Senate Budget Process Continues

The Senate budget process continued this week, though at a slower pace than members had planned for in the schedule released last month. Budget votes originally scheduled for Wednesday and Thursday of this week were delayed until next week. This is due in large measure to a delay from the state Department of Health and Human Services (DHHS) in providing Senate budget writers with math figures on exactly how much DHHS owes in back Medicaid payments. State budget director Lee Roberts has said that DHHS is working diligently to calculate the numbers and would know the costs soon. Senate leaders have indicated their spending proposal will be heard in appropriations subcommittees on Monday, with full committee consideration on Tuesday, holding full chamber floor votes on Wednesday and Thursday.

Senate Unveils Economic Development, Tax Package

As the Senate continues budget negotiations, the chamber officially unveiled key economic development provisions late this week. The new measure, contained within the amended version of House Bill 117, NC Competes Act deals with several key tax and economic development areas, including:

  • Personal Income Taxes
     The Senate proposal would lower the state's personal income tax rate from 5.75 percent to 5.5 percent in 2015. In addition, an expansion of the "standard deduction", per the portion of individual income. The proposal also includes a comprehensive medical expense tax deduction.
  • Corporate Income Taxes & Single Sales Factor
    The Senate's economic development plan would place into statue reductions in corporate incomes taxes from 5 percent to 4 percent in 2016 and 3 percent in 2017. In addition, the plan moves the state to "single sales factor" taxing for businesses, vs. the current tax structure of taxing companies based on sales, real estate holdings and payroll.
  • Sales Tax Expansion
     The new Senate tax proposal change the sales tax structure, including: eliminating the sales tax exemption for installation services; expansion of the sales tax base to include repair and maintenance services; expansion of sales tax to include pet care service and veterinary services; and expansion of the sales tax base to include advertising services.
    The expansion of the sales tax base is projected to yield the following outcomes:
  • Sales Tax & Nonprofits
     The Senate bill curbs the sales tax refunds for non-profits, resulting in a tax refund for non-profits from $45 million presently to $1 million by 2020.
  • Sales Tax & Redistribution
     The Senate proposal alters distributions of sales tax throughout the states. Per current law, 75 percent of the sales tax goes to the county and city where the purchase is made, while 25 percent is distributed across the state based on population. Over the next four years, that formula would change so that, effective July 1, 2019, 20 percent would go to the county where a purchase is made, while 80 percent of sales taxes collected across North Carolina would be distributed based on population.
  • Job Development Incentive Grant Program (JDIG)
     The Senate proposal expands the JDIG program by retaining the current $15 million per year cap but creating an exception for high-yield projects, which is defined as $750 million in private funds and 2,000 hiring of eligible employees. Additional changes include, "Tier One" counties having to pay 100 percent of the county's prevailing wage, while "Tier Three" counties having to pay 120 percent of the prevailing/average wage.

Read the proposed committee substitute for H117 here and summary of the proposal here

Legislature Overrides Governor's Veto

The House voted Thursday morning to override the veto of Governor Pat McCrory (R-NC) to Senate Bill 2, Magistrates Recusal from Civil Ceremonies in 69-41 vote. The measure allows magistrates to opt out of performing marriage ceremonies if they have sincerely held religious beliefs, though magistrates who opt out would be ineligible to perform weddings for a six month period.

Taken up by the Senate first, the chamber voted 32-16 to override the veto, putting the bill in the hands of House members. Thursday's vote included 110 of the House's 120 members, meaning that 66 members were needed for an override. S2 became law as soon as the override vote occurred and is the second veto override of the 2015 legislative session. The other override vote occurred last week, when the General Assembly overrode Gov. McCrory's veto of House Bill 405, Property Protection Act, which protects property owners (employers) by enacting civil penalties for people who take or record information that "substantially interferes" with the rights of the property owner.

