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League Bulletin

June 22, 2018

WHAT HAPPENED: Breaking a bit from the steady gait of chamber debates on statewide legislation, lawmakers this week shifted focus to local bills and constitutional amendment proposals.

WHAT IT MEANS: The General Assembly has already sent Gov. Roy Cooper many of the priority bills requiring a trip to the governor's desk for approval or veto (the latter of which the legislature can override). Local bills and constitutional amendment proposals don't require the governor's signoff, so the legislature's focus on them is a sign that they're on closing duties. 

ON TAP: Constitutional amendment proposals, which voters would decide after legislative approval, have included focuses on an income tax cap, judicial vacancies, the right to hunt and fish, and crime victims' rights. 

THE SKINNY: The brisk 2018 session could be history by month's end or earlier. House Speaker Tim Moore is on record calling for June 29 and Senate Rules Chairman Bill Rabon says his chamber will hear no more statewide bills. Not too long after it's all over, the League  will publish its End of Session Bulletin explaining all of the action with bill-by-bill breakdowns of interest to cities and towns.

A monumental win arrived for state and local governments this week when the U.S. Supreme Court ruled that states can enforce sales tax collection on online retailers that have no physical presence in the state. Justices decided 5-4 on Thursday to overturn an outdated but harmful 1992 court decision that that kept substantial sales tax revenue from state and local governments by way of that "physical presence" test. Annually, billions and billions of dollars in sales tax revenue went uncollected in transactions between online retailers and out-of-state buyers, even as online retail sales became commonplace. According to the N.C. Retail Merchants Association (NCRMA), North Carolina has missed out on $400 million a year, as reported in the News & Observer. In 2014, League Executive Director Paul Meyer – along with N.C. Association of County Commissioners Executive Director Kevin Leonard and NCRMA head Andy Ellen – penned an op-ed that ran in North Carolina newspapers pointing out that a number of negative effects are created in local communities by the failure to collect sales taxes from online vendors. “Minus a federal mechanism to require collections, brick-and-mortar retailers are left at a competitive disadvantage to their online counterparts, who can essentially offer their customers a tax-free discount. At the same time, the brick-and-mortar retailers – many of whom also sell goods online, but collect and remit sales taxes on those purchases -- are hiring local residents to work in their stores, and are paying property taxes that support the hiring of police and firefighters and the building of schools,” the piece read. 
That was echoed in the court's observations. Justices noted that the 1992 case, which essentially freed online sellers from having to collect and remit the sales tax unless they had a regardable physical presence in the state where the transaction took place, created a regulatory advantage for remote sellers. They could undercut on price and even advertise "tax free" sales, the court pointed out. "In effect," Thursday's opinion states, "it is a judicially created tax shelter for businesses that limit their physical presence in a State but sell their goods and services to the State’s consumers, something that has become easier and more prevalent as technology has advanced. The rule also produces an incentive to avoid physical presence in multiple States, affecting development that might be efficient or desirable." The ruling additionally points out that state and local governments bear costs of public safety and property protection and further "maintain the public roads and municipal services that allow communication with and access to customers."
Last year, SB 81 Sales Tax Economic Nexus​ emerged in the state Senate as a step toward online sales tax collection for businesses that conduct remote sales into North Carolina (see March 10, 2017 League Bulletin). The Senate passed that bill by a wide margin, but it didn't move in the House. According to media reports, lawmakers may revisit the proposal in 2019, now that the Supreme Court decision has landed. The news broke to heavy praise. “State and local organizations applaud the U.S. Supreme Court’s decision recognizing that the (1992 ruling) put Main Street retailers at a competitive disadvantage to remote sellers and the efforts by states to simplify the sales tax collection process and giving those states remote sales tax collection authority," said National League of Cities (NLC) CEO Clarence Anthony. "For 26 years Congress has failed to act and through the efforts of Justice Anthony Kennedy, the federal government has finally recognized the changing nature of commerce and state efforts to simplify the collection process.” An NLC blogpost​ delves into more of the context and history of the case. Associated Press coverage​ details the opinion and the justices' stances. Bloomberg Business News​ takes on the marketplace angle and explains the road ahead.​

