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New Sales Tax Reallocation Plan Unveiled as Senate 'Compromises'

A revised tax plan that would split local sales tax distributions 50-50 between population and point-of-sale was released this week as the Senate took steps to separate that issue and some others from budget negotiations. The revamped plan came as part of a new version of HB 117 NC Competes Act, which also contains funding for state-level job incentive programs such as the Job Development Investment Grants, or JDIG. Under the new HB 117, locally-authorized sales taxes would be returned to counties from the state with half the distribution based on a county's population (per capita) and half based on where a sale occurs (point-of- sale). Currently, 75 percent of sales taxes are distributed to counties on a point-of-sale basis, while 25 percent are returned on a per-capita basis. The new plan would put the distribution formula into full effect on July 1 of next year and does not include any sales tax base expansion or additional local option sales taxes that were included in previous plans. It also maintains county choice as to whether to distribute sales taxes to cities based on per capita or ad valorem percentages.

Local estimates as to the effect of this new plan can be found here. In general, the change continues to direct sales tax money away from urban and tourist counties and toward rural counties. The revenue shifts are not as substantial as previous versions of the Senate sales tax reallocation proposals. In discussing the plan with the Senate Finance Committee, Sen. Harry Brown noted his work with a number of groups, including the League, in moving toward the 50-50 split. Senator Brown also pointed out that a 50-50 split would return sales tax distributions to the way they were done prior to 2007. Local sales taxes were distributed half per capita and half point of sale until 2007, when the change to 75-25 was made as part of a larger deal involving the state taking on county Medicaid costs. The sales tax shift in 2007 was a way of getting urban counties to support the Medicaid swap, as they would have lost revenue under the deal otherwise. Gov. Pat McCrory has vowed to veto any bill containing sales tax reallocation provisions. While Senate leaders promoted the plan as a compromise, House Finance co-chair Rep. Bill Brawley told reporters, "The sales tax distribution has got to come out. We can't compromise it at any level."

Action on this bill came less than 24 hours after a press conference at which Senate President Pro Tempore Phil Berger announced that the Senate would consider economic development and Medicaid reform legislation outside of the budget process. Those two areas had reportedly been key sticking points in attempts to reach a deal with the House on a state budget before the current continuing budget resolution expires one week from today. Shortly after the press conference, the Senate Republican caucus issued a press release entitled "Senate Compromises to Move Budget Process Forward." That release quoted Sen. Brown as saying, "Gov. (Pat) McCrory has repeatedly called on the legislature -- both publicly and privately -- to adopt a budget that limits spending increases to no more than the rate of inflation plus population growth, which totals $21.65 billion. ... We encourage our colleagues on the House Appropriations committee to join us in accepting the governor's proposed compromise."

HB 117 -- which, as noted above, contains less-restricted job incentive funding that supports a Municipal Advocacy Goal -- will be heard by the full Senate on Monday evening. The League continues to advocate for revenue flexibility for municipalities that benefits all cities and towns and gives every community local choices as to how to fund the services their citizens and businesses request. If you would like more information on the proposals the League has put forward, or would like our assistance in connecting with key legislators to discuss issues surrounding municipal revenues, please contact any member of the League's Governmental Affairs Team. Contact: Chris Nida


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House Unveils, Passes Big Bond Package

The House this week unveiled and then passed a $2.85 billion bond proposal that could put the borrowing plan before voters in a spring referendum next year. HB 943 Connect NC Bond Act of 2015 would put $2.46 billion toward state buildings and state and local infrastructure, with $900 million for university system construction, $500 million going to public school construction, and $75 million for local water and sewer projects. Another $400 million would go to road-building and transportation.

The plan somewhat mirrors a bond package proposed by Gov. Pat McCrory, but the governor had wanted to split money evenly between transportation and other state building needs. It remains to be seen how the Senate will view the plan. A major bond proposal has not been put before North Carolina voters since 2000, although legislatures from 2001 through 2010 borrowed money for capital construction using non-general obligation bond methods that did not require voter approval. HB 943 would have voters decide on the bonds during next year's presidential primary. Current legislation pending in the General Assembly calls for that election to be held March 15.