Read S2 here and Gov. McCrory's statement on the override vote here

House Health committee Approves Medicaid Overhaul

The House Health committee voted to approve House Bill 372, 2015 Medicaid Modernization on Wednesday, giving support to a plan that places the responsibility of cost controls in the hands of doctor and hospital networks. The measure is very similar to one which passed the House by a large majority last year, though it remains drastically different from what the Senate's Medicaid overhaul plans look like. Many Senate Republicans have repeatedly said they believe using private managed care companies is the best way to curtail spending for Medicaid, which is expected to cost NC over $3.6 billion this year. Sponsors of the House proposal however, think that "provider-led entities" which enter into contracts with the Department of Health and Human Services (DHHS) work best, in addition to creating more incentives to keep those enrolled in Medicaid healthy. Senators have said they prefer competition of MCOS and ACOs/PLES.

H372 sponsor Rep. Nelson Dollar (R-Wake) told the House Health committee that he felt the plan "would provide greater budget certainty and long-term cost savings...and would improve long-term health outcomes for our citizens." The House proposal currently enjoys the support of the NC Hospital Association, the NC Medical Society and DHHS under Gov. McCrory. Dave Richard, DHHS Deputy Secretary for Medicaid, said that the McCrory Administration "has strongly advocated for physician and provider-led reforms that focus on making patients healthier." The House and Senate versions both eliminate the current billing model in which Medicaid reimburses hospitals and doctors for the cost of each itemized medical treatment performed. Instead, a managed care group would receive a fixed amount of money for each patient treated and profit would be based on how well they can keep costs in check. The House version requires that at least 90 percent of Medicaid recipients be enrolled in these fixed-cost health plans within a period of five years. A year later, provider-led entities must meet certain quality and performance goals spelled out in their contracts with the state. The entities could then be financially rewarded or penalized based on meeting those goals or falling short of them.

Unlike last year's Medicaid bill which the House unanimously approved, some Republicans voted against the bill on Wednesday and publicly expressed concern over its provisions. Rep. Justin Burr (R-Stanly) said he felt it was risky to allow only provider led networks without bringing in competition from managed care that are experts in financial and health care management. Rep. Burr said he felt the bill "kicks the can down the road," and said that it didn't fix anything. Rep. Dollar, however, disagreed. He said he felt that a similar, separate model to manage treatment for the mentally ill and people with disabilities had proven to be successful. Having cleared the Health committee, the bill will now go to the House Appropriations committee, where Rep. Dollar is a senior chairman.

Read H372 here

NC Department of Commerce Releases Report on State's Tiered County System

A State Department of Commerce report has urged changes in NC's old tiered ranking system for counties. The tiered system, meant to reflect the need for economic aid in individual counties, has been in place since the 1990s and figures into the distribution of public money and credits for job recruitment, historic downtown revitalization and industrial development, among other things. Some, however, argue that the system separates and divides NC, often oversimplifying the nature of prosperity and need. Presently, the NC Department of Commerce assigns each county a rank of one, two or three based on populations and measures of economic distress. By law, there are 40 Tier One's, 40 Tier Two's and 20 Tier Threes. Wake County, for example, is ranked a least-distressed Tier Three, while Scotland County is a Tier One, with one of the highest unemployment rates statewide. The system was originally created for specific job development tax credits to encourage business investments in poor areas of the state. Those credits expired in 2014 and NC Department of Commerce spokeswoman Kim Genardo said that their tiered system has been "much less impactful" for her office ever since. The system does, however, still interact with many state programs that award money or credits for local growth. Those programs include Job Development Investment Grants, the Industrial Development Fund and the Capital Development Fund, among others. Tiers are frequently used to determine what matching funds a county must put up to receive a block grant for infrastructure improvements and building renovations.

The report from the Department of Commerce recommends eliminating population triggers for counties, pointing out that Camden County is the 19th least-distressed county in the state when measured by tier criteria. Its population of 12,000, however, means that the county goes down as a distressed Tier One. Among other things, the report calls for ending consideration of property value and population growth in tier-making, and replacing them with average annual wage data.

