It’s once again time to renew your membership in NCLGBA. If you haven’t in a while, there’s no time like the present.
Membership in NCLGBA remains very affordable, with active memberships only costing $45/year. Students and retirees can also join for $25/year.
Membership benefits include a subscription to our new “Quarterly Report” newsletter and significant discounts to our Summer and Fall Conferences. You will also help support North Carolina’s ONLY professional association for budgeting professionals, and one of the strongest public financial professional organizations in the Southeast.
Enterprise Utility Bill Changed to Study, Passes House
A few weeks ago, 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.
On Tuesday, the House Finance Committee approved this substitute, and the House passed the bill on to the State Senate on Wednesday. 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.
Recently, the North Carolina League of Municipalities released results from their survey of municipalities regarding plans to provide cost of living (COLA) and merit pay increases for their employees as part of their FY 2014 budget proposals.
All rooms are oceanfront suites. Rooms for the conference are $189/night (plus tax). Reservations must be made by phone, calling 910-256-8696. Ask for the “NCLGBA Summer Conference” rate. Deadline for reservations is June 18th.
The state’s smoothed seasonally adjusted March unemployment rate decreased to 9.2 percent from February’s revised rate of 9.4 percent… North Carolina’s March 2013 unemployment rate was 0.2 of a percentage point lower than a year ago. The number of people employed decreased 10,954 over the month to 4,307,071, and increased 42,669 over the year. The number of people unemployed fell 11,619 over the month to 435,209, and declined 7,127 over the year.
State revenues were $110 million ahead of target at the end of March
State income tax revenues are 1.5% ahead of target, while state sales tax revenues are 1.4% below target.
Payroll withholding of state income tax reflects a 4% growth rate, slightly above wage and salary growth.
Economic growth within the state is expected to continue upward, though the rate is not expected to quicken.
Statewide job growth is not expected to pick up in a manner that will significantly impact the real unemployment rate until mid-2014. Unemployment is expected to remain above 9% later this year.
Forecast for Gross State Product (GSP) growth in FY2014 was adjusted downward, from 4.5% to 3.6%. Anticiapted retail sales growth was revised down to 2.7%, while wage & salary growth was revised upward to 5.8%.
The overall state sales tax growth target for FY 2013 was 5%, but actual performance suggests that growth in the state tax rate (which affects the Article 40 distribution to local governments) should be 3.1% compared to last year. FY 2012 growth at the state level was 5%.
How’s global slowdown affecting oil and commodity prices?
“Commodity markets are certainly turning in to the new radio wave of slower global economic growth as they have not done since the start of the Great Recession in 2007-2008.”
What about inflation?
…the headline Consumer Price Index (CPI) pulled back in March, down 0.2 percent, following the 0.7 percent increase registered in February. That is the first monthly decline in headline CPI in four months. In all three March inflation reports, energy price reversals proved to be the dominant driver… With crude oil and wholesale gasoline prices continuing to fall, retail gasoline prices should provide further downward pressure on headline CPI over the next month or so… Food price inflation was also rather tame on the month… Excluding food and energy, consumer prices were mixed, as the core CPI edged up a softer-than-expected 0.1 percent. As seen from the middle chart, the gap between core goods and core services remains wide. Reflecting, in part, consistent increases in shelter costs, transportation services and medical services, the core CPI services index is up 2.5 percent year-over year. In particular, shelter costs, which comprise nearly 32 percent of the core CPI, were up 0.2 percent last month and 2.2 percent over the past year. Core goods prices on the other hand have moderated to a flat year-over-year pace, reflecting sluggish consumer demand… The report remains favorable to the Fed’s outlook and to its highly accommodative monetary policy. At a 1.5 percent year-over-year pace, headline CPI is well below the longer-run target of 2 percent and allows the Fed to maintain the current policy course.
What about housing?
The latest reading on housing starts, showed headline starts surged to a 1.04-million unit pace, the highest level since June 2008. However, much of the increase was due to the volatile multifamily component, which suggests a payback is in order. We are expecting a hand-off from multifamily to single-family units as demand cools somewhat and more deliveries come on line over the next two years, but recent data have yet to reflect this transition. Single-family units fell nearly 5 percent on the month, the second decline in three months, bringing the strength of the housing recovery into question. Moreover, the level of permits is running below the level of starts, suggesting a further decline in single family units is imminent.
