2007 Legislative Review and 2008 Preview

1. 2007 LegislativeReview and 2008 Preview Dr. Lee Mandell NC League of Municipalities

2. Introduction How much risk is there in the State budget because of the economic slowdown or possible recession? Have fundamental structural problems been resolved? Past budget “surpluses” have been due mostly to 1-time gains and conservative revenue projections and budget execution. Check on bill language and status at: • www.ncleg.net • www.nclm.org/Legal/Bulletin/bulletin.html

3. Topics for Discussion Bills that Passed in 2007 Bills Eligible for 2008 Other Legislative Issues Tax Issues and Changes Short Session Questions

4. Bills that Passed in 2007

5. Taxes and Money H1473 - 2007 Appropriations Act (SL 2007-323) Water and Sewer Grants - Appropriates an additional $100 million to the Rural Economic Development Center for water and wastewater grants to eligible local governments. To be eligible for a planning grant, the unit must be located in a rural county (one with a population density of fewer than 250 people per square mile), be in an economically distressed area, and be applying for a multi-jurisdictional project involving two or more units of local government. To be eligible for a supplemental grant, the unit must be located in a rural county and must set the household user fee in the area served by the project at an amount that meets or exceeds the high-unit-cost threshold.

6. Taxes and Money The Clean Water Management Trust Fund was fully funded at $100 million in each fiscal year of the biennium.  The budget also allocates funds for certain named water resources development projects, and provides the state match for federal safe drinking water funds. Appropriates $45 million in community development block grants for housing, economic development, and community revitalization.  Establishes the NC Green Business Fund in the Department of Commerce to make grants to local governments, state agencies, nonprofits, and small businesses to encourage the expansion of small to medium size businesses to help grow a green economy in the state. 

7. Taxes and Money Land for Tomorrow and Waterfront Access - Authorizes the issuance or incurrence of $120 million in special indebtedness to finance the cost of land acquisition for state parks and the Mountains to Sea Trail; land acquisition to conserve ecological diversity; and acquiring waterfront properties or developing facilities to provide public and commercial waterfront access. Appropriates $4.7 million for street gang prevention grants. VIPER Build Out Funds - Authorizes the State Highway Patrol to use up to $10 million in fiscal year 2007-08 to continue the build out of the Voice Interoperability Plan for Emergency Responders.

8. Taxes and Money Water Quality Permit Fee - Increases state fees for wastewater permits by 20%, including NPDES permits, water quality certifications, stormwater permits, sewer system extension permits, nondischarge permits, and animal waste management system permits. Effective August 1, 2007. Penalties for Air Pollution - Increases the maximum penalty for violation of air quality laws from $10,000 to $25,000 per day. Applies to offenses committed on or after October 1, 2007. Erosion and Sedimentation Fee Increase - Provides for an application fee of $65 per acre of disturbed land for the Department of Environment and Natural Resources’ review of an erosion and sedimentation control plan. Applies to applications submitted on or after August 1, 2007.

9. Taxes and Money Appropriates $21 million in each fiscal year for small construction projects and $15 million in each year for rural or small urban highway improvements and related transportation enhancements.  Section 27.12 of the budget also states the intention to phase out the annual $172 million transfer to the General Fund from the Highway Trust Fund.  The Highway Trust Fund construction budget (loops and intra-state system) was lower than the previous years due to decreased revenue estimates for the Highway Trust Fund.

10. Taxes and Money State Assume Medicaid/Sales Tax Swap Provides that effective October 1, 2007, the state will bear 25% of the nonfederal share of the Medical Assistance Program costs and Medicare Part D clawback payments borne by the counties. Increases to 50% effective July 1, 2008, and 100% effective July 1, 2009. Effective October 1, 2008, the state will take over one quarter cent of the local option sales tax authorized by G.S. Chapter 105, Article 44, and effective October 1, 2009, the state will take over the remaining one-quarter cent of that local tax.

11. Taxes and Money Provides for municipalities to be reimbursed for the loss of their share of these tax revenues, including growth. The first one-quarter cent will be replaced by a payment equal to 50% of the amount each municipality receives from the Article 40 local sales tax, and the second one-quarter cent will be replaced by a payment equal to 25% of the amount each municipality receives for the Article 39 local sales tax.

