Analysis Brief – August 22, 2013

Job Announcements on NCLGBA Career Gateway

Finance Director – Town Of Selma (Closes 9/6/13)
Finance Director – City Of Oxford (Open Until Filled)

End of Session Legislative Updates Scheduled/Available

The 2013 session of the North Carolina General Assembly has concluded, and our supporting organizations have had the time to review passed and adopted legislation and provide comprehensive overviews of how the session impacted county and municipal governments.

Click Here for NC League of Municipalities’ End of 2013 Session Bulletin

Click Here for NC Association of County Commissioners 2013 Legislative Session Report

The UNC School of Government will present two webinars, scheduled for August 29th and September 5th, providing a comprehensive review of the session.

Both sessions start at 10:00 a.m. and are scheduled to last until 12:30 p.m. Each session is $125/site or individual wanting CPE credit. Both sessions can be purchased for the discounted price of $225. Click here for more information and to register online.

Session 1 Topics – Thursday, August 29th (Click Here to Register)

  • Public health
  • Mental health
  • Social Services
  • Elections
  • Community Planning and development
  • Environment

Session 2 Topics – Thursday, September 5th (Click Here to Register)

  • Local government authority and finance
  • Purchasing and contracting
  • Emergency management
  • Ethics
  • Economic development
  • Property tax
  • Criminal law

Wells Fargo Releases Outlook for North Carolina

Click Here to Download and Read

The report offers a good overview of current trends in the Tar Heel State, along with several key metro areas. Among its findings:

  • As noted many times before, unique characteristics to North Carolina’s economy not only delayed the arrival of the most recent recession, but have also contributed to a delayed recovery in many parts of the state.
  • Real GDP in North Carolina grew 2.7% for 2012, slightly above the national mark (2.5%)

  • Hiring is picking up, especially in the hospitality, information, professional and business services.
  • Unemployment remains high, especially in rural areas, and driven to a bottoming out in manufacturing and construction.
  • Tax reform, especially with respect to reduced individual and corporate income tax rates, should help North Carolina compete for jobs lost in recent years to states neighboring key metropolitan areas.
  • At its worst, housing prices statewide saw a 13.7% drop. Recent gains now put them approximately 5.7% below pre-recession levels, better than the 19% decline still present at the national level.
  • North Carolina is “defying” logic associated with the current global slowdown and achieving strong growth in exports, currently up 5.5% for the year. Growth is centered on China and Mexico, while trade to Canada, the State’s largest partner, has fallen close to 3%.
  • Raleigh’s economy is clearly outpacing most of the rest of the state and country, with respect to both economic activity and employment growth.

NC down nearly 56,000 Jobs since January

July unemployment was reported at 8.9% for the Tar Heel State, up slightly from 8.8% in June. The State lost more than 13,000 in July, and is down almost 56,000 since January. The January 2013 unemployment rate, however, was 9.5%.

Job losses so far are significant, but reductions in the labor force count are even more so, down nearly 80,000 from January. During the same time period last year (January-June 2012), the state labor force grew by nearly 28,000, and years before that saw increases or decreases between around the 20,000 range.

If the labor force in July was equal to its January total (4.776 million), the unemployment rate would be 10.4%.

Need Performance Measurement Training?

UNC School of Government has two workshops coming up of interest to those seeking to enhance their performance measurement skills. Registration for each worskhop is $130/person, and each workshop lasts one day.

Both workshops are taught by Dr. David Ammons,

Friday, September 6th – Performance Measurement 101: Designing Measures in Local Government for Accountability and Results This course fulfills the “Performance Measurement” requirement for North Carolina Budget & Evaluation Certification Program (click here for more information)

This workshop focuses on the fundamentals of performance measurement and the design of measures that strengthen local government performance. Participants will discuss the criteria for a good set of measures, tips for developing or refining performance measures, and the use of standards or benchmarks in performance comparisons.
Friday, October 4th – Practical Analytic Techniques for Local Government  This course fulfills the “Evaluation” requirement for North Carolina Budget & Evaluation Certification Program (click here for more information)
This course focuses on a variety of easy-to-apply analytic techniques and includes examples of successful analysis among local governments. Topics include the use of analysis to consider the need for additional employees, to diagnose work scheduling and routing problems, to make adjustments for the impact of inflation, and to analyze patterns of demand for a service.

“Local Food” interest you?

