Summer Legislative Update for NC Municipalities, presented by Karl Knapp (NCLM) at Summer 2013 NCLGBA Conference (July 12, 2013)

1. Municipal Legislative Update
North Carolina Local Government Budget Association
July 12, 2013
Karl Knapp, Director of Research & Policy Analysis
NC League of Municipalities

2. 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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3. Agenda
• 2013 General Assembly
• Tax Reform
• State Budget
• Tax and Finance Bills
• Transportation Reform
• Local Control
• General Government
• Planning & Land Use
• Stay Involved
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4. 2013 General Assembly

5. 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
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6. Tax Reform

7. 7

8. 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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9. 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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10. 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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11. 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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12. 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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13. 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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14. 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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15. 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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16. 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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17. 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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18. 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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19. 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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20. 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 $160 million in revenue.
– The plan would eliminate the local tax on food for home consumption, eliminate
the local sales tax refund, cap sales tax refunds to non-profits, and eliminate the
municipal privilege license tax. It would expand the sales tax base by taxing
movies and live entertainment and by eliminating some tax exemptions. It
would cap the gas tax for two years, thereby reducing Powell Bill funding.
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21. Tax Reform 2013
• June
– Senator Rucho resigns as Senate Finance Co-Chair and opposes the Berger plan.
– The Senate passes the Berger plan as a substitute for HB 998 on 2nd reading, but
sends the bill back to committee before 3rd reading in order to allow negotiations
with the House and Governor on a compromise plan.
– Speaker Tills tells News 14 that tax reform must be revenue neutral for local
governments and should not shift the burden for raising revenue from the State
to them.
– News media reports indicate that Governor McCrory has put forth a tax plan
that would expand the sales tax to include some services, but also eliminate the
local government sales tax refund. Budget Director Art Pope quickly dismisses
the plan as just one of many scenarios being considered by the Governor and the
General Assembly.
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22. Tax Reform 2013
• July
– With negotiations between the Senate, House, and Governor at a standstill,
Senator Berger puts forth a revised tax plan that is approved by the Senate. The
plan does not include the elimination of the local food tax or municipal privilege
tax, but would cause a reduction in municipal revenues due to the elimination of
the local sales tax refund.
– House and Senate leaders met with the Governor this week, but negotiations
appear to remain at a standstill.
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23. Tax Reform 2013
Municipal Revenue Change ($ 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
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24. State Budget

25. 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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26. 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.
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27. Tax and Finance Bills

28. 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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29. 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.
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30. Transportation Reform

31. 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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32. 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
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33. Local Control

34. 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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35. 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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36. 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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37. 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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38. 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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39. 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
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40. General Government

41. 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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42. 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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43. 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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44. 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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45. 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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46. 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.
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47. Planning & Land Use

48. 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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49. 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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50. 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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51. 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.
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52. Stay Involved

53. 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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54. 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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55. Questions and Comments?
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Karl Knapp
(919) 715-9768
kknapp@nclm.org