12. Taxes and Money Funds for the hold harmless payments to municipalities comes from the counties’ share of sales tax revenues, but the Department of Revenue will make payments directly to municipalities. There is no expiration date on the hold harmless payments. Changes the distribution for the Article 42 local option sales tax from per capita to point of delivery distribution, which will affect the total amount of tax proceeds returned to each county area for distribution among the county and the municipalities in that county.

13. Taxes and Money Authorizes counties to levy either a new one-quarter cent county sales and use tax or a 0.4 percent county land transfer tax, subject to voter approval. Proceeds may be used for any lawful purpose. Counties are not required to share proceeds with municipalities.

14. Taxes and Money H714 - 2007 Budget Technical Corrections Act (SL 2007-345) Partially corrects an error in the budget bill concerning the calculation of the municipal hold harmless amount for the impact of the change in distribution of the Article 42 local sales tax from a per capita basis to point of delivery.  We are working with General Assembly staff on a further technical correction for the short session that will fully hold cities and towns harmless.

15. Taxes and Money S1196 - Modifications to Project Development Financing (SL 2007-395) Expands the purposes for which local governments may use tax increment/project development financing to include school and community college facilities and certain parks and recreation facilities. Clarifies that project development financing can be used for any service or facility that is authorized to be provided in a municipal service district under G.S. 160A-536, but no such service district need be created. Deletes provision that required an increase of the project’s base valuation in response to county property revaluation.

16. Taxes and Money S646 - Enact Waterfront Access Study Commission Recs (SL 2007-485) Provides a special use value classification system for “working waterfront property” similar to the current agricultural use value system. For property tax purposes, working waterfront property is to be appraised at its present use and not at its true value. If the property loses its qualification as a working waterfront, the current taxes are based on the true value of the property and the deferred taxes for the preceding three fiscal years become due with interest. To obtain the working waterfront classification, the owner must apply to the assessor of the county in which the property is located. Effective for taxes imposed for taxable years beginning on or after July 1, 2009.

17. Taxes and Money H1688 - Amend Combined MV Registration and PT System (SL 2007-471) Makes changes to the combined motor vehicle registration renewal and property tax collection system that is slated to go into effect by July 1, 2010. Establishes a limited registration plate system so that motor vehicle dealers do not collect property tax at the point of sale. The Division of Motor Vehicles is to issue a limited registration plate upon receipt of an application for title and registration fees from a dealer. The limited plate expires on the last day of the second month following the date of application for the limited registration, and the motor vehicle property tax is due when the limited registration plate expires.

18. Taxes and Money Exempts vehicles registered under the International Registration Plan from the combined registration and property tax system. Currently, 60% of the first month’s interest collected on unpaid motor vehicle taxes is transferred to the Combined Motor Vehicle and Registration Account in the Office of the State Treasurer, with the funds to be used to develop an integrated computer system for the combined assessment, billing and collection of property taxes and the issuance of registration plates. Provides that the interest generated by the funds in the account is also credited to the account. Once the integrated computer system is operational, any funds remaining in the account are to be distributed to local governments on a pro rata basis determined by the amount paid into the account by each local government.

19. Taxes and Money H1595 - Economic Development Modifications (SL 2007-515) Authorizes cities and counties to acquire, construct, convey, or lease a building suitable for industrial or commercial use. Makes technical corrections to provisions regarding how urban progress zones are drawn, making the designation of zones more consistent with local zoning for nonresidential tracts. Makes clarifying changes to provisions regarding agrarian growth zones.

20. Taxes and Money Requires a local economic development agreement between a private enterprise and a city or county to clearly state respective responsibilities under the contract and to contain provisions regarding remedies for a breach by the private enterprise. Remedy provisions must include a “clawback,” or recapture of local funds appropriated or expended by the city or county if the private enterprise creates fewer jobs, makes a lower capital investment, or fails to maintain operations as specified in the agreement.

21. Taxes and Money H1499 - Property Tax and PUV Changes (SL 2007-497) Increases the benefit of the property tax homestead exclusion by raising the income eligibility limit from $18,000 to $25,000 and the amount excluded from taxation from $20,000 to $25,000. Effective for taxes imposed for taxable years beginning on or after July 1, 2008. Creates a new “senior circuit breaker” property tax deferral system and allows eligible taxpayers who qualify for both the circuit breaker benefit and the property tax homestead exclusion to choose between them. The circuit breaker applies to North Carolina residents who have owned and occupied property located in the state as a permanent residence for at least five years and are either 65 years of age or older or totally and permanently disabled.