UNC School of Government, along with the Center for Environmental Farming Systems, will host a special webinar, “Local Food and Local Government,” on Wednesday, September 11th, 10am to 11:30am.

Site cost for the webinar is $125. Click here to register.

What’s the impact of local food? From the USDA:

According to the latest Census of Agriculture, direct sales of food products from farmers to individual consumers rose by nearly 50 percent between 2002 and 2007. Worth an estimated $1 billion in 2005, local food sales grew to $4.8 billion in 2007 and nearly $7 billion last year, according to industry estimates. For nearby businesses in major cities across the U.S., having a farmers market nearby means an average increase in sales of anywhere from $19,000 to $15 million (according to a Marketumbrella research paper published in 2012).

Small Business Sentiment improving, not Great

(Wells Fargo) Wells Fargo’s Small Business Confidence Index rose 9 points in the third quarter to 25, reaching its highest level in five years. Both the present situation and future expectations components of the survey increased during the quarter, but small businesses are clearly more upbeat about future prospects than they are about actual operating results over the past year. The present situation index rose 2 points during the quarter to 4, while expectations climbed 7 points to 21.

Indicators suggest upcoming Growth

(Wells Fargo) The Leading Economic Index (LEI) increased 0.6 percent in July, with broad-based contributions from its underlying components, suggesting sustained growth for the economy. Only two components (capital good orders and average workweek for production workers) were negative.

LEI Contributors 072013

Real Estate Recovery yielding Mixed Results

Overall, the national real estate market is seeing recovery with respect to increased sale prices, reduced listing inventory and foreclosure stock, and increased issuance of permits for both single-family and multi-family construction.

Here’s some highlights from recent reports:

(Wells Fargo) Despite rising mortgage rates, existing home sales posted a better-than-expected 6.5 percent gain in July.  However, inventories rose for the sixth month, but remain at a historically low level. Distressed sales were unchanged.

(Wells Fargo) Housing starts increased 5.9 percent on the month, but all of the gain was in the volatile multifamily component. Single-family starts and permits fell on the month. Although the pullback in single-family starts and permits may be disconcerting, we are not worried… The NAHB/Wells Fargo Homebuilder Index reached its highest level since late 2005. So what is the disconnect? We suspect damp weather in the South continues to be the largest factor in the recent disappointing readings. The recent slowdown, however, suggests we could see some catch-up in construction activity later this year.

Most Realtors will tell you that real estate is primarily dependent on local conditions, meaning recovery activity is likely not to be consistent from place to place.  RealtyTrac found that when evaluating metropolitan areas for their first “Housing Market Recovery Index” report:

“The U.S. housing market has clearly shifted to recovery mode over the past 18 months, with home prices consistently rising and  foreclosures falling closer to pre-housing bubble levels,” said Daren Blomquist, vice president at RealtyTrac. “Still symptoms of the distress that plagued the housing market over the past seven years continue to linger, particularly in the form of a high percentage of underwater borrowers and distressed sales. This lingering distress is creating an uneven pace of recovery across different local markets.”

The report created some disagreement in Wilmington, as the coastal metro area was listed in the “Bottom 20” list with respect to its index score and reflection of a “lagging” market. Local Realtors, however, are not satisfied with the metric:

“While the Wilmington housing market overall is trending up, we acknowledge that challenges towards a full recovery still exist; however, we believe that characterizing our housing market in such a negative light is short sighted and inaccurate,” said WRAR President R. J. Alex in a news release yesterday…In July, homes sales in the Wilmington region were up 18 percent to 628 units sold compared to the same period the year prior. Average home sale prices were also up 4 percent to $244,130, according to data from Wilmington Multiple Listing Service.

Where’s Fuel Going

The last 30 days have seen some decline in gasoline prices, nationally and in North Carolina, with the average dropping about $0.10/gallon.

ncgasmth082313

Compared to a year ago, North Carolina prices are about 27 cents/gallon less (-7.3%), consistent with the national trend. North Carolina is also starting to see a broader discount gap between its average and the National Average, though the border states of South Carolina, Virginia and Tennessee continue to have lower prices (7 to 20 cents/gallon).

ncgasyr082313

 

The latest short-term outlook from the Energy Information Administration indicates that fuel prices should remain stable through 2014, with crude oil prices falling back some from recent gains.

chart

However, if current unrest in Egypt and elsewhere in the Middle East negatively impacts production activity, or results in the inability to transport product through the Suez Canal, substantial price shocks are highly likely.

