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League Bulletin

September 18, 2015

Budget Plan Moves Through Legislature
Budget's Sales Tax Changes Won't Result in Losses for Cities
Historic Preservation Tax Credit Included in Budget Bill
Powell Bill Changes Mean More Money for Street Paving
Municipal Vehicle Tax Expanded Under Budget Provision
League Achieves Utility Line Relocation Goal
Compromise Dials Back Municipal Service District Proposal
Budget Creates Police Camera Grant Program
Legislators Adopt First Regulatory Reforms of the Session
Military Cities Back Military Hiring Effort

The House and Senate this week passed a $21.74 billion state budget, ending weeks of stalemate between the two chambers and clearing with way for adjournment of the legislative session in coming days. Gov. Pat McCrory was expected to sign the budget bill today.

The bill includes numerous provisions that are beneficial to municipalities. You can read in detail about some of the most important ones in the items posted below in this edition of the LeagueLINC Bulletin. In addition, you can find references to many provisions of significance to municipalities, as well as the bill section numbers and page numbers, in this document compiled by League staff. The bill's so-called money report can be found here.

Besides issues like historic preservation tax credits and body-worn police cameras, which have received lots of attention from the media and in previous Bulletins, the budget addresses several grant programs benefitting cities and towns. They include Drinking Water State Revolving Funds and the Clean Water Management Trust Fund.

The bill passed the Senate largely along party lines, but saw a good deal of bipartisan support in the House. The budget plan spends less than the House had sought, but does restore money for teaching assistants and drivers education, originally cut in the Senate budget. A number of other policy provisions that the Senate wanted were either dropped or altered. Sale tax changes, detailed in the item below, were included in the bill but revised from earlier proposals so that urban and tourism counties did not lose money.

In response to the budget deal, League President Ronnie Wall, in a news release, noted that many of the budget provisions will help municipalities continue making investments that are key to economic development and providing a great quality of life for residents. "We are grateful that legislators heard the concerns of cities and towns on issues like historic preservation tax credits that are so crucial to municipal-led efforts to bring jobs to communities across the state," Mayor Wall said. The League thanks legislators for including measures in the budget that will aid cities and towns, and thanks League members for their hard work in pursuing so many of these positive outcomes. You can read media accounts of the budget's passage here and here. Contact: Rose Williams

Budget's Sales Tax Changes Won't Result in Losses for Cities

Following months of discussion between legislators, the League, and other affected groups regarding the possible reallocation of existing sales tax dollars, the state budget passed this week included a sales tax plan that provides additional money to primarily rural and suburban counties and cities without cutting the revenues of any local government. The League thanks Sen. Harry Brown, Rep. David Lewis, and the numerous other legislators who responded to League concerns and worked extensively to develop a plan that would not hurt any counties or cities. The League will continue to push for municipal revenue options that allow cities the flexibility to decide how to fund local needs locally, but we appreciate the opportunity to work on these priorities without trying to offset additional municipal revenue losses.

The plan in the budget provides new sales tax revenue through the expansion of the sales tax base to the repair, maintenance, and installation of tangible personal property. That new revenue is used to help fund a total of $84.8 million which is taken from local sales tax collections and distributed to 79 counties based on percentages found in the budget (pages 426-427). The $84.8 million represents the approximate amount provided to these 79 counties in a previous proposal made by Sen. Brown. In addition to the revenue from the base expansion, the state will annually transfer $17.6 million of its state sales tax collections to local sales tax collections to help fund this new distribution. The $84.8 million transfer will be adjusted annually based on the overall gain or loss in sales tax collections. Counties must spend the new money received on public education, economic development, or community colleges.

Base expansion becomes effective on March 1, 2016, while the first reallocation of the revenue occurs for sales taking place in July 2016, meaning all counties and cities should see a slight increase in sales tax revenue for the final months of this fiscal year. The base expansion also applies to county sales taxes levied under Article 43 and Article 46, most of which is not shared with municipalities. A chart reflecting all of these gains resulting from the plan in the State budget can be found here. Again, the League thanks legislators for finding a way to provide rural counties with needed additional revenue without reducing the revenues of any local government, and we look forward to continuing to work on options for municipalities to fund their operations while maintaining low property tax rates. Contact: Chris Nida

Historic Preservation Tax Credit Included in Budget Bill

The budget bill passed by the General Assembly this week includes a key economic development tool that cities and towns across North Carolina had fought for two years to have restored: the historic preservation tax credit. The tax credit expired in January under tax legislation passed in 2013, and although the House supported its restoration, Senate leaders had opposed it as a special consideration not in keeping with their broad approach to tax reform.

