If the previous three weeks involved little legislative activity, the House made up for that this past week with major bills moving to the floor and committees operating fully. The expectation is that the pace will continue to pick up with the Governor having publicly announced his budget on Friday, and joint House and Senate appropriations committees will get the details of the Governor’s budget and begin their work this week. The House can expect to complete its budget by early May.
A year ago, during the run-up to the May primary, I was asked what I thought was an issue that wasn’t on anyone’s radar, and I said “transportation funding.” This week proved me right as the House debated over two days what to do with the gas tax ending with the passage of a modified Senate Bill 20 [IRC Update/Motor Fuel Tax] by a vote of 72-42.
SB20, as the title of the bill suggests, deals with more than just the gas tax. The first part of the bill involves state tax law provisions, specifically either following the federal government’s Internal Revenue Code (IRC) or specifically not following that code. Most folks were more interested in the second part of the bill that addresses changes in the motor fuels tax.
Essentially, under the House version of SB20, the state tax code will parallel the IRC with respect to the $250 teacher expenses deduction, an income exclusion for debt forgiveness on a principal residence, tax-free distribution to IRAs to public charities and deductions for higher education tuition expenses. However, the state tax code would decouple from the federal tax code with respect to enhanced expensing provisions for businesses and deductions for mortgage insurance premiums. The tax provisions are pretty complex, but a summary of them can be found in the Bill Summary for SB20.
Legislators received little or no feedback on the tax provisions, but the same could not be said for the motor fuel provisions. The House-passed bill makes the following changes to the motor fuel tax:
- Reduces the motor fuel tax rate from 37.5 cents to 36 cents beginning April 1, 2015, and until January 1, 2016. [The original Senate bill reduced the rate to 35 cents.]
- Replaces the 6-month base periods used in determining the gas tax rate with a single 12-month base period, beginning January 1, 2016.
- Reflecting the differences in the motor fuel tax rate, the House version of the bill makes a cut of $13.45 million to the Highway Trust Fund and the Highway Fund budget. [The original Senate bill reflecting its bill’s tax rate made total cuts of about $33 million.]
The argument between Republicans and Democrats was whether the bill was a tax cut or a tax increase. My view is that it is both. The tax rate is being cut from whenever the bill is passed until July 1. At that point, the current motor fuel tax rate was expected to drop about 6 cents, and by setting the tax higher than the expected rate, the legislation also will provide a tax hike.
Business entities, including Chambers of Commerce, generally supported SB20, while right-leaning think tanks and advocacy groups generally opposed SB20. Local government entities such as the League of Municipalities were also strong supporters of SB20. Those supporting SB20 said the State couldn’t afford losing the revenue that would be lost if the gas tax automatically adjusted lower with the lower price of gas, but opponents argued that NC already has one of the highest gas tax rates in the nation.
Of course, that argument doesn’t really give one the whole picture. Yes, North Carolina’s gas tax is among the highest in the nation, but North Carolina doesn’t use property taxes such as states like South Carolina and others do. Thus, the total tax burden for transportation is really not easily comparable.
I voted “aye” on SB20. My view is that the bill will give us the time necessary to determine how we are going to fund transportation going forward. We’ve got a deadline. If we don’t make changes in the formula or come up with a different way of funding transportation before January 1 of next year, the tax rate will likely drop pursuant to the old formula if the price of gas stays low.
SB20 now goes back to the Senate for “concurrence.” That means that the Senate will have to decide whether to concur in the changes made by the House in its bill. My guess the Senate will not concur, and the bill will end up in a conference committee where differences between the House-passed bill and the Senate-passed bill will be reconciled.
Last summer, the legislative session blew up over the issue of incentives, and the General Assembly went home without renewing several state incentive programs. The McCrory Administration and economic development agencies made passage of a new law funding business incentives a priority. The House was tasked by legislative leaders to move the incentives bill, House Bill 117 [NC Competes Act].
As with the transportation funding bill, the incentive programs are pretty complex, but for those who want the details one can see the Bill Summary for HB117. Much of the focus of the debate on the House floor involved the Job Development Investment Grants Program known as JDIG.
