League Bulletin

May 8, 2020

The Weekly Recap
Join in the Chorus: ‘Cities Are Essential,’ Revenue Replacement Needs Paramount
League’s Meyer Talks Budget Impacts in News Segments
State COVID-19 Relief Measures in Law; See What Affects Munis
Legislative Business, Political Statements Continue After COVID-19 Session
Stay-Home Order Modified; Phase 1 Easing Announced
Treasury Issues CARES Act Guidance
DOT Hits Cash Floor, Stops Most Work
Census Tactics Focus of 'Advancing Advocacy'

WHAT HAPPENED: COVID-19 relief bills became law at the federal and state levels. The governor announced “Phase 1” of restrictions easing. League Executive Director Paul Meyer discussed pandemic hardships on municipal budgets in news media segments. Calls continued for related funding support.

WHAT IT MEANS: Cities and towns are, without question, economic drivers, creating environments that allow businesses to sprout and grow. But the pandemic’s effects are tolling on local budgets and, by extension, stalling into situations that will hurt the state’s economy.

ON TAP: Keep communication going with your members of the N.C. General Assembly and Congress, including U.S. Sens. Thom Tillis and Richard Burr, about municipalities' revenue needs amid the pandemic. Explain why cities are essential, as we lay out below in this Bulletin.

THE SKINNY: Now is as important a time as ever to follow the legislative goings-on. Please read on for the latest and how you can help.

Join in the Chorus: ‘Cities Are Essential,’ Revenue Replacement Needs Paramount

The National League of Cities this week rolled out a public-facing campaign pushing Congress to provide funding to local governments to meet budget shortfalls. The Cities Are Essential campaign comes as the League continues its own campaign focused on both the state and federal level encouraging policymakers to address this critical need as cities and towns suffer sales tax and utility payment declines as a result of the COVID-19 crisis. NLC is asking Congress to provide $500 billion, equally split between cities and counties, and it plans an aggressive social media effort and traditional media outreach making the case of how cities and their financial health are critical to the larger economy. Learn more. As North Carolina is a focal point in the national campaign, NCLM is working closely with NLC to provide examples of how budget shortfalls are affecting and will affect North Carolina municipalities. Meanwhile, the League also will be ramping up further efforts in similar fashion – using our own communication channels, boosted social media posts and media outreach that emphasizes local voices. It is crucial that you continue to reach out to your members of Congress and the General Assembly as a part of this effort, and know that we will be strategically using the strength of NCLM membership to make this case and that you will be hearing more about these efforts in coming weeks.

As you talk with your local representatives, please emphasize these key points:

Cities and towns did not cause the situation that they now find themselves in and the resulting budget shortfalls; a global pandemic did.
Local governments play a crucial role in the overall economy. Layoffs and canceled infrastructure contracts will extend an economic downturn.
Cities are builders of infrastructure that private industry depends on. When cities are forced to cut spending, economic recovery of the state will be delayed. Future growth will be delayed.
Roughly 30 percent of municipal general fund budgets in North Carolina go toward public safety. Without state and federal help backfilling revenue holes, cuts to these services and personnel are inevitable.

Sales tax revenue, hotel occupancy tax revenue and water and sewer service payments are all being significantly and negatively affected by this crisis. Many cities will see disruptions in services critical to public health and public safety without federal help.

League’s Meyer Talks Budget Impacts in News Segments

League of Municipalities Executive Director Paul Meyer appeared on Spectrum News’ Capital Tonight TV program last Friday to discuss the budget impacts that cities and towns are feeling under the pandemic. Host Tim Boyum pointed out the heavy lift that municipalities already have before asking Meyer to weigh in on current conditions. Many municipalities are still healing from the last recession more than a decade ago, Meyer noted; now, under the pandemic’s effects, they’re projecting big losses in sales tax revenues that help keep services alive. “Public safety, fire, first responders, sanitation – all of those things that we all rely on for our day to day lives and prosperity,” he said. Without municipally led development in place, the state’s economy will feel an unwanted difference, he added. “If we can no longer invest in the infrastructure … then we just extend the recession,” said Meyer. View the full video segment.