Read the full Department of Commerce Report here

S25, Zoning Design & Aesthetic Controls Heads to the Governor

Senate Bill 25, Zoning Design & Aesthetic Controls passed the House with bi-partisan support this Tuesday by a vote of 98-17. The measure had previously been approved by the Senate in April on a 43-7 vote. The bill now heads to the desk of Gov. McCrory for approval. The bill makes it clear that counties and municipalities have no authority to impose aesthetic regulations on residential building developers. Bill sponsor Sen. Rick Gunn (R-Alamance) said the bill was necessary because lawmakers never intended for local governments to have the authority to regulate exterior building aesthetics, including both color and design.

According to the text of the bill, the features of a home prohibited from regulation include exterior building color, style or materials of roof structure or porches, location or architectural styling of windows and the interior layout of rooms, among other things. The bill does, however, continue to allow municipalities and counties to regulate the height, bulk and location of a structure on a zoning lot, buffering or screening to minimize visual impacts and noise to protect the privacy of neighbors.

Read S25 here

New Plan for Business Licenses Proposed in Senate Finance committee

Senators Ronald Rabin (R-Harnett) and David Curtis (R-Lincoln) premiered a new plan for registering NC's businesses in the Senate Finance committee this week. The plan, which would take effect in 2017, would require all sole proprietorships and general partnerships to pay $100 a year to register with the secretary of state. Under the terms of the proposal, 90 percent of license fee revenues would go to the general fund, while 10 percent would be allocated for the cost of administering the program. The bill would also provide an allocation of $1 million to the Secretary of State's Office to educate business owners regarding the license requirement. The new system was rolled into Senate Bill 544, Requirements Based Workforce Development, which was filed earlier in the session. In presenting the bill to Finance committee members, Sen. Rabin said that the state currently had no requirements for registrations on sole proprietorships and that "as a result, we have some that register and some that don't, some that pay taxes and some that don't." Sen. Curtis likewise affirmed that the goal was to get all businesses registered so that "we can find out who is actually doing business in NC and make sure everybody pays their fair share of taxes."

The bill would provide for fines of between $1,000 and $10,000 for businesses who failed to register, although home based businesses that bring in less than 1,000 per year would be exempt from the requirement to register. When he was asked what benefits businesses would get for paying the $100 fee, Sen. Rabin said that the only initial benefit would be getting registered so that NC knows the business owner is paying taxes. Sen. Bob Rucho in responding to a question posed about the number of businesses the proposal would bring into the tax system, said that NC currently has around 44,000 businesses who file federal taxes but do not pay state taxes. He said he felt it wasn't fair for those businesses not to pay their fair share.

The bill, however, received a largely cool reception from committee members, with Sen. Warren Daniel (R-Burke) saying that he felt the 1,000 threshold for exemptions was too low and would require a "grandma that makes pies" and an "18 year old that mows lawns" to have to register with the state and pay fines if they fail to do so. Sen. Bill Cook (R-Beaufort) said he felt the emphasis for Republicans in the legislature should be on job creation and the economy and that he was "confused" as to how the proposal achieved those objectives. Sen. Rabin responded to the criticism by saying that he didn't believe the new registration system would impede economic growth. After seeing the level of opposition to the proposal, Senate Finance Chairman Jerry Tillman (R-Randolph) decided to pull the bill to allow committee members the opportunity to iron out their differences.

View the PCS for S544 here

H836, Elections Modifications Passes Senate

House Bill 836, Elections Modifications passed the Senate this week, after undergoing significant changes when the local government provisions of the prior-named Local Government Regulatory Reform bill were filtered out, leaving only elections-related proposals. Following these changes, the bill's name was changed to its current title and now includes provisions granting certain counties brief extensions on the state mandated switch to paper ballots. Affected counties would have until September 2019 to make the switch to paper ballots, though an attached summary of the bill did not note how many counties would be affected. NC currently allows two types of electronic voting systems, optical scan machines, which tabulate paper ballots that are hand-marked by voters; and touch-screen machines, where voters may submit their choices electronically, without a paper component.

H836 would allow for a hybrid of the two proposals, permitting touch-screen voting systems as long as ballots are printed out and turned in on paper. Under this system, county boards of elections would be able to submit excused absentee ballots to the State Board of Elections (SBOE) online, instead of via traditional mail. Moreover, the bill would alter current state law regarding alcohol sales referenda by allowing cities with populations over 200 persons to hold elections on malt beverage or unfortified wine sales under certain conditions. Present state law allows cities to hold elections on such topics, but the new provisions would open this up to counties whose last election on the topic sided against such sales but who have at least three cities that at some point voted to allow them.

