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Fruits of Your Labor on Tax Reform

As the House began to evaluate in earnest the proposed Senate budget this week, three versions of "tax reform" were released/updated. On behalf of all cities and towns, we greatly appreciate the efforts of the House and Senate crafters of each proposal to protect municipal interests, in that each plan attempts to hold cities harmless from a reworking of the state tax code!  We continue to hear individual legislators telling us they are committed to preventing harm to cities through the reform process -- which is a tribute to the hard work you all are completing back home with your legislative delegations. We expect to see a significant push over the next month to gain a consensus on the tax plan between the House and the Senate, and the passage of a state budget by the end of the fiscal year. 

We encourage each of you to read the in-depth analysis we have developed as to each proposed tax reform plan. Of the three plans, the provisions of the current House tax reform package appear to most effectively avoid the possibility of individual cities losing money as a result of state tax reform. Please contact us with your input as soon as possible, as we are in constant contact with both chambers on these important bills.  And remember, we still have a long way to go before the train reaches the station. 


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Senate and House Tax Reform Plans Seek to Protect Cities -- Detailed Analysis Below

Three tax reform plans were presented for discussion to the House and Senate Finance Committees on Thursday, including the long-awaited Senate leadership plan. All three plans were presented as proposed committee substitutes for previously introduced bills: SB 677 NC Fair Tax Act (Sens. Rucho and Rabon), HB 998 Tax Simplification and Reduction Act (Reps. Lewis, Setzer, Moffitt, and Szoka), and SB 394 Lower Tax Rates for a Stronger NC Economy (Sens. Clodfelter, Hartsell, Jenkins, and Meredith).

The League's summary of the provisions of these three bills can be found here.

The League thanks the sponsors of all three bills for working to limit the fiscal consequences of tax reform to municipalities. Of the three bills, HB 998 appears to provide the cleanest mechanism for ensuring that no individual city or town's revenues will decrease under tax reform. 

The House is expected to approve HB 998, possibly as part of its version of the budget. Prospects for the Senate bills are less clear. Although supported by the Senate leadership, SB 677 contains some provisions that are expected to meet resistance, such as applying sales tax to food and medicine not covered by insurance. The Governor already has indicated that he opposes such measures, as well as a sales tax expansion that imposes the responsibility to collect taxes on too many businesses. The eventual compromise plan may include elements of all three bills. Fiscal impact information is available on only two of the bills, HB 998 (impact) and SB 394 (impact), but some of the figures in the impact statements do not appear to reflect the actual bill language. Sufficient data is not yet available to allow city-by-city impacts to be estimated. Only SB 394 would significantly affect municipal revenues for FY 13-14.

All three bills would expand the local sales tax to cover services, but the range of services covered varies widely, with SB 677 applying the tax to most services delivered to consumers, but not on business-to-business transactions. Both Senate bills would affect the municipal privilege license tax, SB 394 by eliminating it and SB 677 by capping it at $500 per location. Each of the three bills would eliminate the franchise tax on electricity and natural gas and the local distribution of a portion of such taxes, but the bills differ in how this revenue would be replaced. Both Senate bills also would eliminate the local distribution of beer and wine taxes and the local government sales tax refund. SB 677 also would reduce the local sales tax rate, but it would cap sales tax refunds to non-profits.

Each of the bills attempts to ensure that cities and towns receive as much revenue under its new system as they do under the current system, but how this would be done varies. 

HB 998 would replace the franchise tax revenue with a distribution equal to the amount of franchise tax each municipality received during FY 13-14. Combined with the additional revenue received from the sales tax expansion, HB 998 would ensure that each city and town would receive at least as much revenue in the future under the new tax system as it did during FY 13-14. 

SB 677 includes a transitional hold harmless provision that would ensure that each municipality receives as much revenue in FY 14-15 and FY 15-16 as it did from sales taxes and the repealed state-collected taxes during 2014. It would not hold cities harmless for the privilege tax change. The hold harmless would phase out by 10 percent each year and expire after FY 24-25. 

