Municipal Legislative Update

North Carolina Local Government Budget

Association

July 12, 2013

Karl Knapp, Director of Research & Policy

Analysis

NC League of Municipalities

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League Government Affairs Team

• Paul Meyer, Director of Government Affairs• Karl Knapp, Director of Research & Policy Analysis• Erin Wynia, Legislative & Regulatory Issues

Manager• Chris Nida, Policy & Communications Specialist• Jennifer Webb, Grassroots Coordinator• Cara Bridges, Government Affairs Assistant

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Agenda• 2013 General Assembly • Tax Reform • State Budget• Tax and Finance Bills• Transportation Reform• Local Control• General Government• Planning & Land Use• Stay Involved

2013 General Assembly

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2013 General Assembly• Republican supermajorities in both chambers

– 77-43 House majority; 33-17 Senate majority

• Many new faces– Senate: 30 members in 1st or 2nd term

• 14 freshmen legislators

– House: 68 members in 1st or 2nd term• 42 freshmen legislators

• Powerful sophomore class– Many 2nd-term legislators in committee leadership positions

Tax Reform

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Tax Reform• 2002

– In response to revenue shortfalls during the 2001-02 recession, Governor Easley appoints a Commission to Modernize State Finances.

• 2006

– The Institute for Emerging Issues holds its annual Emerging Issues Forum on the topic of tax reform.

– The General Assembly establishes the State and Local Fiscal Modernization Study Commission.

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Tax Reform• 2008

– State and Local Fiscal Modernization Study Commission issues its recommendations.

– The Revenue Laws Study Committee reviews local privilege tax laws and Senator Clodfelter calls for the elimination of all local privilege license taxes.

• 2009– Senators Clodfelter, Hoyle, and Jenkins develop a proposal for comprehensive

State and local tax reform. No bill to implement the plan is introduced, but the Senate budget’s revenue estimates assume that the plan will be enacted.

– The House is unwilling to go along with the reform plan during budget negotiations. Elimination of the local privilege tax is actively considered, but the League offers a proposal for reform of the tax that quells efforts to eliminate it.

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Tax Reform• 2011

– Republican majorities take control of the House and Senate.

– At its Advocacy Goals Conference, the League membership adopts a position supporting specific reforms for the local privilege tax.

– Resolving the State budget deficit takes precedence over tax reform.

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Tax Reform• 2012

– During the legislative session, Speaker Tillis and Senate Finance Co-Chair Rucho make statements that comprehensive tax reform will be a priority for the 2013 session.

– Recognizing that tax reform is coming, the League’s Tax and Finance Legislative Action Committee sees an opportunity to help municipalities and develops a position on tax reforms that would aid municipalities.

– Republicans gain additional seats in both the House and Senate, providing veto-proof majorities.

– Pat McCrory is elected as the State’s first Republican Governor in 20 years.

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Tax Reform 2013• January

– At its Advocacy Goals Conference, the League membership, adopts a tax reform goal that includes support for expanding sales taxes on services, provided that all cities and towns are held harmless.

– The goal also seeks the authority for municipalities to adopt sales and occupancy taxes that provide revenue only for the taxing municipality.

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Tax Reform 2013• March

– Although supportive of tax reform, Governor McCrory includes no reform proposals in his budget and states that any tax reform should be revenue neutral.

– Senators Clodfelter, Hartsell, Jenkins, and Meredith introduce SB 394, a bi-partisan comprehensive tax reform bill that includes several measures reducing municipal revenues. These measures are to be offset by expanding sales taxes on services

– The League holds its annual Town Hall Day and city officials express serious concerns to their legislators about SB 394.

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Tax Reform 2013• April

– In response to concerns expressed by local officials, and by legislators on behalf of their cities and towns, Senator Clodfelter previews a new version of SB 394 that makes fewer reductions to municipal revenues.

– Senate Finance Committee Chair Bob Rucho, who has been tasked with crafting tax reform legislation, indicates that he plans to make sure that municipalities are taken care of in the Senate tax reform package.

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Tax Reform 2013• May

– Senate President Pro Tem Phil Berger unveils the broad parameters of the Senate tax reform package, but provides little in the way of details.

– Despite the lack of details, it is clear that the Senate proposal will include a far wider expansion of sales taxes to services than was proposed in SB 394 and that the proposal would eliminate the municipal privilege license tax. 