The budget provision (Sec. 32.3, pages 409-412) that restores the tax credit is nearly identical to HB 152 New Historic Preservation Tax Credit, which passed the House earlier this session. The provision establishes a sunset expiration date for the tax credit on Jan. 1, 2020, while the House bill would have set a sunset date of Jan. 1, 2023. The provision creates a tax credit of 10 to 20 percent of rehabilitation expenses for qualifying buildings and homes. In poorer Tier 1 and Tier 2 counties and for projects under $10 million, the higher percentage would apply.

As discussed in an item in last week's LeagueLINC Bulletin, a separate budget provision sets aside $30 million for TV and film production grants, a $20 million increase over last year's budget. The restoration of an historic tax credit and establishment of a competitive film incentive program was a top League legislative priority and one that League staff and members had worked diligently to have passed. The League worked with Secretary of Cultural Resources Susan Kluttz on her tour to bring attention to the importance of historic preservation tax credits, has been a part of a coalition of groups supporting passage of the measure, and promoted the issue through media efforts.

The League would like to thank Rep. Stephen Ross, the prime sponsor of the House bill, other legislative supporters, Secretary Kluttz, the range of private- and public-sector groups who supported the effort, and all the League members who promoted passage of this important measure. Contact: Scott Mooneyham

Powell Bill Changes Mean More Money for Street Paving

Eligible municipalities will receive a total of $147.5 million in Powell Bill funding in both the current and coming fiscal year under the terms of the state budget passed by the General Assembly this week. The figure represents an increase from the $147.3 million cities received for spending on streets in the most recent fiscal year. The League and North Carolina’s cities are appreciative of the increase in this funding source, which represents roughly a quarter of the total amount of money cities spend on streets annually.

The budget also makes two additional changes to the Powell Bill statutes. First, the budget eliminates the formula used for calculating the total amount of Powell Bill funding available. Previously, the amount had been determined based on a percentage of gas tax proceeds. Going forward Powell Bill funds will be made as a direct appropriation from the General Fund. Second, new language has been added to the Powell Bill statutes stating that cities must spend the money “primarily for the resurfacing of streets within the corporate limits of the municipality…”, although spending on related areas such as bridges, curb and gutter, bikeways, greenways, and sidewalks is still permitted. Contact: Chris Nida

Municipal Vehicle Tax Expanded Under Budget Provision

All cities and towns will be allowed to charge a $30 municipal vehicle tax under a provision included in the recently passed state budget. The change means that all municipalities are treated the same regarding the vehicle tax that they can charge. Current law allows cities and towns to charge a $5 tax, while almost all cities that operate transit systems can charge an additional $5. Local legislation passed over the years had allowed a number of other municipalities to charge vehicle taxes of up to $30, but the additional authority was not applied uniformly.

The budget provision (Sec. 29.27 A, pages 365-66) does require that amounts charged above the two uniform $5 taxes already imposed by cities go toward city street maintenance and construction. The measure addresses a League Municipal Advocacy Goal calling for legislation to generate additional revenues to provide for growing transportation needs. Contact: Chris Nida

League Achieves Utility Line Relocation Goal

Legislators extended cities and towns financial relief this week by including a key League member-approved policy goal in the final budget bill (Section 29.20, pg. 363). All session, municipalities pressed legislators for relief from utility relocation costs. The measure included in the budget would require the state to pay for all or some of the relocation cost of municipal water and sewer lines for municipalities with a population under 50,000 when state road construction forces those relocations. Currently, the state pays those costs only for towns with a population of 5,500 or less.

More specifically, the final language would set up a tiered system where municipalities with a population under 10,000 would pay none of the costs and those between 10,000 and less than 50,000 would pay either 25 or 50 percent of the costs. The League thanks Rep. Phil Shepard of Jacksonville for working with League staff and members on this provision, and Rep. Rena Turner of Olin for persuasively relaying to her colleagues the plight of the City of Statesville as it dealt with the financial repercussions of a utility relocation. Contact: Erin Wynia

Compromise Dials Back Municipal Service District Proposal

Legislators listened to cities' concerns, as described in multiple media reports, over a budget provision that would have allowed citizen-led initiatives to eliminate municipal service districts (MSD). Instead of pursuing the original Senate proposal, legislators adopted compromise language in the final budget package (Section 15.16B, pg. 292). This revised language set parameters on the contracts cities make with private entities to provide services within an MSD. It also requires that all moneys raised in these districts meet the needs of the district. Finally, the compromise language directed an interim study regarding whether district property owners should have the right to petition for removal from that district, even though current state law already sets up specific procedures for the elimination of a municipal service district. The League appreciates the efforts of budget negotiators to reach this agreement, which keeps intact an important tool for providing enhanced services to businesses in the heart of our cities.