The legislation would achieve key League legislative advocacy goals calling for increased transportation and infrastructure investment, and a bond package benefiting local government. Read media coverage about the bond proposal here and here. Contact: Rose Williams


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Governor, Secretary Rally Supporters for Historic Tax Credits

Governor Pat McCrory and Secretary of Cultural Resources Susan Kluttz will host supporters of historic preservation tax credits during a rally next week on the grounds of the State Capitol. The event will be held on Wednesday from 10 a.m. until 11 a.m., with legislative visits to follow. The event comes after Secretary Kluttz's tour of the state, aided by League members across North Carolina, in support of the reinstatement of an historic preservation tax credit. The tax credit expired in January.

League members in December adopted as a legislative advocacy goal the reinstatement of the tax credit, which has been vital to downtown restoration and economic development efforts across North Carolina. League staff has been active in lobbying for legislation to achieve the goal. The House has included a provision in its budget bill to restore a historic tax credit, and passed HB 152 New Historic Preservation Tax Credit to do the same. The resolution of the issue is likely to come in the budget bill, HB 97 2015 Appropriations Act, now being negotiated between the House and Senate. You can RSVP to attend next Wednesday's event, as well as find directions and parking information, here. Contact: Scott Mooneyham


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Senate Clears Path for Builders' Tax Loophole

With only five dissenting votes and negligible floor debate, the Senate cleared a bill Wednesday that would allow builders a property tax exemption on improvements to their properties for a period of time or until the property was sold. The chamber's approval sent HB 168 Exempt Builders' Inventory back to the House for a concurrence vote. The measure runs counter to tax law changes made in recent years that reduced the number of industry-specific tax exemptions in state law, a fact that Sen. Bob Rucho noted during this week's floor debate while explaining his opposition to the bill.

The measure would allow property owners to apply for an exemption for up to three years for residential property, and up to five years (or until a building permit was issued or the building was sold) for improvements to commercial property like water and sewer lines and roads. The League and its members previously spoke out against the bill, which General Assembly staff projected would cost local governments upwards of $65 million in property tax revenue annually. The change would not prevent local governments from having to provide services such as police, fire, and solid waste services to these properties, all without receiving tax revenues to pay for them. Contact: Chris Nida


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Independent Redistricting Effort Continues

The coalition backing independent redistricting reform has created a website providing details about the effort and is continuing to seek support from municipal leaders regarding the issue. So far, 241 municipal officials have signed up supporting the effort, which has been led by former Charlotte Mayor Richard Vinroot and former Raleigh Mayor Charles Meeker. League members adopted as a Municipal Advocacy Goal the support of legislation calling for a nonpartisan means of drawing legislative and congressional districts. Two months later, League Board member Liz Johnson, mayor pro tem of Morrisville, spoke  as House members announced plans for bipartisan legislation to create an independent redistricting process. The bill has not been voted on this session.
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Tennyson Appointed to Lead DOT

Just days after Gov. Pat McCrory named former Durham Mayor Nick Tennyson acting State Transportation Secretary, the governor decided to make the appointment more permanent. Tennyson, who had been the Department of Transportation's Chief Deputy Secretary overseeing agency operational and support functions, was named secretary on Thursday. He replaces Tony Tata, who recently announced his resignation after serving as Transportation Secretary since the beginning of Governor McCrory's term.

Secretary Tennyson served as Durham's mayor from 1997 to 2001. The League congratulates Secretary Tennyson on his appointment and looks forward to continuing to work with him. Read more about the appointment here.


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Wastewater Systems Must Accept Heating/Cooling Condensate

The House unanimously voted this week to concur with the Senate's amendments to HB 538 Water and Sewer Service Related Changes, with a late add-on putting a new requirement on wastewater systems. The bill now goes to Gov. Pat McCrory to be signed into law. It includes a provision added by the Senate which would require wastewater systems to accept the collection of liquid condensate from residential heating and cooling systems.

Requiring wastewater systems to accept this liquid, especially if large numbers of connections are requested, could create concerns for municipal systems. The League hopes to address some of these concerns by seeking technical corrections in a separate technical amendments bill. Read more about the provision in last week's BulletinContact: Sarah Collins