Following weeks of speculation in the media, members of the Senate this week introduced multiple bills that would change the current state and local sales tax structure. The one garnering the most attention was SB 369 Sales Tax Fairness Act, sponsored by Sen. Harry Brown. As filed, the bill would phase in over three years a conversion of the local sales tax to a state sales tax that was allocated to local governments. It would also require counties to use the per capita method of distributing sales taxes to municipalities, and give counties authority for an additional quarter-cent sales tax that is not shared with cities. By repealing Articles 39 and 40 of local sales tax, it would also in effect eliminate the city hold harmless payment made to cities as part of their regular sales tax distribution. That payment is made to compensate for the revenue cities lost when counties agreed to transition the Article 44 half-cent local sales tax to a state sales tax in exchange for the state assuming more Medicaid funding responsibilities.
Based on that analysis of the bill, the League projected this week that at full implementation in FY18-19 cities would stand to lose nearly $120 million annually as a result of SB 369. The League understands that this is an initial draft of the bill and it is likely to evolve as the legislative process progresses, and we appreciate Sen. Brown and the legislative staff meeting with us to discuss our concerns.
Regardless of the bill's specific financial impact, a more overarching concern is the repeal of the local sales tax in favor of a state sales tax allocated to local governments. This removes the local sales tax as a locally levied tax and subjects it to the annual appropriations process. It also impacts some cities positively and some negatively at a time when the League is working for financial stability and flexibility for all municipalities.
Also filed this week shortly before the Senate's bill filing deadline was SB 608 Simple and Fair Formula for Sales Tax Distrib. That bill, sponsored by Sen. Bob Rucho, takes a slightly different approach to sales tax reallocation. SB 608 would establish the amount of sales tax revenues cities and counties received in Fiscal Year 2013-2014 as a "baseline" year. Beginning July 1, 2016, all local sales tax would be converted to state sales tax and allocated to local governments. All counties and cities would receive the same amount of sales taxes they received in 2013-14, and any additional revenues would be distributed to counties on a per capita basis. While no cities would lose money under this scenario -- at least in relation to what they received in sales taxes in FY13-14 -- local governments would still lose control of their sales tax revenue when it was converted to a state sales tax.
Both of these bills were just filed this week and have not yet been scheduled for any committee hearings. The League will continue to work closely with legislators on these proposals and keep you updated as to the progress of these bills. Contact: Chris Nida
The House gave its approval on Thursday to legislation that would create a new historic preservation tax credit to replace the widely-used credit that expired in January. The House turned back several amendments that would have placed restrictions on the proposed credits before voting 98-15 in favor of the plan.
This legislation, vital to economic development in small towns and larger cities, tracks a League advocacy goal calling for restoration of the historic tax credit and a competitive film incentives program. HB 152 New Historic Preservation Tax Credit would create an historic credit of 10 to 20 percent of expenses, depending on the size of the renovation project and where it occurred. In poorer Tier 1 and Tier 2 counties and for projects under $10 million, the higher percentage would apply.
The League would like to thank bill sponsors Reps. Stephen Ross of Burlington, Jon Hardister of Greensboro, David Lewis of Dunn and Rick Glazier of Fayetteville for their hard work on this legislation. The bill now moves to the Senate, where it faces key opposition. Senate leader Phil Berger has said that he favors a grant program over tax credits. Meanwhile, a separate bill filed Thursday in the Senate -- SB 472 Local Incentives for Historic Rehabilitation -- provides authorization for local governments to make their own grants and loans for the rehabilitation of historic structures.
Please continue to contact your senators and let them know how important historic preservation tax credits are to thriving downtowns and to larger economic development efforts. The ongoing efforts of League members and other groups involved in a coalition supporting the historic tax credits will be crucial in the weeks ahead as the General Assembly decides this issue. Contact: Scott Mooneyham
The House on Wednesday gave final approval to legislation that would repeal the protest petition process. HB 201 Zoning Changes/Citizen Input was approved overwhelming after two changes were made to the bill on the House floor. One change would require municipal governing boards to notify all adjacent property owners of proposed zoning changes at least 30 days before a public hearing; the other would allow any protest petitions filed before May 1 to go forward if the legislation were approved anytime before that date.
The bill repeals the requirement for three-fourths supermajority votes when a valid protest petition is filed. Under existing law, the supermajority vote is forced when 20 percent of property owners within the area of the proposed rezoning or 5 percent of adjacent property owners signed a petition in protest of the proposed change. The legislation now goes to the Senate for consideration.
One Senate bill, SB 300 Zoning Changes Majority Rule, would have a similar effect of eliminating protest petitions. Another Senate bill, SB 285 Zoning/Protest Petition Changes, would preserve protest petitions while lowering the supermajority thresholds and increasing the adjacent property owner thresholds. That bill falls in line with reforms supported by League members. Read previous League coverage here. Contact: Erin Wynia
Senate leaders filed legislation Thursday indicating that they will make a push for another major overhaul of state taxes. SB 526 Job Creation and Tax Relief Act of 2015 would lower North Carolina's personal income tax rates by another quarter percent by 2017, to 5.5 percent, and reduce the state corporate income tax rate to 4 percent by that year. It also would allow state taxpayers to exempt $20,000 of income from taxation in lieu of taking mortgage interest deductions and other itemized deductions. Senate leaders say the tax proposal amounts to another $1 billion in tax cuts.