22. Taxes and Money The property owner’s income for the preceding calendar year may not exceed 150% of the income eligibility limit under the property tax homestead exclusion. An eligible owner who made less than the income eligibility limit may defer the portion of tax imposed on the permanent residence that exceeds 4% of the owner's income. An eligible owner who made 100% to 150% of the income eligibility limit may defer the portion of tax that exceeds 5% of the owner's income. Deferred taxes accrue interest and become a lien on the taxpayer’s real property. The circuit breaker provisions are effective for taxes imposed for taxable years beginning on or after July 1, 2009. Modifies the present‑use value requirements for agricultural land used as an aquatic species farm.

23. Taxes and Money S1472 - Revised Distribution Of Scrap Tire Disposal Tax (SL 2007-153) Changes the distribution of proceeds of the scrap tire disposal tax credited to the Solid Waste Management Trust Fund from 5% to 8% and credited to the Scrap Tire Disposal Account from 27% to 22%. Increases the amount distributed to counties from 68% to 70%. Effective July 1, 2007.

24. Taxes and Money S540 - Revenue Laws & Motor Fuels Tax Technical Changes (SL 2007-527) Cable Franchise Tax Revised Certification - Statutory language allows a 1-time “true up” of local revenues after the initial certification on 3/15/07, to correct any errors after local audits have been completed. Deadline is April 1, 2008.

25. Taxes and Money H1755 - Coordinate Statewide Enhanced 911 System (SL 2007-383) Revises the system for charging telephone customers for 911 services and repeals existing provisions. Standardizes all 911 monthly service charges, both wireline and wireless, at a combined level of 70 cents or less. Consolidates administration of the charges under a single state board. 

26. Taxes and Money Cities and counties who levied a monthly landline fee for primary public safety answering points (PSAPs) will be eligible to receive these statewide funds. The new system of landline fees will mirror that of the wireless fee on cell phones. Any wireline fund balance that exists prior to the bill’s effective date would be transferred to the local government’s general fund, to be used for any lawful purpose.   Holds each public safety answering point harmless at FY 2005-06 revenue levels.

27. Taxes and Money H4 - Job Maintenance and Capital Development Fund (SL 2007-552) Creates the Job Maintenance and Capital Development Fund as a restricted reserve in the Department of Commerce, with monies to be used for grants to encourage businesses to maintain high-paying jobs and make further capital investments in the state. Requires the business to meet specified wage standards, provide health insurance, and be in compliance with occupational safety standards and environmental requirements.

28. Taxes and Money The Department may enter into no more than five agreements, with the total aggregate cost of all agreements limited to $60 million. Eligible businesses must invest at least $200 million in private funds in the project within a six-year period; employ at least 2,000 full-time employees and agree to maintain at least 2,000 full-time for the term of the grant agreement; be located in a development tier one area; and ensure that all newly hired employees are US citizens or have proper authorization to work.

29. Taxes and Money H257 - Streamlined Sales Tax Changes (SL 2007-244) Makes definitional changes in state law to comply with the national Streamlined Sales Tax Agreement. Adds definitions of “bundled transaction” and “conditional service contract” and specifies how these transactions are to be taxed. Modifies definition of “sales price” to clarify how third-party discounts, such as a manufacturer’s coupon, affect the sales price of an item. Makes other conforming and technical changes in the sales tax laws, as recommended by the Department of Revenue. Effective October 1, 2007.

30. Taxes and Money S1152 - Interest on Illegally Levied Exactions (SL 2007-371) Provides that if a city or county is found to have illegally exacted a tax, fee, or monetary contribution for development (or a development permit) that is not specifically authorized by law, the city or county must return the tax, fee, or monetary contribution plus interest of 6% per annum. Applies to actions filed on or after its effective date (August 2, 2007).

31. OPEB Investments S580 - State Treasurer/Local OPEB Investments (SL 2007-384) Establishes the Local Government Other Post-Employment Benefits Fund in the Office of the State Treasurer under the management of the Treasurer. Authorizes local governments, entities eligible to participate in the Local Governmental Employees’ Retirement System, public authorities, and school administrative units to contribute to the Fund. The assets of the Fund are to be used only to provide other post-employment benefits to former employees (or beneficiaries of former employees) of participating entities.

