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League Bulletin

June 19, 2015

The Senate approved its version of the state budget this week, with a number of proposals included that will prove important to municipalities. The Senate plan includes substantial changes to tax policy (mentioned below and in last week's Bulletin), and also spends less overall than the House version of the budget. The Senate plan raises teacher pay by an average of 4 percent, with much of the money coming from cuts to teaching assistant positions. The Senate budget plan also includes a major overhaul of the Medicaid health insurance program for the poor.

Some important provisions to municipalities included in the plan are:

  • $43.5 million for Community Development Block Grants, with $26.7 million going toward infrastructure and $15.7 million to economic development.
  • $2 million in additional grant money for the Clean Water Management Trust Fund and $1 million to be used for buffers around military communities; the changes would bring funding to $46.7 million for the biennium, compared to $52 million in the House budget; a special provision would require that $5 million go to expanded SolarBee use in Falls Lake and extending the program at Jordan Lake.
  • $5.1 million for the Clean Water State Revolving Fund, a $100,000 increase, matching a House proposal and ensuring that federal funds can be drawn down.
  • a $478,825 cut to the Drinking Water State Revolving Fund, matching a House proposal and leaving $4.5 million for the program. 
  • $250,000 for the state to pursue federal approval to assume responsibility for the 404 permitting process, which affects dredge and fill activities. 
  • $2 million in non-recurring money for the Main Street Solutions program to provide planning for downtown revitalization; the House provided $1 million.
  • $2 million in the second year of the budget for competitive Grassroots Science Museum grants.

With the substantial differences in the amounts spent in both budgets, and the significant tax and Medicaid proposals in the Senate budget plan, most legislative observers expect budget negotiations to drag out and likely extend beyond the start of the July 1 fiscal year. If so, that will mean that the two chambers will be forced to adopt continuing budget resolutions to keep state government operating beyond July 1. Find media coverage of the Senate budget plan here, here and here.

The Senate's revised sales tax redistribution plan -- which was unveiled last week as House Bill 117 and that the League detailed in last week's Bulletin -- was incorporated into the budget that passed out of the chamber this week. That means that HB 117 is now unlikely to move on its own and that, if the House fails to concur with the Senate budget (at it appears likely to do), the issue of sales tax redistribution will be part of House and Senate budget negotiations.

The sales tax redistribution provisions in the budget remain unchanged from HB 117. The budget would convert sales tax distribution in the state from the current 75%/25% point of sale/per capita split to an 80%/20% per capita/point of sale split, resulting in some counties and cities gaining money while others are projected to lose revenue. (The full projections of the impact from legislative staff are available here.) It would also generate additional sales tax revenue for local governments by expanding the sales tax base and reducing the sales tax refund cap for nonprofit hospitals.

Sales tax redistribution was a significant point of discussion during the Senate's budget debate. Sen. Harry Brown, one of the plan's chief architects, spoke to the importance of passing such a plan in order to help the state's rural communities. Sen. Joel Ford of Mecklenburg County expressed concerns about the revenue losses that his area would experience as a result of the plan, and one of Ford's fellow Mecklenburg County Senators, Sen. Bob Rucho, was the only Republican to vote against the budget twice, citing the impact of sales tax redistribution as the reason.

As mentioned above, the issue of sales tax redistribution will now likely be decided in the conference committee charged with reaching a budget agreement between the two chambers. Please continue to reach out to both your Representatives and your Senators to discuss what the bill would mean to your community, and contact League staff if you have any questions about the bill's provisions or the fiscal projections of the bill's impact on your jurisdiction. Contact: Chris Nida

The transportation portion of the Senate budget includes at least two important provisions for North Carolina's cities and towns. First, the budget eliminates the statutory formula tying Powell Bill revenues to the gas tax and instead makes Powell Bill funds a direct appropriation, sending $147.5 million to cities in FY2015-16 and $150 million to cities in FY2016-17. The League thanks Senators for their recognition of the importance of this funding source for city streets. Secondly, the budget increases the municipal vehicle tax any city or town may levy to $30, with $5 of that tax being able to be used for general purposes, $5 being allowed to go toward public transportation, and the remainder of the tax to be used for streets maintenance. This increased flexibility for all cities and towns is also greatly appreciated.

The Senate budget does not include any changes to utility line relocation reimbursement laws for cities and towns. The House budget included a measure that cities and towns had prioritized as an advocacy goal, which would reduce the amount smaller cities and towns in particular would be required to reimburse the N.C. Department of Transportation for when municipal utility lines were moved as part of an NCDOT project. If this issue is important to your city or town, please reach out to both your Representatives and Senators to encourage them to include it in the final state budget. Contact: Chris Nida

After heavy debate and numerous amendments, the Senate voted Monday to approve HB 44 Local Government Regulatory Reform 2015 -- wide-ranging legislation that would affect local government environmental, zoning, and other land-use regulations. Upon receipt of the measure, the House failed to concur with the Senate's proposed omnibus package, so the two chambers will now work out their differences in a conference committee. In addition, both chambers approved compromise language this week on another local government regulatory reform bill that included measures promoted by the League.

