Analysis Roundup – June 10, 2013

Next edition will be published June 17th

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NC House Released Budget Proposal, Comparison to Senate Available

The NC House released their 2013-15 biennium budget proposal late Sunday evening. The bill will be debated in the House Appropriations Committee, starting 8:30am tomorrow morning (click here to listen to the meeting as it happens).

Late this afternoon, the NC League of Municipalities published a comparison (click here to view) of how the House plan impacts cities and towns within the state, and how these impacts compare to the version already passed by the Senate. Overall, the House version appears to avoid some of the more noticeable cuts to programs and allowances provided for municipal governments, including the following:

  • Senate budget eliminates the provisional hold harmless allotment for select local governments, while the House version continues it
  • Senate budget eliminates funding for the NC Rural Center, reallocating funds for a new program to be administered by the Department of Commerce. The House proposal, on the other hand, does not eliminate funding and actually increases funding by $3.4 million in FY 2015.
  • Senate budget eliminates the Clean Water Trust Fund, while the House proposal continues and increases funding support.
  • Senate budget reduces Parks & Recreation Trust Fund Grant program by approximately $16.5 million, while the House proposal does not.

We will update this post to include analysis of the House proposal for counties once it becomes available from NCACC.

House Proposal Resources:

Appropriations Committee Report

Budget Proposal (Bill)

WRAL Stories:

House budget lays out stark differences with Senate

House budget subcommittee documents (includes links)

NC House Tax Reform Revised

The NC House will likely vote this week on a tax reform bill that was revised last week to provide some protection for municipal governments with respect to their revenue from utility franchise taxes.

A rundown comparing the House plan to the Senate plan and an alternative proposal (provided by the NCLM) has been updated to reflect these changes (click here to view).

NCLM provided an overview of the change in last Friday’s LeagueLINC Newsletter:

The previous version of HB 998 provided that each city and town would receive distributions each year in the future equal to the amount it received in electricity and natural gas franchise tax distributions for FY 13-14. The new version of the bill will continue to keep city electricity and natural gas revenue at the FY 13-14 level or higher, but only if sales of gas and electricity do not decline below the FY 13-14 level. While such a decline in electricity sales is unlikely, the sensitivity of natural gas sales to winter temperatures makes a decline in these sales more possible.

Bond Referendum Debt Information Bill Modified

Click here to view the revised version.


The Senate Finance Committee gave its approval this week to HB 248 Taxpayer Debt Information Act, which would require bond order information to include an estimate of the interest to be paid on the bond, and would require that any bond referendum include a statement that the bond repayment will include interest and that additional taxes may be required for repayment. The League opposed the original version of the bill because it required the estimate of the amount of interest be written into the referendum. Bond attorneys had indicated to the State Treasurer that this requirement could invalidate a debt issuance because interest rates at the time of the issuance are likely to be different than estimated rates submitted on the ballot. The current version of the bill avoids this problem.

LGC Issues Memo on New Unemployment Insurance Requirements

The Local Government Commission distributed guidance last week on the requirements regarding reform of the Unemployment Insurance program adopted by the Governor and General Assembly earlier this year.

Click Here to View the LGC Memo (PDF)

The instructions appear to align with the information we shared in a special presentation that was part of our Analysis Roundup on March 22nd.

Click Here to View the Original NCLGBA Tutorial

North Carolina GDP Grows 2.7% in 2012

The state’s gross domestic product grew 2.7% last year, on pace with all of our neighboring states except Tennessee, though higher than the regional (2.1%) and national (2.1%) aggregates.


Comparatively-speaking, North Carolina continues to outperform the regional and national economy, a trend that has continued since 2005.



Walden’s Outlook for Summer 2013

NC State University Economist Dr. Michael Walden recently-published his Economic Outlook for the summer. You can view it here (PDF).

Here’s some of Dr. Walden said about the North Carolina economy at the present:

Evidence suggests the North Carolina economy has been growing slightly faster than the national economy. Growth in both labor compensation (a proxy for gross domestic product) and payroll employment has been better in the state during the past three years. The state’s retail, housing, and public revenue sectors also show solid signs of having turned the corner to improvement…

North Carolina is expected to add over 100,000 payroll jobs in both 2013 and 2014, and by the end of 2014 the state’s jobless rate will have dropped to 6.8%. Four factors will push the state’s economic recovery: a manufacturing revival, a construction surge, a boost in college graduates attracting knowledge-based industries, and an influx of retirees. The Triangle and Asheville regions will have unemployment rates under 6% by the end of 2014, while Rocky Mount will still have a double-digit jobless rate…

True to the state’s pattern of a more volatile business cycle, labor compensation fell relatively more during the peak recessionary year of 2009 in North Carolina than in the U.S. However, the rebound in labor compensation in 2010, 2011, and 2012 has been as strong or slightly stronger in the state than in the nation. The state’s different economic structure – primarily its greater reliance on manufacturing – is the primary reason given for both deeper recessions and stronger recoveries in North Carolina compared to the country…

The economic divides in North Carolina likely won’t close in the near future. Economic trends and technologies appear to be favoring metropolitan areas over non-metropolitan regions. As growth continues, metropolitan areas will likely expand their geographic scope – hence, counties designated as metropolitan will likely increase in the future. Challenges will persist for bringing
economic growth to all regions of North Carolina.

