February 13, 2015
Welcome to the Nexsen Pruet Weekly Legislative Update! The Nexsen Pruet Public Policy team provides attorneys and clients with a newsletter summarizing the week's activities and conveying the inner workings of the legislative process and state government in Raleigh. Please feel free to pass this along to your clients or other interested parties.
Budget Season Comes Early
On Tuesday and Wednesday, the various Appropriations committees met for their first round of joint House and Senate meetings to review their respective provisions of the previous year’s base budget. On Thursday there was a joint meeting of the full Appropriations committees in a crowded committee room. Lawmakers received an overview of the state’s economic outlook and how it could impact this year’s budget. A link to the presentation from staff can be found here. The Governor is expected to release his proposed budget later this month, the week of Feb. 23rd.
The economic forecast presented by legislative staff outlined North Carolina trends in regard to the overall economy, which is expected to maintain steady, yet moderate growth. Employment is projected to grow above 2% during the biennium with 85,000 to 95,000 jobs added statewide each year. The employment picture also suggests upward pressure on wages, and that sales tax growth is projected to be slightly above average for the biennium, the first time since 2008.
One obstacle legislators will face this session is the projected $271 Million or 1.3% revenue shortfall for the current fiscal year. As of January, revenues were $215 Million below target seven months into the fiscal year. The shortfall is primarily linked to lagging personal income tax revenues which are down 5.8%. Sales tax collections however are ahead of target by 2.3% and business, corporate income and franchise taxes, combined are 5.7% ahead of target as well.
The projections for the 2015-16 fiscal year shows $541 Million to cover a number of “budget pressures” not included in the base budget for the 2015-16 fiscal year. Each year there are substantial sums that are traditionally committed to the expansion budget. The 2015-16 fiscal year is no different, requiring an additional $218 Million for new Medicaid costs and $70 Million for school enrollment growth. Items such as teacher raises, economic incentives and court funding will have to be funded with the approximately $253 Million balance that remains uncommitted.
State budget outlook a mixed bag – WRAL
NC forecasts budget surplus for fiscal year that begins July 1 – N&O
The Senate addressed a few bills this week, notably Senate Bill 20, dealing with the state gas tax, among other things, and Senate Bill 15, unemployment insurance legislation which passed out of the Finance committee, but was withdrawn from Thursday’s calendar. SB15 would make changes to the state board that reviews unemployment insurance appeals and is very similar to a bill from last session which the Governor vetoed and the General Assembly failed to override. The concerns of the Governor do not seem to be addressed in the current version of the legislation.
NC Senate resurrects bill in power struggle with governor – N&O
Outside of Appropriations meetings, the House had a relatively uneventful week. Tuesday, members handily gave their approval to House Bill 3, the eminent domain bill which would prevent government seizing of private property for private use. The bill was passed last session in the House but was not considered in the Senate.
At the end of session Wednesday, Speaker Moore (R-Cleveland) told members (and lobbyists) to enjoy their last“quiet” week and that the House would be in full swing on Tuesday. Both chambers have no-vote sessions on Monday.
Gas Tax Changes
The gas tax in North Carolina, one of the highest in the region, is calculated semiannually in correlation with the wholesale price of gasoline and is used to maintain state roads. Projections show revenues from the gas tax as it is currently structured, will fall roughly $800 Million short of what is needed for road maintenance over the next four years. Senate Bill 20, sponsored by Sen. Rabon (R-Brunswick) would make changes to the gas tax that would raise an additional $1.2 Billion by 2019.
Proponents of the bill are calling the proposal a tax cut, because it would reduce the gas tax on March 1st, 2015 by 2.5 cents from the current 37.5 cents per gallon to 35 cents per gallon. The change is expected to cost the state around $33 Million which the bill covers by eliminating 550 positions in the Department of Transportation, 50 vacant and 500 currently occupied by existing employees. The bill creates a floor of 35 cents per gallon for how low the tax may be reduced in the future.
Opponents of the bill however are calling the measure a tax increase for two reasons. One is absent the changes of SB 20, the gas tax is projected to drop to 30.4 cents per gallon in July along with the falling gas prices. The second is that it also creates a new formula that would raise the variable in calculating the gas tax for future years. Once again, beauty is in the eye of the beholder.
The lone Republican to break ranks over the measure was Sen. Barringer (R-Wake). She said she voted against the bill because of a provision unrelated to the gas tax. The piece to which she was referring was a tax on “supposed income” from people who are forced to sell their homes because they are unable to make their mortgage payments. This provision rejects the federal treatment and imposes a tax on the amount of debt forgiven on a“short sale”, regardless of whether money is received by the tax payer or not.
In an interview she said “It’s not income to them…It’s gone. It’s phantom. It’s evaporated. These are people that have lost their homes. Are we going to tax them when they’re trying to get back on their feet?” Two Democrats, Senators Stein (D-Wake) and McKissick (D-Durham) voted with Republicans in passage of the bill.
Sen. Rabon commented on the bill to UNC-TV, a video of which can be found here.
Senate tentatively OKs gas tax changes – WRAL
Gov. Pat McCrory, DOT chief Tata ask legislators to review DOT layoffs – N&O
In the News
NC income tax refunds may disappoint – Citizen-Times
Skvarla: Crowdfunding could be the opportunity small businesses are waiting for in N.C. – TBJ
Bill sponsors: When N.C. crowdfunding legislation passes it will be a national leader – TBJ
Hamilton sponsors bill to renew film and historic rehab tax credits – WECT
Boeing is sending even more work to South Carolina – CBJ
In Other News
- A failure to renew the domain name for the NCGA (www.ncleg.net) caused mass confusion in the legislative bubble on Tuesday morning when users discovered the domain no longer existed. IT staff said the reminder to renew the domain was sent to an employee’s email address that no longer works there. The website is now back up and running. The N&O has a brief story on the chaos.
- Sen. Ford (D-Mecklenburg) talks about being a pro-business Democrat – VIDEO courtesy of the N&O
- WRAL this week launched an application to help people quickly find who represents them in the General Assembly and in Congress. Simply enter your address, and you'll get photos and contact information for each of your five representatives in state and federal government. Read more here and try the app for yourself here.