 

Other Items

LGC publishes LGERS Retirement & Investment Disclosure Memo for FY 2013

Employment Security video series on Unemployment Insurance Law changes & implementation (YouTube)

Notes from ASPA’s “Presenting for the Information Age” Webinar (Scribd)

Overview of GASB’s new Pension Reporting Standards (GFOA)

Analysis on Impact of Tax Exemption for Municipal Bond Interest in North Carolina (NACO)

Wells Fargo’s August Economic Outlook (YouTube)

Resources from 2013 Community Development Research Conference (Atlanta Fed)

Interview with Economist John Haltiwanger on various national economic issues (GDP, jobs, growth, etc.) (Richmond Fed Magazine)

LA County changes policy, prevents school bond campaign donors from issuing bonds (LA Times)

Analysis Roundup – May 24, 2013

Starting June 3rd, the Analysis Roundup will be normally posted on Monday mornings.

How are we doing? We want to know if this regular update provides value to you as budget practitioners and members of NCLGBA, as well as ways we can improve it.

Click Here to Fill Out Our “Analysis Roundup” Feedback Survey

State Senate Passes Budget

The State Senate introduced their 14-15 biennial budget proposal this past Sunday and passed it on consecutive reading votes Wednesday and Thursday. The bill now goes to the House.

The League of Municipalities prepared an analysis of key budget provisions, which you can view by clicking here. Additional analysis was prepared by the Association of County Commissioners, which you can click here to view.

What does it mean for local governments? 

No Transitional Hold Harmless Included (via NCLM)

“The budget passed by the Senate this week does not include any extension of the transitional hold harmless payments for cities and counties. If these payments are to continue this year and beyond, it is imperative that they are extended in the budget the House passes and sends back to the Senate… If the transitional hold harmless payments are not included in the House budget, they will likely expire permanently.”

Potential Unfunded Mandates (via NCLM)

“The Senate budget contains two provisions that would place unfunded mandates on local governments. The first provision would require that if a State transfer of insurance tax revenue to the Worker’s Compensation Fund for Volunteer Safety Workers is not sufficient to meet the actuarial needs of the Fund, the remainder of the cost would be provided through an assessment of funds from those local governments served by volunteer fire departments and/or rescue squads. We have been told that the elimination of the transfer is planned, which would result in the full costs being placed on local governments. The second provision would take over $10 million per year from the Separate Insurance Benefit Trust, which pays for a modest death benefit and accident insurance for local and state law enforcement officers, and use the funds to pay State Health Plan premiums for State law enforcement officers. Local governments would receive none of the diverted funds, but could be required to replenish the Trust.”

Defunding Current Rural Economic Development Initiatives (via NCLM)

“The budget passed by the Senate this week would make significant changes to how the state supports economic development efforts. The bill would eliminate all State funding for the Center for Rural Economic Development ($16,619,194), Regional Economic Development Partnerships($2,151,517), and Councils of Governments ($328,105). It would transfer the economic development responsibilities of these groups to a new Rural Economic Development Division within the Departmentof Commerce and a new Rural Infrastructure Authority. Senate leaders said that the change is intended to remove an ineffective layer of bureaucracy from business recruitment and force Commerce Department officials to work outside of Raleigh.”

Transportation Funding Changes (via NCLM)

“In addition to the transportation reform provisions discussed in a separate article below, the Senate budget includes several additional transportation provisions affecting cities and towns. The budget would reduce public transportation operating support funding by two percent, following a cut of 9 percent over the last two years. It also would eliminate the Small Urban Construction program, which provides $7 million each year for urban projects on the State system. The allocation of State maintenance funding could change as the result of a provision that would require NCDOT to assess the level of congestion on primary highways and use the assessment as one of the criteria for developing its highway maintenance plan. The budget also would adjust MPO/RPO ethics reporting requirements so that only voting members would be covered. This provision mirrors that in SB 411 Ethics Requirements for MPOs/RPOs, which the League has been working on and which passed the Senate prior to crossover.”