HB 44 first appeared before the Senate Agriculture, Environment, and Natural Resources Committee last Wednesday as a proposed committee substitute that expanded the original bill considerably. Then, the bill received further amendments during two Senate floor debates, including:

  • Construction notice. Sen. Joel Ford offered an amendment to a provision that required a local government to provide a 30-day notice to property owners of “any construction activity,” unless the construction was of an emergency nature. This amendment partially addressed the issue that “construction activity” could mean a wide variety of things, though it focused on the specific concern of a delayed connection of water and sewer to a home. The Senate approved this amendment, which would exempt a local government from the notice requirement if the property owner requested the action or consented to less than 30 days' notice. Unfortunately, the bill still does not define "construction," and therefore, local government compliance will be burdensome. For example, local governments could have to wait out the month-long notification period for a variety of minor activities, including sidewalk repair or street sign replacement.
  • Regulation of signage. Another successful amendment--this time offered by Sen. Jeff Jackson--modified a provision that prohibited all local government regulation of fence wrap signage at a construction site. The approved amendment reduced the scope of that prohibition to only be applicable to advertising sponsored by a person directly involved in the construction project. The League members welcomed this improvement to the original provision, which would have allowed advertisements for any industry.
  • Riparian buffer reform. A third approved amendment rewrote a provision that would narrow the applicability of the State's riparian buffer rules. In its final amended form, this provision would reduce all existing riparian buffers for nutrient sensitive waters from fifty feet to thirty feet by removing completely the current outer twenty-foot zone of protection. In addition, this amended provision would allow more activities and uses in the remaining thirty-foot buffer than current rules permit for that area. Finally, this Senate amendment altered previous language calling for a study of riparian buffer use in the state. League members support a study of riparian buffers before making any statutory changes to how buffers are implemented and enforced in the state.

As passed by the Senate, the bill still includes measures the League supports, including a provision that would modernize and clarify the preaudit certification statute to ease compliance with the requirement without weakening financial controls. Throughout the conference process, the League will continue to work with legislators to improve other provisions of concern in this bill, including ones allowing property owners to choose development standards not currently in effect in a local government's jurisdiction. (Read more about those provisions in last week's LeagueLINC Bulletin post.) Yesterday, the House announced its conferees to negotiate agreement on the bill, while the Senate must still make its appointments.

Finally, in another action on local government regulatory reform this week, the House and Senate approved a compromise on HB 836 Election Modifications yesterday. The bill largely addressed changes to state elections laws, but it also included two provisions supported by the League. One would allow a municipality to reserve an easement when closing a street, and the other would eliminate a requirement for a going-out-of-business-sale license. That bill now goes to Gov. Pat McCrory for his consideration. Contact: Sarah Collins

The House approved a measure this week that would exempt homebuilders from paying taxes on improvements to their property. The League and the N.C. Association of County Commissioners opposed HB 168 Exempt Builders' Inventory and disagreed with some legislators' characterization of the bill as "tax fairness" for the homebuilding industry. Under the bill, any property owner -- not just homebuilders -- could seek an exemption from paying property taxes on the unsold, improved portion of their property. The exemption would expire after three years. In the meantime, though, it would cost local governments, who would still provide tax-supported services to those properties such as police protection from theft of materials as well as fire protection. The legislature's non-partisan Fiscal Research staff estimated the loss to both cities and counties statewide to be as much as $66 million if the bill passed in its original form.

During committee debate Tuesday, bill proponents rejected the idea that the proposal amounted to corporate welfare, and after the bill passed the House, bill sponsor and House Majority Leader Rep. Mike Hager elaborated on that point, stating, "Today we were able to bring much-needed relief to growing businesses across our state. It’s great to reaffirm our Caucus’ commitment to economic development, job growth, and community expansion." In contrast, House members who were former local government officials raised concerns about the bill, focusing on the loss of tax dollars to local governments.

Importantly, before ultimately passing the bill with a 107-10 vote, the House voted to reign in the scope of this tax exemption by applying it only to new single-family or duplex construction. The League thanks Rep. Becky Carney for proposing this beneficial amendment, and appreciates the floor support of this amendment by Rep. Hager. The League also extends thanks to Rep. Ted Davis, who raised concerns about the bill's impacts to local governments in both committee and floor comments. This bill now moves to the Senate, where Senate Majority Leader Harry Brown sponsored a companion measure. Contact: Rose Williams

More than 50 people turned out Monday in Greenville for the League's fourth in a series of regional meetings examining municipal finance and pending policy changes in Raleigh. The meeting series, A Path Forward: Vibrant Cities Today and Tomorrow, saw more media attention, as three local newspapers and two television stations covered the event. Greenville Mayor Allen Thomas, in opening the meeting, remarked that more than ever the public needs a clear understanding of the value of cities and city services. "We need to let policymakers in Raleigh know about how city-provided services and the quality of life that they promote are keys to economic success stories across our state," Mayor Thomas said.

