2006 session opens with rosy revenue picture, lots of spending ideas

Legislators returned to Raleigh for the 2006 session with an estimated surplus of $1.7 billion and lots of ideas of what to do with the money. The surplus resulted from higher than anticipated revenue and unspent state appropriations. There are numerous proposals to spend it on pay raises for teachers and state employees, capital improvements, education program enhancements, improvements to mental health services, and a number of other needs. There are also proposals to return a portion of the money to taxpayers.

Governor Mike Easley sent his FY 2006-07 budget recommendations to the General Assembly this week. Among his proposed budget adjustments are the following.

-Lower the state sales tax by one-quarter of one cent effective October 1, 2006.
-Cap the gasoline tax at the current rate.
-Put an additional $324 million in the state’s savings fund. Create a $50 million reserve for disaster-related expenses.
-Put $195 million toward replenishing the Highway Trust Fund (monies have been taken from this fund to help balance the state budget).
-Increase teachers’ salaries by an average of 8 percent and state employees’ salaries by 4 percent.
-Provide an additional $523 million for public schools. Appropriate $42 million to fully fund low-wealth school districts.
-Provide $10 million for the One North Carolina Fund to recruit new business and support expanding businesses.
-Increase funding for the Housing Trust Fund by $5 million.
-Increase road resurfacing funds by $83 million. Appropriate an additional $10 million for small urban transportation construction funds.
-Approve a $9.4 million increase in public transportation funding.
-Provide $329 million in general fund appropriations for capital projects.
-Fund a $47.7 million Secure Communities initiative (see below for details).

For details on the governor’s proposed budget adjustments, go to http://www.governor.state.nc.us/ or http://www.osbm.state.nc.us/osbm/index.html (a copy of the proposed budget adjustments can be downloaded from this second website by clicking on the title on the right side of the web page).

The General Assembly, of course, will draw up its own budget adjustments for 2006-2007. The governor’s budget is simply a recommendation and a starting point for the legislators’ discussions.

Secure Communities Initiative
As part of his budget recommendation, Governor Easley requested a $47.7 million appropriation to increase staff and improve technology for the state’s judicial system. The initiative calls for funding to decrease the backlog of criminal cases and modernize the court system.

-$5.1 million for 90 more assistant district attorneys to prosecute cases.
-$3.1 million to hire 75 more deputy clerks of court, six magistrates and five district court support staff.
-12 additional State Bureau of Investigation agents to help local law enforcement.
-$1.9 million to upgrade the N.C. Statewide Automated Fingerprint Identification System.
-An additional $10 million to continue expansion of the VIPER network to allow law enforcement agencies to communicate with one another.
-Three new attorneys in the Attorney General’s office.
-$13.1 million to upgrade technology to track evidence and try cases.

Recently the N.C. Metropolitan Coalition, an organization of the state’s largest municipalities that is affiliated with the League, voiced its support for increased funding for the courts, including hiring more assistant district attorneys and deputy clerks of court. Securing these appropriations will be a top legislative priority for the coalition. The NCLM Board of Directors will take up the issue at its May 18 meeting.

Finance Committees hear infrastructure requests
Groups lined up this week to tell a joint meeting of the House and Senate Finance Committees about statewide capital needs. Requests for bond issues—most in the $1 billion range—are under consideration for clean water needs (water, sewer and stormwater projects), transportation, land acquisition/open space, and school construction. Legislators also heard about funding needs in the areas of affordable housing and mental health facilities.

While all may be worthy proposals, there is insufficient debt capacity to fund all of the requests. The State Treasurer’s Office recommends that the state borrow no more than $214 million annually over the next ten years or it will exceed its debt capacity, according to Vance Holloman, Deputy State Treasurer, who made a presentation to the committee.

Bond bills are already being introduced. Among them are HB 1809 – Clean Water Bonds Act of 2006, HB 1924 – Affordable Housing Bonds Act of 2006, and SB 1281 – Clean Water Bonds Act of 2006. It remains to be seen whether the General Assembly will pursue a bond issue for a single priority or will seek to combine some or all of the needs into an omnibus bill. The NCLM Board of Directors will consider this issue at its May 18 meeting.