Changes to Support for Water Infrastructure (via NCLM)

“Senate budget-writers proposed several policy changes of note in SB 402 Appropriations Act of 2013 that would affect the way the state awards water, wastewater, and stormwater infrastructure funds. First, the budget would consolidate the Clean Water Management Trust Fund and Natural Heritage Trust Fund into a new “Water and Land Conservation Fund.” Second, the proposal would move both the Drinking Water State Revolving Fund and Clean Water State Revolving Fund into a new “State Water Infrastructure Authority.” Both new funds would be overseen by separate nine-member authorities, who would have the ability to set the criteria for awarding grants and loans to local governments for these infrastructure projects. The oversight bodies would also make decisions on those awards. Other provisions in the environment section of the Senate budget proposal would make the same changes to the N.C. Environmental Management Commission that have beendebated in other bills this session, and would allow the state to direct taxpayer dollars to private recycling enterprises.”

Changes to Public School Capital Support from Lottery Proceeds (via NCACC)

“Of greatest concern to counties is the rewrite of the state’s lottery statutes to eliminate the guarantee of 40 percent of net lottery proceeds to county school construction. Removing the statutory intent to guarantee the 40 percent may result in future Legislatures using the county share of lottery proceeds for expenses other than school capital needs.”

House brings forward Tax Reform Plan

The Senate did not include any specifics on tax reform in the budget bill they passed this week, though they did forecast reducing tax revenue by approximately half a billion dollars as a result of some type of adopted reform. Last week, the House presented their proposal, which gained support from Governor McCrory.

Unlike the plan introduced a while back at a press conference by Senator Berger, which has not yet been drafted into legislation, the House plan has been submitted as a Committee Substitute to existing tax reform legislation (click here to view). It’s key components are as follows:

  • Eliminate tiered personal income tax rates and establish a single rate of 5.9% (rates are currently tiered at 6% to 7.75%)
  • Expand sales tax to include many services, leaving state rate at 4.5%
  • Reduce corporate income tax rate from 6.9% to 6.75%
  • Reduce state corporate franchise tax
  • Does not eliminate local business license taxes
  • Reduce Article 40 sales tax rate to 0.4%, and expand its base application
  • Eliminate franchise tax on electric and natural gas sales, and replace it with application of the local sales tax, with all funds distributed within each County (point-of-sale) to their municipal governments on a per capita basis.

The changes to the income tax would take effect on January 1, 2014, while the change to the sales tax base and Article 40 rate would take effect on October 1, 2013. The changes to taxation and distribution of tax on electric and natural gas sales would not take effect until July 1, 2014.

According to today’s “LINC IN” email, the League will work on analysis to determine the impact of these changes on individual municipalities. No hold harmless provisions are included in the House plan, as well.

Sequestration Hits Asset Forfeitures

The US Department of Justice Criminal Division distributed guidance to local law enforcement earlier this week (click here to view) that included the following announcement:

Having considered all available alternatives while working to ensure the continued financial health of Assets Forfeiture Fund (AFF), the Department determined that effective May 24, 2013, and continuing for the remainder of the federal government’s fiscal year (September 30, 2013), equitable sharing paid through the DOJ AFF will be reduced by 10 percent of the awarded amount. Computation of equitable shares will remain the same and determinations will be made under our pre-existing policies and guidelines.

Summer Gas Price Projections (h/t Karl Knapp)

From Calculated Risk and the EIA Short-Term Outlook…

Falling crude oil prices contributed to a decline in the U.S. regular gasoline retail price from a year-to-date high of $3.78 per gallon on February 25 to $3.52 per gallon on April 29. EIA expects the regular gasoline price will average $3.53 per gallon over the summer (April through September), down $0.10 per gallon from last month’s STEO. The annual average regular gasoline retail price is projected to decline from $3.63 per gallon in 2012 to $3.50 per gallon in 2013 and to $3.39 per gallon in 2014.

Last summer, gasoline prices averaged $3.76 per gallon during the April through September period – so this is a little good news for drivers.


The latest 12-month graph from Gas Buddy suggests prices are improving significantly for North Carolina going into the busy summer driving season. However, they do remain about 6% higher than our neighbors in South Carolina.

gasbuddy052413

Economic Notes (via Wells Fargo & BLS)

  • Federal Reserve does not appear to be pulling back on quantitative easing, at least until fall
  • Existing home sales moved close to annual pace of 5 million in April
  • Durable good orders improved in April, suggesting that manufacturing slowdown may be short-lived
  • Overall inflation as measured by CPI is relatively low (1.1% annual rate), though that appears to be driven by significant reductions in energy prices; regional performance in the Southeast and Mid-Atlantic are consistent with the national average
  • North Carolina was one of 40 states to see a reduction in the unemployment rate for April, from 9.2% to 8.9% (seasonally adjusted). Overall employment was up 73,300 from last April, while the unadjusted unemployed count managed to drop 20,000 for the month (to 398,000) with 3,000 of those actually dropping out of the labor force.