– The Senate proposal also includes several controversial provisions, such as imposing the sales tax on prescription drugs.

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Tax Reform 2013• May

– House Finance Committee co-chair David Lewis releases the House plan for tax reform (HB 998), which would make numerous changes to municipal revenues.

– It would replace the franchise taxes on electricity and natural gas with a sales tax on those items, distributed to cities on a per capita basis.

– The plan also would expand the state and local sales tax base to include alteration, repair, maintenance, and installation of tangible personal property subject to sales tax, as well as such services for automobiles. The purchase of service contracts for such services also would be taxed. Admission charges for most live entertainment, movies, and museums or cultural attractions would be subject to state and local sales tax. 

– The Article 40 1/2-cent sales tax would be reduced to 0.4 cents. The plan would not eliminate the municipal privilege license tax. 

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Tax Reform 2013• May

– Rep. Lewis revises his proposal so that the only elements remaining that affect cities and towns are: 1)the expansion of sales taxes on services and 2) a switch from franchise to sales taxes on electricity and natural gas, with a hold harmless for each city at its FY 13-14 level.

– As a result, the House plan would provide each city and town with as much or more revenue as under the current system.

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Tax Reform 2013• May

– Senator Rucho unveils the Senate tax reform proposal (SB 677), which would dramatically expand the taxation of services to include almost all services provided to consumers.

– It would affect municipal revenues by switching taxation of electricity and natural gas from a franchise to a sales tax, eliminating the local distribution of beer and wine taxes and the local government sales tax refund, reducing the local sales tax rate, capping sales tax refunds to non-profits, and capping the municipal privilege license tax at $500.

– It includes a hold harmless provision that would provide full compensation for FY 14-15 and FY 15-16, but would phase out by 10 percent each year and expire after FY 24-25.  It would not hold cities harmless for the privilege tax change.

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Tax Reform 2013• May

– Governor McCrory states that he does not expect to propose his own tax reform plan, but will work with the House and Senate to develop a consensus plan. He does indicate that he opposes the Senate’s broad expansion of service taxation.

– Senator Rucho responds by telling the Associated Press that if the Governor “had real business experience, he would not make such a poor policy decision."

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Tax Reform 2013• June

– The House passes HB 998 after brief delay due to an internal flap among Republicans about limitations on the income tax deduction for home mortgage interest.

– Senate President Pro Tem Berger takes control of the Senate tax reform effort and releases a plan that would cost cities and towns over $160 million in revenue.

– The plan would eliminate the local tax on food for home consumption, eliminate the local sales tax refund, cap sales tax refunds to non-profits, and eliminate the municipal privilege license tax. It would expand the sales tax base by taxing movies and live entertainment and by eliminating some tax exemptions. It would cap the gas tax for two years, thereby reducing Powell Bill funding.

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Tax Reform 2013• June

– Senator Rucho resigns as Senate Finance Co-Chair and opposes the Berger plan.

– The Senate passes the Berger plan as a substitute for HB 998 on 2nd reading, but sends the bill back to committee before 3rd reading in order to allow negotiations with the House and Governor on a compromise plan.

– Speaker Tills tells News 14 that tax reform must be revenue neutral for local governments and should not shift the burden for raising revenue from the State to them.

– News media reports indicate that Governor McCrory has put forth a tax plan that would expand the sales tax to include some services, but also eliminate the local government sales tax refund. Budget Director Art Pope quickly dismisses the plan as just one of many scenarios being considered by the Governor and the General Assembly.

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Tax Reform 2013• July

– With negotiations between the Senate, House, and Governor at a standstill, Senator Berger puts forth a revised tax plan that is approved by the Senate. The plan does not include the elimination of the local food tax or municipal privilege tax, but would cause a reduction in municipal revenues due to the elimination of the local sales tax refund.

– House and Senate leaders met with the Governor this week, but negotiations appear to remain at a standstill.

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Tax Reform 2013Municipal Revenue Change ($ millions)

HB 998 Version FY 13-14 FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19

House Passed 2.2 32.0 34.2 36.5 38.7 40.9

Original Senate Version 3.3 -69.0 -130.0 -112.3 -99.8 -163.9

Senate Passed 3.6 25.0 13.7 -25.5 -9.5 -10.1

State Budget

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Senate Budget• Assumes that tax reform legislation will be enacted to

reduce taxes by half a billion dollars.• Does not include an extension of Transitional Hold

Harmless payments.• Includes possible unfunded mandates.• Reduces public transportation funding.• Eliminates Clean Water Management Trust Fund.• Eliminates funding for the Center for Rural Economic

Development and Regional Economic Dev. Commissions.