Municipal issues for the 2006 session
Since 2006 is a “short” session, rules limit what bills can be considered. Eligible bills will include those affecting the state budget, bills that passed one house in 2005, study committee recommendations, non-controversial local bills, and retirement bills. In spite of the limitations, this session promises to include a number of significant bills for cities and towns. Below are updates on some of the key issues.

State franchising for video programming: The Revenue Laws Study Committee has recommended legislation that would give the state Utilities Commission, rather than local governments, the authority to issue franchises for video programming. Telephone companies are pushing this legislation so they can enter what has traditionally been a cable market without having to obtain local franchises. Please see Legislative Bulletin No. 1 for additional background on this issue.

Under the proposed bill (not yet introduced), cities and towns would receive five percent of gross receipts as well as fixed percentages of certain other revenues, including telecommunications sales tax revenues (above what municipalities receive now), the cable/video services sales tax, and the satellite broadcasting sales tax.

The initial distribution would be based on the proportion of each city's and county's cable franchise tax revenues of the FY 2005-06 statewide total of those revenues. In future years, these figures would be adjusted by the percentage change in population the previous year (only the unincorporated portion of the county population would be counted). Initial projections indicate that local governments would be kept whole under this plan. The share of a local governments that did not impose a cable franchise tax would be based on population.

The bill specifies that cities’ regulation of the public rights of way will continue to be governed by G.S. Chapter 160A. The proposed legislation, however, has no build-out provisions, meaning that a company obtaining a state franchise has no requirement to serve an entire community--it can pick and choose the neighborhoods and areas it wants to serve. Cable providers with existing local franchises can get out of those agreements as soon as a company holding a state franchise offers service to just one house within the cable company’s service area. The cable company can then drop its local franchise, apply for a state franchise, and choose to redraw its service areas. Again there are no build-out or mandated service areas for the cable company.

And, although companies are required to provide public, education and governmental (PEG) access channels, there are some restrictions and fewer requirements on the franchise holders to provide equipment and services related to the PEG channels.

We believe franchising for video programming is best left at the local level. If state franchising is to be implemented, however, we have insisted that the local revenue stream be protected, that city authority to regulate the right-of-way be preserved, that build-out requirements be included, that customer service standards remain in place, and that adequate PEG channels and other community benefits be provided.

We thank the members of Revenue Laws and staff for considering our input and including provisions in the draft bill to address many of our issues. We will continue to work on those areas in which the draft falls short.

Eminent domain restrictions: The House Select Committee on Eminent Domain has recommended legislation clarifying that local governments can't use condemnation powers for economic development projects. HB 1965 – Eminent Domain Restrictions provides that the uses listed in GS 40A-3 are the exclusive uses for which property can be condemned. Local acts granting eminent domain authority for a purpose other than one listed in 40A-3 are repealed. (Actions commenced before July 1, 2006 can be completed under the local act.).

The bill also contains a provision to narrow the eminent domain language in the revenue bond statute. It prohibits the use of eminent domain for certain economic development projects financed with revenue bonds, unless the bonds were issued before July 1, 2006. Eminent domain powers for other types of revenue bond projects would not be affected.

The bill appears to be a reasonable attempt to confirm what we have always believed—that local governments in North Carolina do not have broad powers to condemn for economic development purposes, and what happened in the Kelo case cannot happen here. Municipalities that would be affected by the repeal of local acts are Asheville, Charlotte, Durham, Greensboro, Hot Springs, Lumberton, and Raleigh. Please contact us if you have any questions.