Coverage of the issue on WUNC also featured Meyer, with sales tax again in focus. “We were anticipating 25 percent decline in sales tax receipts for cities and towns,” Meyer said. “That was three weeks ago. Now that number we’re thinking is probably closer to 30-35 percent, and sales tax makes up about a third of the average city budget.”

State COVID-19 Relief Measures in Law; See What Affects Munis

Now that the dust has settled and the N.C. General Assembly's first COVID-19 bills have become law, we wanted to let you know what's in those bills that affect cities.

HB 1043 2020 COVID-19 RECOVERY ACT

This bill appropriated the state aid funding allocated to North Carolina in the federal CARES Act. You will remember that last week, city officials asked legislators to split a pot of $300 million set aside for local aid in the following ways: $75 million for cities, $75 million for counties, and $150 million in reserve pending future changes to the CARES Act that could allow that money to be used as replacement revenue.

The legislature granted the request for the $150 million reserve (Section 2.3). As for the other requests, they allocated the remaining $150 million to counties that did not receive a direct appropriation from Congress (leaving out Wake, Mecklenburg, and Guilford counties). For funds to reach municipalities, it must go through the county commissioners.

SB 704 COVID-19 RECOVERY ACT

This bill contained all of the policy changes prompted by this crisis. Please note that many of these provisions are temporary and valid only through the anticipated duration of this crisis; the effective date in each section will say how long the measure may last. They're listed in numerical order by bill section, not in order of importance to cities.

Read the full list here.

Legislative Business, Political Statements Continue After COVID-19 Session

Members of the N.C. General Assembly continued business and ramped up their political rhetoric this week, following the conclusion of last week’s COVID-19 session. (Read the League’s report on what happened during that session above). Though no committees met, no votes were taken, and legislators mostly stayed home this week, they continued to file bills as the two chambers operated “skeleton” sessions. And though changes may come later, for now, neither chamber has modified its bill filing deadlines. These dates include a deadline of Tuesday, May 12, to file local bills.

The handful of bills filed since the session reconvened April 28 included a bipartisan House bill that would create a worker’s compensation presumption in favor of “frontline” workers who contracted an infection such as COVID-19 during an outbreak. Under HB 1057 WC/COVID-19 Front Line Coverage/Funds, this group of employees would include municipal employees in law enforcement and fire, as well as any other employee of a business declared to be essential during a pandemic. Due to the employer costs of covering worker’s compensation claims pursuant to this bill, the League and a multitude of other statewide associations and business groups opposed the proposal.

Meanwhile, in contrast to the bipartisan tone of last week’s legislative work, Republican members of the N.C. Senate turned up their political rhetoric this week. After Gov. Roy Cooper announced Phase I plans for reopening some businesses and activities in the state, Senate President Pro Tem Phil Berger questioned the need for a one-size-fits-all approach. That same day, nearly every Republican senator signed onto a bill prohibiting criminal enforcement of many of Cooper’s COVID-19 executive orders and similar local emergency declarations. Sen. Carl Ford later predicted that bill would pass the Senate, while he noted how social distancing appeared to take on a partisan meaning last week during the legislature’s session. “I’m sure there’ll be a long and very exciting debate, including the Democrats trying to talk through their masks,” WRAL reported he said. He then publicly called for tens of thousands to gather in Raleigh Tuesday to rally for reopening the state’s economy. Also, sixteen GOP leaders wrote to Cooper Thursday, asking why the state lacked adequate virus testing supplies.

While legislative business slowed this week—and is expected to remain minimal for at least one more week—House committees that focus on COVID-19 response will pick up their work again with remote meetings scheduled for next week. Looking ahead, though legislative leaders predicted a return to full-time work beginning May 22, details have not been shared publicly regarding what such a session would look like if the state at that time still restricted the number of people who may gather indoors.

Stay-Home Order Modified; Phase 1 Easing Announced

Gov. Roy Cooper this week signed a new executive order, EO 138, to roll out changes to the state’s stay-at-home order and announce “Phase 1” of easing restrictions, effective today (Friday) at 5 p.m. “COVID-19 is still a serious threat to our state, and Phase 1 is designed to be a limited easing of restrictions that can boost parts of our economy while keeping important safety rules in place,” said Governor Cooper. “This is a careful and deliberate first step, guided by the data, and North Carolinians still must use caution while this virus is circulating.”