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House Budget• Assumes that the House version of HB 998 will be

enacted.• Extends the Transitional Hold Harmless for a one year. • Includes possible unfunded mandates.• Expands funding for Center for Rural Economic

Development and the Clean Water Management Trust Fund.

Tax and Finance Bills

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Tax and Finance Bills• Enacted Legislation

– HB 4 UI Fund Solvency & Program Changes– HB 97 Property Tax/Deannexation– HB 224 Taxpayer Information Act– HB 489 Economic Development Jobsites Program– SB 207 Maintaining Water and Sewer Fiscal Health– SB 490 Exclude Custom Software from Property Tax – SB 634 Increase Penalties/Utilities Theft

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Internet Sweepstakes• HB 547 - Tax & Regulate Video Sweepstakes

– Would legalize video sweepstakes operations and place them under the regulation of the Department of Commerce.

– Authorizes both State and local taxes on sweepstakes businesses • The State tax is $2,000 per establishment, $1,000 per machine, 4% of

receipts  • Local-option tax is $1,000 per establishment and $500 per machine • Both cities and counties may levy, and overlapping taxes are allowed within

cities  

– The combination of all of these taxes could well be found unconstitutional under the Lumberton precedent .

– The proposed local tax would be below what many cities were charging under their own ordinances, and would at least $2 million below what was previously collected.

Transportation Reform

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Transportation Reform• HB 817 - Strategic Transportation Investments

– Plan does not raise additional revenue– Existing formula revenue, pus Trust Fund allocations for urban

loops, Powell Bill, and secondary roads, will be split between three tiers• State: 40 percent• Regional (paired transportation districts): 30 percent• Local: 30 percent

– Decisions will be based on data-driven criteria and local ranking• State: 100 percent data• Regional: 70 percent data, 30 percent local ranking• Local: 50-50 data & local ranking

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Transportation Reform• Powell Bill

– The bill is supposed to hold municipalities harmless in regards to Powell Bill distribution by providing 10.4% of the gas tax for Powell Bill. This would tie Powell Bill distributions more closely to gas tax, leaving it vulnerable to declining fuel consumption and caps on the gas tax rate.

– The bill restricts Powell Bill funding for bicycle and pedestrian projects so they could only be used as a match for federal grant money

Local Control

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Durham Annexation• SB 315 Durham Voluntary Annexations

– Bill would codify a development deal that the Durham City Council voted down.

– Deal would allow for extension of utilities for 751 South mixed project in an environmentally sensitive area of Durham County.

– The developer sought to force Durham to provide water and sewer to the development last year in a statewide bill that the League helped to defeat in the waning hours of last year’s session

– Approved by Senate, to be voted on by House next week.

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Asheville water system• HB 488 - Asheville water system

– Mandates transfer of the water system from City of Asheville to regional sewer district (no compensation).

– Although a statewide bill, specific language setting conditions limits the bill to Asheville.

– Governor let the bill become law without his signature.– Asheville has sued the state to prevent the transfer

• Judge has granted City of Asheville a temporary restraining order preventing the transfer

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Other Asheville Bills• Local bills targeting Asheville area:

– HB 252 – Asheville Transfers• Repeals City of Asheville’s ability to use 5 percent of water revenues for

streets and sidewalks associated with utility projects

– HB 224 – Asheville ETJ and Annexation• Requires City of Asheville to relinquish ETJ to Buncombe County, and puts

12-year moratorium on any city-initiated annexation by the City of Asheville

– Both signed into law.

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Control of Assets• Charlotte Airport SB 81

– Transfers ownership of Charlotte Douglas International Airport from City of Charlotte to newly-created Charlotte Regional Airport Authority

– House Transportation Committee voted in favor of the bill last Wednesday

– Bill now in House Finance Committee for further consideration

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Control of Assets• Dorothea Dix Lease SB 334/HB 319

– Senate version would immediately invalidate the lease of Dix campus to the City of Raleigh

– House version gives Raleigh until next April to renegotiate the terms of the acquisition of the property from the State

– Senate rejected the House changes to its bill• A conference committee will be formed to work on

a compromise

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Deannexations• HB 260/SB 269 – Salisbury/Deannex Rowan County

Airport Property– Deannexes airport property from City of Salisbury and

was not requested by City– Became law.