We anticipate that a number of other bills on eminent domain will be introduced this session. Several seeking a constitutional amendment prohibiting condemnation for economic development have already appeared, including HB 1854 – Eminent Domain, SB 1222 – Restrict Eminent Domain, SB 1229 – Eminent Domain and SB 1324 – Eminent Domain Restricted. Other bills introduced thus far include SB 1321 – Restrict Eminent Domain that would repeal the authorization to use condemnation for urban redevelopment, and SB 1356 – Offer Condemned Land to Condemnee that would require condemnors to first offer condemned land that is no longer needed to the previous owner.

Stormwater, again: Stormwater legislation appears inevitable in the 2006 session. You will recall that legislation adopted in the 2004 session put in place standards for Phase II stormwater programs. The impetus for that legislation was the fact that rules adopted by the Environmental Management Commission had been rejected by the Rules Review Commission, and local governments were left without a clear means of complying with a federal mandate. In a surprise move in late 2005, however, the Rules Review Commission approved an amended version of the EMC’s permanent Phase II stormwater rules. Those rules differ in some significant respects from the 2004 legislation, and there is some confusion as to their applicability. The permanent rules cannot become effective until the General Assembly has had an opportunity to review them this session.

We expect legislation this session to resolve the differences between the 2004 legislation and the EMC’s permanent rules. Conflicts include the amount of stormwater that must be controlled and treated, how much of the unincorporated areas will be covered by the stormwater requirements, and the process by which new entities will be brought into the program. The League has been participating in a series of stakeholders’ meetings on these and other issues.

Solid waste issue still out there: Legislation that would hinder the ability of local governments to provide solid waste collection and recycling services at a competitive price remains eligible in the 2006 session. SB 951 – Public-Private Solid Waste Collection passed the Senate and was in the House Commerce Committee at the end of the 2005 session. It would require cities or counties that “displace” a private collection company to allow it to continue its service for 18 months after displacement or pay the company up to 12 months of gross receipts as compensation. “Displacement” could occur even if a town uses a competitive process — for example, if an existing provider is not the lowest bidder and the contract is awarded to someone else, the existing provider must either be compensated or the new contract delayed for 18 months. The League opposes the bill as it is currently written and will seek amendments.

New faces in the legislature
There have been several changes in the legislative membership during the interim between sessions. We were saddened by the passing of Sen. Ham Horton, veteran legislator from Forsyth County. Sen. Horton was well-known for his oratorical skills and artful speeches on the Senate floor. Bill Miller of Pfafftown was appointed to fill the seat. Sen. Scott Thomas from Craven County resigned his seat to pursue other interests, and Pete Bland of Vanceboro was appointed to fill the seat. On the House side, Rep. Bill Culpepper resigned his seat to pursue other interests, and Tim Spear of Creswell was appointed to fill the seat. We look forward to working with the new folks as well as the returning legislators.

Committee leadership changes
House Speaker Jim Black appointed three legislators to serve as co-chairs of the House Rules Committee. Reps. Nelson Cole, Marian McLawhorn, and Mickey Michaux will lead the committee, which controls the flow of legislation in the House. On the Senate side, President Pro-Tem Marc Basnight made the following assignments: Sen. Doug Berger; vice chair of Judiciary II; Sen. Julia Boseman, vice chair of the One NC Committee; Sen. Richard Stevens, vice chair of the Education/Higher Education Committee; Sen. Stan Bingham, ranking minority member of the Agriculture/Environment/Natural Resources Committee; Sen. Jerry Tillman, ranking minority member of the Appropriations Subcommittee on Natural and Economic Resources; Sen. Tom Apodaca, ranking minority member of the Rules Committee; and Sen. Don East, ranking minority member of the Transportation Committee.

Local bill deadlines
Don’t forget to contact your legislators as soon as possible with local bill requests. The deadline for legislators to submit local bills to bill drafting is May 17. Local bills must be introduced or filed for introduction by May 24.

Using the General Assembly website
If you need to know the status of a bill…
If you need to read the text of a bill…
If you need to know who is on a committee…
If you need to know how to reach your legislator…
If you need to know what the House or Senate will be considering during a particular daily session…

the General Assembly website makes this information and much more readily available.

When you need to know about the General Assembly…go to www.ncleg.net