Click Here for Wells Fargo Weekly Commentary (PDF)

Click here for their May Outlook Video, including discussion of anticipated slowdown of growth during the second quarter of the year.

 

Enterprise Utility Bill Changed to Study, Passes House

Last month, NC League of Municipalities reported on H708, which would have dramatically limited the use of funds generated by local government enterprise utilities. The League indicated that the Bill would likely be redrafted to establish a Legislative Study Committee to research this ongoing issue and report back to the General Assembly next year.

A few weeks ago, the House Finance Committee approved this substitute, and the House passed the bill on to the State Senate prior to the “crossover” deadline. The language of the legislation does serve as a rebuke of long-established practices by North Carolina local governments and makes clear the interests and intent of the General Assembly.

SECTION 1.(a)  The General Assembly finds that the ability of a city or county to efficiently and effectively provide public enterprise services is imperiled by the use by that local government of those revenues for purposes other than:

(1)        Paying the costs of operating the public enterprise.

(2)        Making debt service payments.

(3)        Investing in improvements to the infrastructure of that public enterprise.

(4)        Reimbursing the unit of local government for actual direct services provided to the public enterprise.

SECTION 1.(b)  The General Assembly further finds that any excess net revenues should be used to lower rates, advance fund debt service, and fund infrastructure improvements of that public enterprise.

Obviously, this means that the matter, which directly impacts finances and budgeting for many North Carolina municipalities and counties, will be further scrutinized and reconsidered again next year. Last year, the General Assembly did pass limits on Electric Utility enterprise transfers, consistent with guidelines long recommended by the Local Government Commission.

First Quarter GDP Okay, Other Indicators Mixed

  • Overall US Gross Domestic Product grew 2.5% (annual rate) during the first quarter of 2013, according to the Bureau of Economic Analysis’ first report.
  • Actual Real Final Domestic Sales (End-Use Consumer Activity) grew 1.9% (annual rate) during the first quarter.
  • Personal consumption grew 3.2% (annual rate)

FY12/FY13 State Budget: Counties facing significant impact

FY12/FY13 State Budget: Counties facing significant impact

This serves as a compliment to our more recent post on the municipal revenue impact of the State Budget now planned for debate and vote in the North Carolina House of Representatives next week.

The NC House will debate and vote next week on the State Budget for the coming biennium (FY12/FY13). In order to balance the budget in light of a substantial deficit and a pledge by the now-GOP majority to eliminate a “temporary” sales tax increase passed in 2009, the proposed budget makes significant cuts to funding for services provided and administered at the county level. The NC Association of County Commissioners (NCACC) has prepared a summary of the county-oriented impacts, which include:

  • $72 million reduction in school capital funding from corporate income tax proceeds;
  • Reductions of individual (per pupil) allotments and select special-purpose education grant programs;
  • Reduces More at Four and Smart Start by 20%;
  • Reduces statutory appropriation for Clean Water Trust Fund from $100 million to $10 million;
  • Diverts $16.4 million from the Parks & Recreation Trust Fund and Natural Heritage Trust Fund;
  • Transfers the Employment Security Commission to the Department of Commerce;
  • Proposes moving state misdemeanants with sentences of less than 180 to County jails, and proposed subsequent judicial fee increases to accommodate shift;
  • Reduces library funding by 15%;
  • Eliminates funding of County-based veterans affairs programs;
  • Require that local government support functions of the Department of Revenue and the State Treasurer be paid for out of local sales tax revenues. This proposal would reduce local sales tax revenues by two-tenths of 1 percent (0.2%);
  • Eliminates the Health and Wellness and Tobacco Trust funds;
  • Diverts Golden Leaf Funds for the biennium to the general fund;
  • Calls for a comprehensive review of state, university, and school compensation plans

Additional updates on legislative activity of interest to county governments can be found at the NCACC’s Legislative Information Page. You can also check out their “The Week in the General Assembly” videos on their YouTube channel.