• Other bills not supported by affected city or town:– HB 191 – Grifton/Deannexation– HB 245 – Troutman Deannexation– HB 500 – Kannapolis Annexations

General Government

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Rental Registration Programs

• HB 773 - Local Gov’ts Bldgs/Structures/Inspections– Places further restrictions on rental registration and

inspection programs run by cities– Eliminates fees paid by landlords to support programs,

eliminates mandatory registration and reduces the reach of program enforcement mechanisms

– Approved by House, currently in Senate committee• League is actively working with cities, helping them to reach

out to Senators to explain the impacts of the bill

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Nuisance Abatement• SB 264 - Abate Nuisances/Drug Sales

from Stores – Allows municipalities to use nuisance

abatement procedure in cases where nuisance activity is not sole purpose of property.

– League advocacy goal for 2013-14.– Signed into law.

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Municipal Regulation of Firearms

• HB 937 - Amend Various Firearms Laws• Omnibus bill approved by House.• Greenways are among places concealed carry would

be allowed under terms of bill.– Despite fact many greenways are on private property

easements

• Bill also clarifies definition of “recreational facilities” where municipalities can regulate guns.

• Senate passed more wide-ranging version than House.– Bill is now in House Rules Committee

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Local Smoking Regulation• SB 703 - Limit Local Regulation of Outdoor

Smoking– Would prohibit local governments from restricting or

banning smoking on local government grounds• Includes both government campuses and public

parks, beaches, recreation areas, etc.• Prohibits not only smoking bans but also

designations of smoking and non-smoking areas– Due to city outreach, the bill did not make crossover

deadline

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Electronic Notice• SB 287 - Notice Publication by Some Local Governments

– Local bill that would allow certain municipalities to publish public notices electronically.

– The bill was passed by the Senate and about to be considered on the House floor, when the House members amended a similar bill on DENR public notices amendment to include language pushed by the N.C. Press Association that would largely preserve newspaper revenue streams from local governments but do little to streamline government notification processes.

– Following the approval of that newspaper-backed amendment, both bills were re-referred to the House Rules Committee.

– SB 287 remains eligible for future House vote.

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Local Bidder Preference• HB 284 - Local Contracts/Local Bidder

Preference– League Advocacy Goal– Allows municipalities to award contracts to local

bidders if bid within 5 percent or $10,000 of low bid• Requires “local” bidder to have place of business within

municipal limits, and includes construction contracts

– Voted down in committee in May.

Planning & Land Use

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Design Controls• HB 150 Zoning/Design & Aesthetic

Controls– Eliminates cities’ ability to impose any aesthetics

controls over 1- and 2-family dwellings, at all density levels, unless agreed to by homebuilder.

– Cities concerned about ability to regulate infill development.

– Passed the House and Senate committee, but pulled from Senate calendar before vote.• Currently in Senate Rules Committee

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Building Inspections• HB 120 Building Codes: Local

Consistency/Exempt Cable– Limits cities’ ability to require building inspections to eight

inspections specifically referenced in N.C. Building Code.• Any exceptions would have to be brought before and approved by N.C.

Building Code Council

– Extends cycle for revision of N.C. Building Code from three to six years.

– Inspectors concerned that additional safety inspections would be eliminated by the bill.

– Signed into law.

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Cell Towers• HB 664 – Cell Tower Deployment Act– Limits local government ability to regulate cell

towers.– Intended to conform with federal laws that

facilitate build-out of nation’s wireless network.– Governs new towers as well as additions to or

“substantial modifications” of existing towers.– Signed into law.

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Vegetation/Nuisance Notices• SB 211 – Cities/Public Nuisance Notice – Allows notice of chronic violators to be served

by regular mail if notice sent by certified mail is unclaimed or refused.

– Signed into law.

Stay Involved

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If you just can’t wait to for the budget conference to know what’s going on…

Sign up for the League’s LeagueLINC Bulletin, published weekly during the legislative

session, by emailing LeagueLINC@nclm.org

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Bill tracking• Provides NCLM staff summaries of

key legislation, with links to NCLM bulletins and memos for more information

• Look up bills by number or topic• View the priority of the issue for

the League• See up-to-date information on

each bill, pulled from the N.C. General Assembly website

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Questions and Comments?

Karl Knapp(919) 715-9768

kknapp@nclm.org