32. OPEB Investments Also authorizes local governments, entities eligible to participate in the LGERS, public authorities, and school administrative units to establish other irrevocable trusts to fund post-employment benefits. The irrevocable trust must be established by resolution or ordinance of the entity's governing board. Establishes the Local Government Law Enforcement Special Separation Allowance Fund in the Office of the State Treasurer under the management of the Treasurer. Authorizes units of local government employing local law enforcement officers to contribute to the Fund. The assets of the Fund are to be used only to provide law enforcement special separation allowance benefits to former local government employees. Also authorizes local governments to establish other irrevocable trusts to fund special separation allowance benefits. The irrevocable trust must be established by resolution or ordinance of the unit’s governing board.

33. Environment H1370 - Clean Water Grants (SL 2007-185) Clarifies that a Clean Water Management Trust Fund planning or technical assistance grant for a regional wastewater collection system or regional wastewater treatment works is not subject to the high‑unit‑cost threshold. Applies to grant applications received by the Clean Water Management Trust Fund on or after January 1, 2007.

34. Environment S1492 - Solid Waste Management Act of 2007 (SL 2007-550) S6 - Amend Solid Waste Management Act of 2007 (SL 2007-543) Enacts a $2 per-ton statewide “tipping tax.” The excise tax goes into effect July 1, 2008 and will be charged on municipal solid waste and construction and demolition debris that is deposited in a landfill in the state or trans-ferred at a transfer station for disposal outside the state. Proceeds of the tax distributed as follows: 50% to the Inactive Hazardous Sites Cleanup Fund to help pay for assessment and remediation of pre-1983 landfills (including abandoned, unlined city or county dumps), 18.75% to cities on a per capita basis for solid waste management programs and services, 18.75% to counties on a per capita basis for solid waste management programs and services, and 12.5% to the Solid Waste Management Trust Fund for grants to local governments and state agencies.

35. Environment Allows those who applied for landfill permits before August 1, 2006, and whose applications would be denied under the new standards of the act, to request reimbursement of their reasonable costs in exchange for executing a covenant not to sue the state. Proceeds of the tax will first be used to pay such costs, so tax revenue will not be available for distribution to local governments or remediation of abandoned landfills for an undetermined period of time after the tax goes into effect. Establishes fees for solid waste management facility permits, including new permits, amendments and modifications. Also establishes annual permit fees for such facilities.

36. Environment Increases the maximum daily civil penalty for violation of solid waste statutes to $15,000 (nonhazardous waste) and $32,500 (first violation, hazardous waste). Allows a city to charge an availability fee for additional services provided by its disposal facility, to the extent that those services differ from services provided by a private contractor’s disposal facility in the same city. Requires discarded computer equipment collectors to ensure that discarded computer equipment received is consolidated at central locations, properly stored, and either held for pickup by the manufacturer or delivered to a facility designated by the manufacturer (effective 1/ 1/2010). Requires computer manufacturers to register with DENR and to develop a plan to reuse, take back, or recycle discarded computer equipment.

37. Environment H859 - Nutrient Offset Program Transition (SL 2007-438) Establishes nutrient offset fees for the Neuse and Tar-Pamlico River Basins. Requires the Department of Environment and Natural Resources to implement a plan to transition the NC Ecosystem Enhancement Program nutrient offset program from fee-based to one based on the actual costs of providing nutrient credits. Effective September 1, 2007, with the fee schedule to expire September 1, 2009.

38. Environment H820 - Amend Interbasin Transfer Laws (SL 2007-518) Directs the Environmental Review Commission to undertake a study of the broader issue of the state's water policy. Establishes a new process for applying for interbasin transfer and for determining whether the transfer should be approved.  Some of the new aspects of the process are: • increased notice and public hearing requirements; • a full environmental impact statement and a public hearing on the EIS; • mediation to initiate settlement discussions among interested parties; and • preparation of a draft determination by the Environmental Management Commission with a public hearing on the draft

39. Environment In making its final determination on the petition for transfer, the EMC must consider the necessity and reasonableness of the amount of surface water proposed to be transferred and its proposed uses and find that there are no reasonable alternatives to the proposed transfer.  The certificate of transfer must include a prohibition on resale of transferred water except under certain conditions.   The legislation states the policy that the projected future needs of the receiving river basin are subordinate to those of the source river basin.