Local bills and proposals to amend the North Carolina Constitution dominated the action at the General Assembly this week, with lawmakers mostly done with statewide legislation. Among local bills, SB 813 Asheville City Council Districts appears to be advancing. The bill would change the system of electing city council members in Asheville from an at-large system to a district-based system of representation with one at-large seat. The Asheville City Council has historically opposed a shift to a district-based system. City voters also rejected the idea in a referendum. The Asheville Citizen-Times​ newspaper reports that Sen. Terry Van Duyn, who represents part of the city, could lend support to the proposal if the Senate adopts an amendment she's putting forth to move those council elections to even-numbered years. Senator Van Duyn has remarked that it would improve the bill, partly in giving the public more time to understand the change, as the proposal had originally eyed the 2019 elections. No one spoke in opposition to the bill before it passed the Senate Rules Committee on Thursday. The Rules Committee is the Senate's customary stop before bills can make it to the floor for votes. In other local bills, a number of annexation matters and charter amendments progressed, including a positive outcome for Wesley Chapel in a bill​ that, in a prior form opposed by local officials, would have deannexed property from the town. The town, which communicated its concerns with its legislators, is not mentioned in the latest version of the bill, currently on the House calendar for Monday. A bill to deannex portions of Stanly County towns, including a substantial part of Badin's population with opposition from the town's government, was removed from the House calendar at the request its author, Rep. Justin Burr​, on Wednesday. That bill may reappear next week. 
Constitutional amendment proposals also gained attention this week. Like local bills, they can be approved by the legislature without a stop at the governor's desk. Amendment ideas include a cap on the income tax rate (SB 75 Max. Income Tax Rate of 5.5%​), which in effect could limit state government's revenue and shift the burden of paying for various public needs. Other constitutional amendment proposals, which would require the approval of the state's electorate, concern crime victims' rights in the legal process (HB 551 Marsy's Law​, similar to a law on the books in other states) and a constitutional right to hunt and fish​​ (SB 677 Protect Right to Hunt and Fish​).
Some legislatively approved bills are getting the governor's veto stamp, and he's outlined his objections to those proposals in public statements. The legislature, however, can override any of the governor's vetoes per its supermajority and has put many vetoed bills, including the state budget, into law.

A bill that would provide an additional retirement benefit to firefighters and rescue squad workers – without providing any state funding to local governments to pay for it – was removed from the House floor and sent back to committee this week. The move likely means that the expansion of the “special separation allowance,” which would have created an unfunded mandate for some cities exceeding $1 million annually, will not pass this legislative session. According to General Assembly staff, the estimated cost to provide this benefit, over time, to all current local government employees who would be eligible is roughly $300 million. The legislative action on SB 153 Military Retiree State Income Tax Relief, which included the separation allowance language, followed steps by the League calling members' attention​ to the provision and issuing a news release pointing out that the League has always opposed unfunded mandates that place more pressure on local property tax bases and local taxpayers. Meanwhile, the League has historically and continues to fight to preserve a defined-benefit retirement plan – even as such plans have come under attack and even been repealed in other states – which benefits all municipal employees and helps attract quality employees to local government positions. The League thanks legislators for hearing and considering our concerns regarding SB 153.

A great advantage for cities and towns in the fight against blight and unkempt vacant properties won final legislative approval last week. HB 573 Business/Regulatory Changes, now sitting on the governor's desk, includes language setting up a new process called "vacant building receivership," explained in a recent League Bulletin and further fleshed out this week in a UNC School of Government (SOG) blogpost. "Now municipalities have an additional code enforcement tool at their disposal to address problem properties," SOG Associate Professor Tyler Mulligan writes. "Effective October 1, 2018, House Bill 573 establishes receivership powers and authorizes North Carolina municipalities to request for a superior court to appoint a receiver to manage a vacant structure that has not complied with a code enforcement order. These vacant problem properties, whether residential or commercial, are deemed a 'nuisance per se' -- in other words, a nuisance in any context." The bill received strong support in both chambers. The General Assembly's website lists all bills​ pending on the governor's desk.

Gov. Roy Cooper on Wednesday signed into law the Build NC Bond Act, which would greenlight a new program of transportation bonds. "Build NC is a bipartisan effort that pulled Republicans and Democrats together to help deliver critical transportation projects to communities more quickly, helping North Carolina attract opportunities and stay competitive," the governor said upon signing the bill. The law is modeled after the federal GARVEE bond program​ and would allow the state to borrow money for local transportation priorities and repay the bonds using future state transportation dollars allocated to the Highway Trust Fund. Build NC bond proceeds would fund transportation projects prioritized at the regional and division levels of the state’s transportation funding system​​. These projects are suggested by local officials, who also have the most input in deciding which of these projects to prioritize. It includes borrowing limitations, including an overall program cap of $300 million.​

Some rural municipalities are the latest beneficiaries of the Rural ReadySites program, which recently approved 10 grant requests from local governments totaling more than $14 million. The N.C. Department of Commerce this week announced that Wadesboro, Middlesex and Reidsville were among recipients of funds that they will put toward water or sewer improvements. "Companies are looking for sites that have the infrastructure they need to get to work growing their business right away," Commerce Secretary Anthony M. Copeland said in a news release with full details about the awards and funding source. "Our rural communities often need additional funding to prepare sites for development, and this program is a step toward meeting that need." Separately this week, the Department of Commerce announced the Rural Infrastructure Authority's approval​ of 23 other grant requests totaling $17 million following commitments to create hundreds of local jobs and with more than $117 million in private investment.