A press release has full details on what’s changing. Briefly:

-Retail businesses can reopen to 50 percent capacity, though with certain requirements, like the six-foot rule.

-Remaining closed are bars, personal care businesses, entertainment venues and gyms.

-Restaurants may continue service only for take-out, delivery or drive-through.

-Small outdoor gatherings are allowed, but the 10-person maximum is still in effect.

The governor’s office has also released a document of answers to anticipated questions.

Treasury Issues CARES Act Guidance

This week, the U.S. Treasury released updated guidance on qualifying expenses that municipalities can be reimbursed for under the federal CARES Act. That guidance follows General Assembly action last week distributing $150 million of that funding to counties and reserving another $150 million for future distribution. (See above story.) In response to the guidance and latest action, League Executive Director Paul Meyer sent a communication to members on Thursday noting that the guidance may be of particular importance related to public safety funding. But he also pointed out that some items that U.S. Treasury may deem reimbursable in that guidance could create constitutional issues under the N.C. Constitution.

From the document:

“The Fund is designed to provide ready funding to address unforeseen financial needs and risks created by the COVID-19 public health emergency. For this reason, and as a matter of administrative convenience in light of the emergency nature of this program, a State, territorial, local, or Tribal government may presume that payroll costs for public health and public safety employees are payments for services substantially dedicated to mitigating or responding to the COVID-19 public health emergency, unless the chief executive (or equivalent) of the relevant government determines that specific circumstances indicate otherwise.”

DOT Hits Cash Floor, Stops Most Work

The fiscal picture for the state’s transportation agency worsened this week as the agency’s cash balance dipped too low for the department to enter into most new contracts. The lack of available funds meant the N.C. Department of Transportation (NCDOT) may no longer enter into new contracts for projects and supplies, and agency leaders said they were exploring furloughs of employees and stopping projects already underway. “We’ve seen some crises before,” NCDOT Secretary Eric Boyette told The News & Observer Monday, “This is probably the worst one we’ve ever seen.”

This week’s stoppages brought most of NCDOT’s work to a standstill, and they came on the heels of other project delays the League reported in recent weeks. The stoppages were prompted by over $300 million in revenue losses the agency suffered with decreased gas sales during the COVID-19 crisis, compounded by pre-existing funding shortfalls. Over the past year, NCDOT pegged its funding constraints on unexpectedly large storm recovery responses and court-ordered payments to landowners whose land faced development restrictions due to a now-repealed state law called the MAP Act. Then, this week, a scathing audit released by State Auditor Beth Wood cited another reason: overspending by NCDOT division heads who were not held accountable by the agency’s leadership. Overall, the audit found NCDOT exceeded its budget by 12.5%, though its operations and maintenance spending—which included storm response and recovery—ballooned to 36.2% over budget. In response, Boyette said the agency did not dispute the audit’s findings, and that NCDOT was already following many of Wood’s recommendations.

Census Tactics Focus of 'Advancing Advocacy'

NCLM’s weekly virtual advocacy session, Advancing Advocacy, included an informative presentation on Thursday by Lexington City Manager Terra Greene, who discussed how that city is adapting its tactics to encourage participation in the U.S. Census in the wake of COVID-19. Greene explained that Lexington had created an extensive census program prior to the COVID-19 crisis, and many efforts have continued even if they might not have the same level of visibility. They include yard signs, branding on sanitation trucks, census-theme sermon ideas distributed to pastors and a car donated by a local dealer as a raffle open to residents while encouraging response. But among their many innovative ideas in response to the crisis has been the distribution of “goody bags” with census theme literature and useful goods, including soap, in conjunction with food assistance efforts taking place because of school and work closures. The city has also redeployed parks and other workers who have seen duties decrease due to COVID-19 by creating a “reverse call center,” where staff are reaching out to residents to check in on them, share COVID-related resources, and ask them if they’ve completed the census. That and other great tips were included in the presentation, and the League thanks Greene for taking the time to discuss the efforts. And we encourage all members to continue to tune in every Thursday at 3 p.m. for Advancing Advocacy.