40. General Government H73 - Improve State Construction Process (SL 2007-446) Raises the formal bid threshold for construction and repair projects from $300,000 to $500,000. Makes a number of other changes applicable to state construction projects.

41. General Government S492 - Political Subdivisions/ Contracts Exemption Exempts political subdivisions from the formal bidding laws regulating public contracts when purchasing from contracts established by the federal government.

42. General Government S490 - Industrial Machinery – Building Code (SL 2007-529) Clarifies that nothing in G.S. Chapter 143, Article 9 [building code] shall apply to the regulation of the design, construction, location, installation, or operation of industrial machinery. Provides that “industrial machinery” means equipment and machinery used in a system of operations for the explicit purpose of producing a product.

43. General Government S1546 - Clarify Public Access to Personnel Records (SL 2007-508) Amends the statute pertaining to the privacy of municipal employee personnel records to provide that included within the information that is a matter of public record are the terms of any contract by which the employee is employed whether written or oral, past and current, to the extent that the city has the written contract or a record of the oral contract in its possession. Further provides that the term “salary” as used in the applicable subsection includes pay, benefits, incentives, bonuses, and deferred and all other forms of compensation paid by the employing entity.

44. General Government S1245 - Retainage Payments/ Construction Contracts (SL 2007-365) Sets forth provisions regulating the amount of retainage allowed on public construction contracts. Provides that no retainage shall be allowed on periodic or final payments made by the owner or prime contractor on public contracts totaling less than $100,000. Retainage on projects equal to or greater than $100,000 may not be greater than 5%, and generally, once the project is 50% completed, no further retainage is allowed so long as the contractor continues to perform satisfactorily. Specifies circumstances authorizing reinstatement of retainage, when retainage shall be released, and how suffi-cient funds may be retained to secure completion of work.

45. General Government Provides for payment and reduction of retainage for those trades that have reached 100% completion of their contract by or before the project is 50% complete. Provides that the retainage regulations shall not operate to prevent any agency or political subdivision of the state from complying with the requirements of a federal contract or grant when those requirements conflict with the act. Specifies that the bid documents must state when federal preemption applies. Provides that noting in the section shall prevent an owner from withholding payment to the contractor in addition to the amounts authorized for unsatisfactory job progress, defective construction not remedied, disputed work, or third-party claims filed or reasonable evidence that a third-party claim will be filed. Effective January 1, 2008.

46. General Government S581 - Building Permit Reductions/ Rebates (SL 2007-381) Authorizes a city to charge reduced building permit fees or provide partial rebates of building permit fees for buildings that are constructed or renovated using design principles that conform to specified certifications or ratings that recognize energy efficiency. Provides same authority for counties.

47. General Government S556 - Nonresidential Building Code (SL 2007-414) Authorizes the governing body of a city to adopt and enforce ordinances relating to nonresidential buildings or structures that fail to meet minimum standards of maintenance, sanitation, and safety established by the governing body. The minimum standards may only address conditions that are dangerous and injurious to public health, safety, and welfare and identify circumstances under which a public necessity exists for the repair, closing, or demolition of such buildings or structures. Provides that such ordinances are applicable only within the corporate limits of the city.

48. General Government Sets forth detailed procedures for investigation, complaint and hearing, issuing orders to repair or demolish, and enforcement that are generally similar to provisions for minimum housing codes. In the case of boarded-up buildings that evidence abandonment of an intention to repair, governing bodies may take further action after two years. Includes specific provisions regarding repair of vacant manufacturing facilities and vacant industrial warehouse facilities and increases the time frame for further action if such facilities are boarded-up to five years. Specifies that the powers conferred are supplemental to others conferred by law. Makes provisions applicable to counties.

49. General Government S211 - An Act To Revise The Law Governing Electronic Signatures By Clarifying That Public Agencies May Use, As Well As Accept, Electronic Signatures (SL 2007-119)

50. General Government H24 - Smoking in State Govt. Buildings/Prohibition (SL 2007-193) Adds a new article to G.S. Chapter 130A prohibiting, with minor exceptions, smoking in buildings owned, leased or occupied by state government. Authorizes local governments to restrict smoking in certain defined areas, including buildings owned, leased as lessor, or the area leased as lessee and occupied by local government, and any place on a public transportation vehicle owned or leased by local government and used by the public. Provides that the only “grounds” on which smoking may be restricted are those of public health or social services departments. Effective January 1, 2008.