The bill comes two years after the General Assembly passed a major tax overhaul that included even bigger cuts to personal and state income taxes. Senate leaders say the additional tax cuts are needed to keep North Carolina economically competitive with other southeastern states. House leaders have struck a more cautious tone, saying the previous round of tax changes needs to be allowed to work. They have also expressed concerns about the potential for budget shortfalls resulting from additional tax cuts.
The bill is yet another piece of legislation that includes provisions affecting jobs recruiting programs. It would raise the cap on the state's Job Development Investment Grant incentives program to $15 million, while limiting Wake, Mecklenburg and Durham counties to no more than half of the programs' money. Unlike the 2013 tax overhaul legislation, the bill does not appear to have any direct affects on municipalities.
Legislative leaders announced Thursday that House and Senate negotiators had struck a deal on legislation intended to stabilize transportation revenue in North Carolina. The compromise language in SB 20 IRC Update/Motor Fuels Changes would mean that the state's gas tax is no longer tied to volatile changes in the price of gasoline. Instead, the tax, now at 37.5 cents per gallon, would drop immediately to 36 cents per gallon, then 35 cents in January and 34 cents in July 2016. Starting in 2018, the tax would be 34 cents plus an additional cost based on population changes and an inflation index.
House Speaker Tim Moore said the plan would create certainty for transportation funding. Both Republicans and Democrats attended the news conference in which the agreement was announced, a signal that the legislation should continue to receive bipartisan support when it goes to the House and Senate floor next week. The League has been heavily involved in advocating for the passage of this legislation, which is critical for future Powell Bill funding. We would like to congratulate legislative leaders for reaching an agreement on this critical bill, thank legislators for their support, and thank all of you for your work advocating for its passage. Read more about the agreement on SB 20 here and here. Read previous League coverage here. Contact: Rose Williams
N.C. Division of Water Resources (DWR) continued its work this week in the expansive "periodic review of rules" process mandated by HB 74 Regulatory Reform Act of 2013, holding the first of five stakeholder meetings to assist in the readoption of nearly all of the state's water quality rules. These rules include many regulations affecting cities and towns, such as the rules governing wastewater discharges, stormwater programs, buffers, reclaimed water, land application of biosolids, and various nutrient management strategies.
The meetings are organized by rule topic and scheduled bi-weekly on Tuesdays until May 19. The first stakeholder meeting focused on the various rules that for many years have been collectively referred to as the “Red Book” and draft rules were separated into three areas: Procedures for Assignment of Water Quality Standards, Classifications and Water Quality Standards for Surface Waters and Wetlands, and Assignment of Stream Classifications.
The purpose of this stakeholder process is to gain perspectives on early draft versions of the rules and to take additional suggestions and questions that may improve the drafts. The formal rulemaking process is not expected to begin until the fall of 2015 when draft rules will be presented to a committee of the Environmental Management Commission. Contact: Sarah Collins
The League will host the third in a series of regional meetings examining the future of municipal finance on April 13 in Pineville. The series, A Path Forward: Vibrant Cities Today and Tomorrow, examines the many financial challenges faced by North Carolina municipalities against a backdrop of policy changes from Raleigh and population shifts within the state. Previous meetings held in Southport and Burlington proved successful in creating dialogue on these subjects and generating substantial media coverage.
The Pineville meeting will be held from 10 a.m. until noon. It will include a presentation from League staff looking at the history of municipal finance, comparative tax data with other states, and a review of the legislative debate leading up to the pending repeal of the local business privilege license tax. A panel discussion will follow, with panelists including elected and appointed municipal officials from across the region. Please join us for this important meeting to explore the challenges faced by your city or town, and demonstrate your commitment to making these concerns known to legislators and the broader public. The meeting is free of charge. Learn more about the event and register here. Contact: Scott Mooneyham
Legislation filed in the Senate this week would substantially limit the ability of cities to conduct rental registration and inspections programs. SB 442 Local Gov'ts/Inspect Bldgs & Structures would attempt to impose the same kinds of restrictions on these programs as legislation approved by the House in 2013 but which failed to move in the Senate. Rental registration and inspection programs are used by cities to address blighted, high-crime, substandard and nuisance rental properties to protect surrounding property values and the residents who live there. Contact: Erin Wynia
League Executive Director Paul Meyer is hitting the road during the month of April as part of the League's Listening and Vision Tour. In all, there will be 15 stops during the tour, with meetings being held from Marion to Manteo. The very first stop is next week, on Wednesday, April 1, in Sylva.
This is your opportunity to provide feedback about the League's efforts, the state of affairs of municipalities, and have more input on the evolving role of cities and towns in the future. Some of the meetings will include a session with the UNC School of Government regarding the NCLM's strategic visioning process. To see a full list of stops on the tour and to register, go here. Please come out and let us know your thoughts about the League and municipalities in this rapidly changing political environment!
