. The triggering threshold for the new state SNAP benefits payment obligations under Public Law 119-21 is a state payment error rate over 6%. In federal FY 2025, only ten states had a payment error rate under 6%.

North Carolina’s SNAP payment error rate was 7.36% in federal FY 2025. Accordingly, North Carolina predicts owing 5% of the SNAP benefit cost share in federal FY 2028 (Oct. 1, 2027 – Sept. 30, 2028) or an estimated $150 million towards the cost of SNAP benefits. The 2026 Appropriations Act establishes how counties will be held responsible for this cost.

What is the Cost-Sharing Formula Established by the 2026 Appropriations Act (G.S. 108A-52.2)?

The new G.S. 108A-52.2 establishes that if federal law requires North Carolina to pay a portion of SNAP benefits, the N.C. Secretary of Revenue must withhold amounts from each county’s sales tax allocation, based on a formula established in the statute. The statute becomes effective October 1, 2027 and applies to withholdings from county sales tax distributions on or after that date.

Under G.S. 108A-52.2, each county’s benefit cost-share amount—the amount to be withheld from sales tax allocation—will be based on the sum of two different assessments:

1. Flat Assessment: Each county will be subject to a flat assessment, calculated by multiplying the county’s base year sales tax allocation by three-quarters percent (0.75%). This component spreads part of the state’s payment obligation across all counties, regardless of county-specific SNAP payment error dollars.
2. Proportional Assessment: If a dollar amount of the state’s SNAP payment error rate can be attributed to a specific county for the applicable federal fiscal year, that county will also be subject to a proportional assessment. Understanding the proportional assessment requires explaining some defined terms from the new statute.

How is the Proportional Assessment Calculated?

To understand how the proportional assessment is calculated, a county must first understand its assessment factor, which the law defines as “the product of a county’s penalty factor and its base year sales tax allocation.”  The county’s penalty factor is the ratio of a county’s portion of the statewide SNAP payment error rate dollar amount attributable to a county, expressed as a decimal. For example, if a county was responsible for $978 of the state’s $24,442 total error dollars for a year, the county’s penalty factor would be 0.04. The county’s base sales tax allocation is defined as “[t]he net proceeds of the tax collected under Articles 39, 40, and 42 of Chapter 105 of the General Statutes and allocated to a taxing county during the most recently completed State fiscal year.”

By way of illustration, if a county was responsible for $978 of the state’s $24,442 total error dollars for a year (0.04 penalty factor) and had a base sales tax allocation of $50 million, the county’s assessment factor would be $2,000,000 (0.04 x $50,000,000).

The county’s assessment factor is then multiplied by a fraction, the numerator of which is the total state SNAP benefit cost-share (i.e. the estimated amount of SNAP benefits the state must pay per federal law in a given fiscal year based on its payment error rate) minus the sum of all counties’ flat assessments, and the denominator of which is the sum of all counties’ assessment factors. The formula looks like this:

For federal FY 2025, the state’s SNAP payment error dollar total was $24,442. Forty-six counties had error dollars contributing to that total, ranging from $61 to $4,030 per county.  If the state has an error rate over 6% in future fiscal years, even counties with no payment error dollars will have 0.75% of their base year sales tax allocation withheld (through the flat assessment). For some counties, these withholdings will cost tens or hundreds of thousands in revenue, and for others, millions in revenue.

How Will the Sales Tax Allocation Withholding Work?

On or before October 1 of each year, NCDHHS will calculate and notify the N.C. Secretary of Revenue of each county’s benefit cost-share amount. The Department of Revenue must then withhold from each county’s monthly base year sales tax allocation the county’s annual benefit cost-share amount divided by 12 (or otherwise, an appropriate amount to ensure sufficient monthly transfers are made to reach the state’s SNAP benefit cost-share obligation by the required date). The Secretary of Revenue will remit the withheld amounts to NCDHHS to pay the state’s SNAP benefit cost-share.

Based on the statutory language, it appears that the withholding will be based on the total amount of base year sales tax allocated to the county, before the split between counties and municipalities is done by the Department of Revenue. That would mean that municipalities will also be impacted by this withholding, because it will reduce the entire allocation, not just the county’s share of the allocation.

Practical Implications for Counties

County officials have already begun evaluating potential budget implications from this change, along with the increase in SNAP administration costs. County finance officers may want to monitor future federal guidance implementing Public Law 119-21 (H.R. 1), as well as state guidance from NCDHHS. The amount of any state obligation will depend upon federal calculations of North Carolina’s SNAP payment error rate.

County departments of social services are facing heightened attention to eligibility determinations and payment accuracy, at a time when some of those departments are also dealing with workforce shortages and high turnover rates. Because part of the funding formula under the 2026 Appropriations Act is tied to county-attributable payment errors, investments in additional staff, managing case load size, training, and quality assurance may have long-term fiscal implications for counties.

Funding for State-Level SNAP Improvements

In addition to establishing the cost-sharing formula described above, the 2026 Appropriations Act (Section 9B.7.(a)) appropriates funding to NCDHHS to improve SNAP administration– $2.58 million in recurring funds beginning in FY 2026-2027 and $2.5 million in nonrecurring funds for FY 2026-2027. This money must be spent on the following items:

While this funding is intended to improve county SNAP administration through state-level SNAP oversight, tools, and technical assistance, this section of the Appropriations Act does not allocate any money directly to counties to assist with the improvement of SNAP administration or SNAP program staffing at county departments of social services.

Looking Ahead

Historically, states have relied on the federal government to finance SNAP benefit payments. Congress, through the enactment of Public Law 119-21, has altered the federal-state relationship for the SNAP program by authorizing federal benefit cost-sharing for states with SNAP payment error rates of greater than 6% (in addition to increasing state responsibility for administrative costs). North Carolina’s response through the 2026 Appropriations Act is to allocate that potential state cost-sharing obligation largely to counties through reductions in local sales tax distributions.

The extent to which counties ultimately experience sales tax allocation withholding will depend on North Carolina’s future payment error rates. Nevertheless, G.S. 108A-52.2 is significant because it links county revenues to statewide SNAP payment accuracy in a way not previously seen in North Carolina law.