Originally, the Senate proposed a referendum by district residents to eliminate the special taxation districts after 15 percent of those residents signed a petition requesting such an election. Critics pointed out that this proposal would disenfranchise the business owners who were the primary beneficiaries of the increased services provided in such districts. Most downtown municipal service districts have few residents and most of them are renters. Commercial property owners, who pay the district special assessments and utilize their services, typically do not live in the districts.

Budget Creates Police Camera Grant Program

Legislators have set aside $5 million in the state budget to provide matching grants to local law enforcement agencies in order to equip them with police body-worn cameras. The money will be made available in FY 2015-16 and FY 2016-17, with $2.5 million provided in each fiscal year.

The maximum grant that an agency can receive is $100,000 and the grants require a 2-to-1 local match. The Governor's Crime Commission is charged with setting up the program and creating grant guidelines. The provision establishing the matching grants is Sec. 16A.8 and can be found on page 303 of the budget bill.

Legislators Adopt First Regulatory Reforms of the Session

On the heels of the budget announcement, activity picked up this week for the chambers' negotiations regarding HB 44 Local Government Regulatory Reform 2015 -- wide-ranging legislation that affects local government environmental, zoning, and other land-use regulations. A greatly improved version of the bill was adopted by both the House and the Senate yesterday, after conferees worked tirelessly to make many positive changes from what the Senate first proposed. The League thanks all the conferees, especially Reps. Chuck McGrady, Stephen Ross, and Paul Stam, for their hard work improving many of the provisions that were of concern to cities.

A few of the provisions of interest to cities include the following:

Riparian buffer reform. The language in the adopted conference report was a significant improvement from the complicated and limiting buffer provisions that were first seen in HB 760. It will now allow for local governments to require buffers to comply with and implement other state and federal requirements.

Construction notice. This provision still requires local governments to notify property owners and adjacent property owners prior to the commencement of any construction project without clarifying what is considered "construction." However, a beneficial exception was added to allow for notice of a project to be given in any open meeting of the city or county.

Permits for wells. This provision not only allows for permits for wells for irrigation and non-potable water uses within service areas of a public water system, but also allows drinking water wells if (1) the well is to serve any undeveloped or unimproved property, or (2) the public water system cannot provide water service to the property.

A possible risk to the public water system's financial stability and impediment to its capital needs was the inclusion of a provision that prevents a public water supplier from then later requiring that the owner of the drinking water well connect to the system. However, the adopted conference report improved this provision by adding the following reasons for when the public water supplier could mandate connection, helping to address those financial concerns:

the entity operating the public water system is being assisted by the Local Government Commission, or
the entity operating the public water system is in the process of expanding or repairing the public water system, and is actively making progress to having water lines installed directly available to provide water service to that property within the 24 months of the time the property owner applies for the private drinking water well permit.

Preaudit certification. The final version of the bill also retained a League supported provision that modernizes and clarifies the preaudit certification statute to ease compliance with the requirement without weakening financial controls. Specifically, the provision reflects advances in technology to accommodate credit cards, gas cards, procurement cards, and other electronic means of remitting payment for obligations.

Many other provisions affecting cities and towns were included, and we encourage you to contact League staff with any questions. An additional omnibus regulatory reform proposal, HB 765 Regulatory Reform Act of 2015 has also been the subject of negotiations and a conference report is expected next week. Contact: Sarah Collins

Military Cities Back Military Hiring Effort

The Military Host Cities Coalition, an affiliate of the League, is among the organizations backing the North Carolina for Military Employment, or NC4ME, summits being held around the state. The effort involves industry, government and military leaders in discussing strategies and resources that can be used in incorporating the hiring of former members of the military. The next event will be held Sept. 29 at 9 a.m. at Cape Fear Community College in Wilmington. Find more details and register for the summit here.