"It is time to solve this mess, not kick the can down the road and manipulate the budget as was done in the past. It stops now," said McCrory in a statement with the announcement.
McCrory has used the budget problems within the state Medicaid system to justify his decision not to take federal money to expand it under the terms of the federal Affordable Care Act - also known as Obamacare.
He signed a bill earlier this week blocking the expansion.
Expanding the system would mean health care coverage for an additional 500,000 North Carolinians, and the federal government would pick up 100 percent of the cost for the first three years. After that, federal funding would decline on a sliding scale to no less than 90 percent.
But McCrory has said a recent state audit shows the system is so flawed that he's concerned about how even that small percentage would be paid for.
Friday, McCrory said his first priority is stopping the Medicaid liability from impacting the entire budget.
"If we stop this practice and get a handle on the Medicaid hole, we'll have balanced budgets that fund our priorities, including education, and avoid mid-year shortfalls," McCrory said.
In a memo to Council of State members who lead some state agencies - McCrory urged them to follow the same cost-control measures and contribute to the budget solution.
A local teacher weighed in on the announcement.
"I haven't had a pay raise in four years or so," said fourth grade teacher Carla Smith. "That definitely hurts."
"We want to protect that sound financial footing," said State Budget Director Art Pope. "Rather to wait until the end of the fiscal year, which is in June. We're asking state agencies to start saving dollars right now."
Right now, is when Smith needs extra dollars for her and her growing family.
"Everything's scary now," said Smith. "Not knowing how things are going to be in the next couple years and not knowing how finances are going to be months to month and it's tight.