JDIG was established in 2002 as an incentive for businesses to create new jobs in the State. It allocates funds based on a complicated formula, with the priority being funding for Tier One counties — counties with high unemployment and low economic activity. When JDIG is used to fund projects in more affluent areas, a portion of the incentive automatically goes into a Utility Account for infrastructure projects that are reasonably expected to create jobs in economically distressed counties (Tier 1 or Tier 2 counties).
Aside from funding and changes to JDIG (which would be rebranded as the Job Growth Reimbursement Opportunities – People Program or “Job GRO People”) the bill also makes changes to the One NC Fund (rebranded as the Job Growth Reimbursement Opportunities – Capital Program (“Job GRO Capital”) and the Site Infrastructure Development Fund, two other incentive programs. HB117 was also the vehicle for enacting changes to current tax law to incentivize the location of data centers in the state and for extending the sales tax refund for passenger air carriers.
As with the transportation funding bill, the business community and local economic development agencies like Henderson County’s Partnership for Economic Development strongly supported passage of HB117, but groups like Americans for Prosperity and Civitas Institute, two groups that advocate a more market approach, opposed the bill.
After the train-wreck last summer, there was considerable anxiety as to whether the House could pass an incentives bill, but the bill passed by a bipartisan vote of 87-32, and I voted “aye” on the bill. The bill now moves to the Senate, and no one expect that the bill will pass the Senate without changes being made.
The House completed action on Senate Bill 14 [Academic Standards/Rules Review/Coal Ash/Funds] but only after a blowup over one provision. Late on Monday night, the House approved several amendments to the bill that funded both the commission studying the Common Core standards and the Coal Ash Management Commission and made changes to the state’s dam safety act. Among the amendments adopted was one that was described by Majority Leader Mike Hager (R-Rutherford) as a “technical amendment” dealing with some air quality issues.
Well, the next day, it became clear that the so-called technical amendment was more than just a routine amendment. It related to hydraulic fracturing or fracking, and it was an effort to address a potential legal challenge to the rules governing fracking that will become law on March 17. So, the House agreed to reconsider the earlier amendment, and most observers were surprised when the House then defeated the amendment upon reconsideration.
Unexpectedly, I was the point person for the effort the defeat the amendment and, as the media noted, it is pretty unusual what happened on this bill. My argument for defeating the amendment was not about substance, since the House has consistently been about making it easier to use hydraulic fracturing to produce oil and gas. Rather, my argument was that the fracking provision shouldn’t have been added to an appropriations bill that needed to pass and was noncontroversial, having passed initially on a vote of 113-1. Basically, I argued that SB14 shouldn’t become a Christmas tree for provisions that legislators wanted to rush through the General Assembly. I noted that no one understood that the “technical amendment” was about fracking, and the amendment had come out of the blue with no vetting by a House committee.
The amendment was defeated on a vote of 41-77 with all Democratic members and many Republicans members voting against the amendment. Immediately following the defeat of the amendment, the House recessed and House Republicans went into a caucus, returning a half hour later to simply pass the bill, without the fracking amendment on a vote of 116-1.
My feeling is that, while it can be fun to be part of the debate on an important issue, I’m hoping to avoid similar high profile debates like this one or the debate over the coal ash bill last summer. I’d prefer to work more transparently and more collaboratively on difficult issues like these, but I think I’ve proven that I’m willing to wage a high-profile fight if necessary.
State of the Judiciary
Chief Justice Mark Martin became the first chief justice of the North Carolina Supreme Court to address a joint session of the legislature in over a decade on Wednesday. In a scholarly fashion, he outlined the strengths of our judicial system for Senators and House members, but argued that it was poorly funded — that the State has been underinvesting in our judicial system for many years. He pitched a significant increase in funding for the court system. Some of what Chief Justice Martin proposed was incorporated in the budget submitted by Governor McCrory today.
Work on the budget will begin in earnest next week. With the delays caused by the weather, House Speaker Tim Moore (R-Cleveland) announced that there will be a voting session on Monday night as we try to catch up. My expectation is that next week will be a busy one.