SB 394 includes a hold harmless only for the electricity franchise tax, but its combination of tax changes are designed to provide each city and town with more revenue than under the current system. Sufficient data is not yet available to determine whether this goal is met at the individual municipality level, or only in the aggregate. Contact: Karl Knapp


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Budget Deliberations Commence in House

One week after the Senate passed its budget, the House began consideration of its version of the State spending plan. No proposals were rolled out this week, as House appropriations subcommittees instead met to go over the Senate budget and discuss provisions contained in it. Though no proposals were released, House members did say that they would not include in their budget any provision in the Senate budget that was not related to spending, and that they would be working late into the day today in order to have a budget ready for consideration next week. The transitional hold harmless payments that expired last August will need to appear in the House budget if they are to have any chance of being extended. Those of you interested in the extension of these payments need to contact your Representatives today and ask that the extension is included in the House budget. House budget calendars indicate that the chamber does not plan to take a final vote on its version until June 13, but more details on what is included in the House budget should be available next week. When they are released the League will have an analysis of how the House's proposal impacts cities and towns, similar to what we released for the Senate budget. Contact: Karl Knapp
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Cell Tower Bill Advances

The modified HB 664 Cell Tower Deployment Act, the result of the League’s multiple-week negotiations with bill sponsors and wireless industry representatives, was approved without alteration by the Senate Commerce Committee yesterday. The bill gives cities the authority to block wireless facility collocations due to public safety and zoning considerations. The Committee voiced some concern about compatibility with military land use since the Act would be subject to military use regulations, but the bill faced no opposition. The bill will move to the Senate Finance Committee next week. Contact: Paul Meyer


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Dix Compromise Passes House

The City of Raleigh would have a year to renegotiate its acquisition of the Dorothea Dix property from the state under a bill given final approval by the House Wednesday. The version of SB 334 Dorothea Dix Lease passed by the House, which was detailed in last week's Bulletin, differs markedly from the Senate's version, which would have invalidated the city's lease immediately. Senate President Pro Tempore Phil Berger questioned the House's bill, potentially setting up a contentious negotiation between the two chambers on a final version of the legislation. The City of Raleigh maintains its belief that it has a valid lease agreement with the State but supports the House's version of SB 334, which passed overwhelmingly with little debate. Contact: Paul Meyer
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Salisbury Deannexation Gets Tentative House Approval

The House voted in favor of SB 269 Salisbury/Deannex Rowan Cty Airport Property on Wednesday, meaning the bill must receive only one more favorable vote before it becomes law. That vote is scheduled to take place on Monday, as legislative rules require the bill to be voted on on separate days and the House did not take any votes during its Thursday session. The bill, which would remove portions of the Rowan County Airport from the City of Salisbury's corporate limits and is not supported by the City, was added to the House Finance Committee during the committee's Tuesday morning meeting and passed out of the committee soon afterward. It then passed on the House floor by a vote of 104-11 Wednesday with no debate. Final approval is expected Monday. Contact: Paul Meyer
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Senate Committee Votes to Limit Asheville Utility Transfers

The Senate Finance Committee gave a favorable report Wednesday to HB 252 Asheville Transfers. That bill would repeal the City of Asheville's authority to use up to 5 percent of its utility revenues for sidewalk and street improvements related to utility projects. The bill has been modified from its original introduction so that it only affects future projects that have not yet had funds committed to them. While HB 252 is separate from the previously approved legislation transferring the City's water system to a regional metropolitan sewerage authority, its impact will differ based on the outcome of the lawsuit the City of Asheville has filed over the legislation. If the lawsuit is successful and the City of Asheville maintains control of its water system, HB 252 will limit the transfers the City can make from its utility fund. If the City is forced to transfer control of its water system, the legislation will remove a law that is no longer necessary. The full Senate is scheduled to take up HB 252 next Tuesday. Contact: Paul Meyer
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District Days! - June 4 "Grand Finale"

Tuesday, June 4 will be our final 2013 District Days! Tuesday will be geared toward western N.C. legislators and leadership, but any League member should feel free to come and be part of the day. Let me know you'll be here so we can inform legislators of your participation. We are at an important juncture of the legislative session, so please make attendance at this District Days! a priority.

District Days! is a coordinated effort to have regional groups of mayors, managers and municipal leadership in Raleigh having meaningful discussions with legislative leadership and your hometown legislators. These one-on-one visits with legislators are making a tremendous difference in accessibility. This may be the last District Days!, but if your hometown would like to have appointments in Raleigh with legislators between now and the end of session, we're glad to arrange your day. Simply send an email with a date and we'll get things started for you.

Groups should arrive at 9 o'clock June 4 at the Coates building on the League's campus. After a short briefing on the Top 3 Hot Issues, you'll proceed to the legislature. We thank you for getting involved.

Contact: Jennifer Webb; 919.715.1726