During a panel discussion, Havelock Mayor Will Lewis remarked that municipalities, with their unique make-ups and unique problems, require flexibility from Raleigh in how they address those problems. "We have so little wiggle room in how we are going to solve our problem," Mayor Lewis said. He noted that businesses in Havelock want the protections afforded by a self-funded business registration program, something prohibited by a bill that moved through the House earlier this year. Panelists had different views on the Senate's sales tax redistribution plan. Rocky Mount Councilman Lamont Wiggins said the plan will offer help to rural areas, but should be accompanied by revenue flexibility for urban areas; Edenton Town Manager Anne-Marie Knighton pointed out that any damage done to the state's urban areas will have consequences for rural North Carolina. "We are all in this together, and we all have to work together," she said.

As he has in previous meetings, Chis Nida, the League's Director of Research and Policy Analysis, delivered a presentation examining the history of tax policy in the state, recent changes and proposed changes. With the revised Senate sales tax plan having just been released, the Greenville presentation focused more on the proposal.

The League wishes to thank Mayor Thomas, Greenville City Manager Barbara Lipscomb and other Greenville officials for hosting the meeting. Thanks also to the panelists, attendees, and Rep. Shelly Willingham for his attendance and remarks. You can find media coverage of the meeting here and here. Contact: Scott Mooneyham

A League-supported measure that would continue authorization of a tool to more-quickly build infrastructure, such as roads and water and sewer lines, cleared two House committees this week. The chamber has now scheduled SB 284 Infrastructure Assessments/Extend Sunset for full House consideration Monday night. The League extends its appreciation to Rep. Skip Stam for working to move this measure before the current authority expires on July 1. The bill extends until 2020 the authority for cities and counties to use a special assessment tool as a means of financing long-term public infrastructure projects. Local governments may only use this tool when requested by a majority of owners of the assessed property and when those owners represent at least 66 percent of the value of the assessed property. The Town of Hillsborough has already utilized this financing mechanism, and the Town of Mooresville has received Local Government Commission approval to do so. Other communities around the state are considering utilizing the financing method as well, and we thank Sen. Fletcher Hartsell for sponsoring this bill to extend the authority. If you have interest in using this financing tool, please contact your House members and let them know of the importance of this legislation. Contact: Chris Nida

In a 39-9 vote this week, the Senate gave initial approval to legislation requiring moped owners to carry liability insurance. HB 148 Insurance Required for Mopeds is scheduled for a final vote in the Senate next week, and if it were to pass without amendments, would go to Gov. Pat McCrory to be signed into law. Last year, the General Assembly approved legislation that accomplished a League legislative goal by requiring that moped owners register their vehicles.

The U.S. Supreme Court issued an opinion of significance to local governments on Thursday, affecting distinctions made in sign ordinances. In Reed v. Gilbert, the court struck down the Town of Gilbert, Arizona’s sign ordinance, finding that the ordinance violated the First Amendment. The ordinance included 23 categories of signs that were exempted from getting a permit, including political, ideological and temporary directional signs.

 A church whose services are held at changing locations was cited for exceeding the ordinance's time limits. The signs, indicating the location of services, were typically put up early on Saturday and removed by mid-day on Sunday.  These were treated as temporary directional signs under the ordinance and subjected to more stringent restrictions on size and duration than either political or ideological signs.  The Court determined that the distinctions drawn by the ordinance were content-based regulations of speech that impermissibly favored certain forms of speech over others.  In light of the decision, municipalities should review their sign ordinances with the help of their city attorney. Read the full opinion here. Contact: Kim Hibbard

The House Finance Committee this week gave its approval to a measure that would allow municipalities to charge a periodic fee for certain qualifying property improved by the extension of water and sewer lines. HB 874 Cities/Availability Charge/Improved Property is expected to be heard on the House floor next week. The bill would allow the charges in instances where a building permit has been issued for a residential or commercial building and where the municipality has installed water or sewer lines directly to the property.
Longtime Rep. Rick Glazier of Fayetteville has announced that he will resign his House seat at the end of this year's legislative session and will become executive director at the N.C. Justice Center. Representative Glazier has served in the House for 13 years, and  has been one of the most active legislators during that time, filing and getting passed a host of legislation. The League wishes to thank him for his service in the General Assembly and congratulate him on his new position. Representative Glazier is the subject of the legislative profile in the upcoming edition of Southern City, the League's bi-monthly magazine, with the piece written prior to his announcement.
Cary Town Manager Ben Shivar has announced his retirement at the end of September. Shivar has been the town manager since 2009 and previously spent 13 years as assistant town manager. The League wishes him well in his retirement.

A bill filed in the U.S. House this week is the latest attempt to allow states to collect sales taxes from Internet retailers and other remote sellers. HR 2775 The Remote Transactions Parity Act would help accomplish a League Municipal Advocacy Goal of "allowing municipalities to collect the sales tax they are currently owed on purchases from Internet-based retailers." The National League of Cities issued an action alert to members this week urging that they write letters to House members asking them to sign onto the bill as co-sponsors. Rep. Renee Ellmers of North Carolina is already a sponsor of the bipartisan bill. Previous bills intended to address the disparities affecting sales tax collections and enforcement between brick-and-mortar stores and Internet retailers have failed in the House. Read more from the bill's primary sponsor, Rep. Jason Chaffetz of Utah, here.