Read the PCS for H836 here

H562, Amend Firearm Laws Removed from House Floor, Sent Back to committee

House Bill 562, Amend Firearm laws, a bill which would repeal North Carolina's pistol-permit application system, was sent back to committee this week amid mounting opposition from county sheriffs who currently approve or deny handgun purchases. Bill sponsor Rep. Jacqueline Schaffer (R-Mecklenburg) requested that H562 be delayed Monday as the measure had been scheduled for a floor vote in the House. Speaking to reporters Monday evening, Rep. Schaffer said the legislation had "a lot of moving parts" and needed some additional work in the House Rules committee. The permit-application repeal has drawn significant ire from both the North Carolina Sheriffs' Association and Gov. Pat McCrory, who said last week through his legislative liaison that he was opposed to the measure in its current form.

Read H562 here

H328, Highway Safety/Citizens Protection Act Passes House Finance committee

House Bill 328, Highway Safety/Citizens Protection Act was approved by the House Finance Committee this week in a 22-11 roll call vote. The measure would allow undocumented immigrants in NC to acquire restricted identification cards that grant driving privileges so long as the individuals pass a driving test, acquire liability insurance and are able to prove their identity through fingerprinting and a background check. House members are not united behind the proposal however, due to the competing interests of getting more drivers insured while also preventing undocumented immigrants from benefiting from state programs. Bill sponsor Rep. Harry Warren (R-Rowan) said that his bill would create a "carrot and stick" approach in order to encourage drivers to acquire insurance and identification. He said there are currently around ten states that have similar programs, but that the provisions of H328 would be the strictest in the union. Rep. Paul Stam (R-Wake) stated that his local chief of police had urgently asked the committee to pass the proposal and mentioned that under present law, a driver is harnessed with the cost of repairs and medical bills if the other driver in an accident is driving without insurance. Supporters of the bill have criticized the federal government's inability to effectively handle the issue of undocumented immigrants, who currently number around 325,000 in NC.

Gov. Pat McCrory's legislative liaison Ryan Minto, however, told Finance committee members that the governor was displeased with the bill and did not see a way that he could support it. NC Highway Patrol Colonel William Grey expressed concern that H328 would create more work for his troopers by requiring that the highway patrol impound cars belonging to drivers who do not have restricted ID's and are here illegally. The North Carolina Association of Chiefs of Police, however, expressed support for the bill, saying that it would create a record of undocumented individuals who live and work in the state, which can be very helpful to law enforcement. H328 will next go to the entire House for a vote, though it is not certain when or even if that may happen.

Read H328 here

New Rules for Uber Debated in Senate Finance committee

New regulations for Uber and other smart phoned based transportation services were debated in the Senate Finance committee this Wednesday, after a bi-partisan proposal was brought forward by Senators Floyd McKissick (D-Durham) and Bill Rabon (R-Brunswick). If enacted, Senate Bill 541, Regulate Transportation Network Companies would exempt personal transportation companies such as Uber, Lyft and Sidecar from many regulations set by local governments. In presenting the bill to the Finance committee, Sen. McKissick highlighted the similarities between S541 and the guidelines that over 30 states are now following, saying that "Uber has come up with a model...what we are doing in North Carolina is based upon that national model and we have adopted substantial portions of that national model." Greg Roney, a legislative researcher, testified that the proposal would require every "transportation network company" to acquire a permit from the state which would cost $5,000 annually, an amount which "Uber and Lyft have suggested as the appropriate fee level."

The insurance requirement in the proposed legislation would mean that commercial insurance would take the place of the driver's personal insurance whenever he or she was en route to pick up or drop off a customer. These changes would increase the coverage for a single accident for Uber from one million dollars to one and a half million dollars.

Read S541 here

Governor Signs Handful of Bills

Gov. McCrory signed a number of bills into law this week. Those bills are as follows:

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