Leaders of the House Committee on Regulatory Reform scheduled a Tuesday hearing for HB 255/SB324 Building Code Reg. Reform. The bill contains provisions targeting building inspectors and the performance of their work, including some provisions passed by the House last session. Many provisions in the bill would hamstring local governments' statutory obligation to protect public safety, especially for residential structures. Other provisions would increase the workload of taxpayer-funded building inspection functions to benefit residential builders. Please contact your legislators and members of the committee to voice your concerns. Specifically for cities and towns, the bill:
While League members oppose many provisions of this bill, they appreciate primary bill sponsor Rep. Mark Brody's willingness to discuss the concerns in advance of Tuesday's committee hearing. Contact: Erin Wynia
The Senate quickly approved a bill this week that would add another $5 million to the state's chief jobs recruiting program, but State Commerce Secretary John Skvarla characterized the legislation as inadequate and referred to it as "a band aid approach." SB 326 Increase JDIG Program Funding passed the Senate unanimously, and is now before the House.
Meanwhile, the Senate has not acted on a proposal from the House and Gov. Pat McCrory on jobs recruiting, the more substantial HB 117 NC Competes Act. Senate leaders, though, have introduced a competing proposal, SB 338 Economic Development/Tax Modifications, that would lower the corporate income tax and provide for larger Jobs Development Incentive Grants when major projects come to the state. You can read The Charlotte Observer editorial board's take on the fight over incentives legislation here.
With a deadline yesterday in the Senate to file most bills, the past two weeks saw a crush of new proposals. The last significant House bill filing deadline is in just under two weeks on April 8. Bills of note affecting municipalities that were filed in both chambers in the last two weeks include:
Amid the intense work of drafting and filing bills, legislators also advanced several measures of interest to cities and towns this week:
Contact: Erin Wynia
Two bipartisan measures introduced this week would set insurance requirements for digitally dispatched transportation services like Uber and Lyft, with one restricting local government regulation of the services.
Senate Bill 541 Regulate Transportation Network Companies filed Thursday would establish permit requirements for transportation network companies to operate in the state. However, the permitting authority would be the N.C. Division of Motor Vehicles. Local governments would not be authorized to impose fees, require licenses, limit the operation of services, or otherwise regulate these services under the bill. The bill also included insurance and safety requirements.
Senate Bill 414 Regulate Transportation Network Services, filed on Wednesday, would enact a new general statute setting automotive insurance requirements for transportation network services. That legislation would require separate levels of insurance coverage be provided by the company or the driver when (1) a driver is participating in a ride request, and (2) a driver is on the platform, but is not serving a request. The bill would also require a transportation network company to make certain disclosures to its drivers regarding insurance, and if a company does not provide insurance to its drivers, to notify each driver's personal auto insurance company of the driver's participation in the network. A third piece of legislation filed Thursday, Senate Bill 567, is substantially similar to SB 414. Contact: Sarah Collins
SB 397 - Open & Fair Competition/Water & Wastewater filed Tuesday would prohibit public entities who seek state funding for water, wastewater, or stormwater projects from using their judgment in the selection of piping materials. This bill could override local standards and specifications that have been developed over time based on past experience. Since material selection can be location and application sensitive, local conditions and requirements should be the primary factors when considering pipe materials on any project. Contact: Sarah Collins
The Senate has given approval to legislation that will allow a deal to go forward that promises to eventually lower power bills in 32 cities and towns in eastern North Carolina. The deal between the North Carolina Eastern Municipal Power Agency and Duke Energy was struck last summer. SB 305/HB 265 NCEMPA Asset Sale enables the 32 cities that make up the N.C. Eastern Municipal Power Agency to issue bonds to facilitate the agreement while allowing Duke Energy to purchase the power-generating assets that the agency now controls. The Senate approved its version of the bill with just one dissenting vote.
The debt incurred for the municipalities' ownership stake of those assets has created higher energy costs in those towns and cities than for other areas of the state. Although the deal is expected to lower rates, officials in those municipalities are cautioning that the reductions may be small initially. Read more about the deal and legislation here.
The House Committee on Transportation this week gave its OK to legislation that would repeal the state Map Act. The Map Act has come under criticism because in some cases it had led to road corridors being designated for years without construction while development restrictions were placed on the property owners in those corridors. Most of that criticism had been directed at the state Department of Transportation, but local governments were also included under its provisions.
HB 183 Repeal Map Act would do away with the 1987 law, which was originally passed in an attempt to hold down road-building costs. The bill next will be considered by the House Finance Committee. A separate Senate bill, SB 373 Repeal Map Act, would also do away with the law. Yet another piece of Senate legislation would attempt to tweak the law to limit the time that development can be restricted. SB 364 Map Act Revisions reduces from three to two years the length of time a transportation corridor designation may stall issuance of building permits or approvals of subdivision plats. It also makes other changes designed to ensure that corridor designations are made with relative certainty that roads will actually be constructed in the near future. Read more about Map Act-related legislation here.