Here are Dr. Walden’s forecasts for national, statewide and metropolitan unemployment.


NC House/Senate Release Tax Reform Plans

Today saw a lot of activity in the North Carolina House and Senate Finance Committees, as three different tax reform proposals were presented.

More analysis from NCLM and NCACC should be expected soon, but WRAL did gather the information distributed by legislators and their staff this morning. Here is what can be gleamed so far:

House Tax Reform Plan
  • No changes to taxes shared with local governments in FY 2014
  • Local option tax rate reduction from 2% to 1.9%, effective July 1, 2014
  • Broadening of base to include repair and maintenance labor and other select services
  • Transfer of taxation on electricity and piped natural gas over to the sales tax (called the end of “preferential rate” taxation), effective July 1, 2014
 The statewide impact on local revenues in FY 2015 of these changes are as follows:
Sales Tax Rate Reduction:                        -102.5 million
Broadening Sales Tax Base:                        +88.3 million
Shift in Electricity Taxation:                       +26.2 million
Shift in Natural Gas Taxation:                     +10.8 million
Net Impact                                                    +22.8 million
Their projections (which you can see at also incorporate an annual growth factor of 4%.
Senate Tax Reform Plan (Majority-Rucho)
  • Municipalities will be allowed to assessed privilege license taxes, but they will be capped to no more than $500/business
  • Changes to local taxes would take effect January 1, 2015
  • Electric & Natural Gas services would transition over to sales tax; counties will be required to distribute 100% of tax collected to municipalities
  • State sales tax rate goes from 4.75% to 5%, while we lose Article 42 (thus adjusting local option from 2% to 1.5%)
  • Substantial broadening of sales tax base (applicable to state and local options)
  • Hold harmless provisions included
  • Counties will lose 90% of their share of the real estate conveyance tax (from 2% to 0.2%) and will be eligible for hold harmless similar to municipalities
  • It appears we will also lose the Wine & Beer tax money, as it is being rolled into the hold harmless provisions.
  • The hold harmless provision will provide 100% gap coverage for FY 2015 and FY 2016, then go down by 10% each year and close out at the end of FY 2025.
Senate Alternate Tax Reform Plan (Clodfelter & Hartsell)
“Compromise” plan discussed during Senate Finance Committee meeting. Information on this plan is limited, thought the summary is included in the comparison chart below (courtesy WRAL).

Here is a rundown of the proceedings from this morning’s meetings, courtesy the NC Metro Mayors Coalition:

House & Senate Tax Reform Bills Released

By: Julie White, Executive Director and Kathryn Trogdon, Legislative Intern

House Bill 998 – Simplify Adjustment for Federal Taxable Income

The House Finance committee discussed the House tax reform bill H998 Thursday.

The bill would “reduce individual and business tax rates and to expand the sales tax base to include services commonly taxed in other states”.

Rep. Lewis said the bill would create a flat income tax rate of 5.9 percent and a tiered exemption system up to $25,000 with the first $12,000 not being taxed. There would also be a gradual reduction in the corporate income tax from 6.9 percent to 5.4 percent over the next five years.

Lewis said this decrease in a corporate income tax would help to spur economic job growth by bringing more business to the state.

“Having the highest corporate income tax in the Southeast creates sticker shock whenever companies are looking to locate in our state,” he said.

Lewis said although a 5.4 percent corporate income tax was still higher than the corporate income tax rate in South Carolina, it was lower than most of the other competing states.

The bill would also broaden the sales tax base to include services commonly taxed in other states.

Rep. Luebke said he was interested in how much the rich would save with a flat income tax rate.

But Lewis said he thought everyone should be taxed at the same rate, because a family making $4 million would pay significantly more in taxes than a family making $40,000.

Luebke said another problem he had with the bill was raising the sales tax, especially on services like getting your car fixed, because the sales tax is a regressive tax.

On the other hand, Rep. Collins said although he will pay more under the new tax plan, he still supports the bill.

He said for the family making $40,000, they would get $720 back in their pockets by not being taxed on the first $12,000.

Senate Bill 394 – Lower Tax Rates for a Stronger NC Economy and Senate Bill 677 – Corporate Income Tax Reduction and Reform

The Senate discussed two different Senate tax reform bills in Senate Finance committee Thursday.

Sen. Clodfelter said the effort was a consensus attempt to update a 75 year old tax plan.

“It is an attempt to fix an antiquated, outdated tax code,” he said.

The bill would bring the individual and corporate income tax rate to 5.95 percent with the franchise tax decreasing to $1.25 per $1,000. Also, the bill would broaden the sales tax base to include services and would reduce the sales tax rate to 4.5 percent, Clodfelter said.

Sen. Rucho said the plan was a way to transition to one day having a zero income tax rate “to make North Carolina the competitive state”.

But he said it was important that the new tax reform plan got rid of all the loopholes from the previous plan.

“There aren’t special groups that are getting special consideration at the expense of the people,” he said.

Rucho said even though there are television commercials trying to keep some of these loopholes in place, it is important to keep the tax plan as simple as possible.

“If we treat everybody the same, if everybody’s equally handled by the Department of Revenue and the tax policy what this does is it puts more money in the people’s pockets,” he said.