Looks like economic activity, and retail sales, are a little mixed:
Retail sales downshifted in March, falling a disappointing 0.4 percent. The control group within retail sales, which captures the categories that flow into the GDP calculation, fell 0.2 percent, underscoring the downshift in consumer spending for the month. Sales rose for furniture, non-store retailer and eating and drinking places. Sales contracted the most for general merchandise stores and gasoline stations. The decline in gasoline station sales, in part, reflects the decline in average gasoline prices for the month. The disappointing retail sales numbers, combined with a downshift in job and income growth, are signs that another spring slowdown is likely to take place again this year. We continue to expect consumers to remain cautious in the months ahead as economic uncertainty reemerges.
Gross domestic product rose only 0.4 percent in the fourth quarter after posting a 3.1 percent increase in the third quarter. Fourth quarter growth was supported by consumer spending, business fixed investment, residential investment and net exports.
Government spending and inventories subtracted from the headline growth figure. We believe this year started with a much stronger pace of growth, around 2.8 percent. Growth in the first quarter should be led by much stronger personal consumption
expenditure growth along with inventory building. We expect that nonresidential construction and net exports will subtract from growth in the first quarter. Going forward we expect real GDP growth to downshift again this year, beginning in the second quarter to around 1.8 percent before returning to around 2.2 percent in the third and fourth quarters of this year.
What are small businesses thinking?
The NFIB Small Business Optimism Index pulled back in March as business owner’s continued to struggle with an unusually tough operating environment as fewer respondents expected sales to increase, and fewer small-business owners expected to increase their hiring activity. The top concerns for owners remains taxes, regulation and poor sales. The most concerning aspect of the report was that small-business owners now view the economic outlook more negatively than they did during the recession. Given the importance of the small business sector in job creation, the ongoing depressed level of confidence will likely keep near-term job gains limited.
And, lastly, manufacturing?
Over the first quarter, industrial production rose at a 5.0 percent annualized rate. This is up from a 2.3 percent annualized rate in the fourth quarter and supports our call for a significant strengthening in GDP growth in the first quarter of this year… March production was boosted by a 5.3 percent rise in utilities output as cooler-than-average weather over the month boosted demand for heating. Mining output fell for the second time in three months and is down since the start of the year.
Furthermore, output in the key manufacturing sector weakened in March. Production fell o.1 percent, making February’s 0.1 percentage point upward revision a wash. Weakness in March was widespread across industries. Production of nondurable goods was flat and production of durable goods gave back some of February’s gain, declining 0.2 percent. Leading the pullback was a fall in the production of primary metals and electrical equipment.
Gov. McCrory presented his transportation plan Thursday, which is more data driven in its prioritization of projects.
Praises and critiques of the new plan are already being heard among legislators.
“The problem is we, right now, do not have a long term strategic transportation policy to connect our strong economic regions to give us the most bang for our limited dollars,” said Gov. Pat McCrory.
But he said the new plan would change the way transportation has been done for 20-30 years by data driven prioritization to create better jobs and better opportunities for all North Carolinians.
“It’s going to be a battle because a lot of people like the status quo of the way things have been going since 1988,” McCrory said to ABC11. “I personally think we need to change them.”
The N.C. Metropolitan Mayors Coalition has been working with the governor, his team and the legislators on the proposal.
“As mayor of Charlotte, Gov. McCrory founded the MetroMayors Coalition around the same transportation concepts that he rolled out today,” said Metro Mayors Chair and Raleigh Mayor Nancy McFarlane. “We look forward to working with the governor and the legislature as the bill makes its way through the legislative process.”
Under the plan, also known as the Strategic Mobility Formula, the Highway Fund would be exclusively maintenance and the Highway Trust Fund will be all construction.
The plan focused on the Highway Trust Fund, which would take all the monies in the mobility fund, equity fund, secondary roads, loops and interstates and distribute them into three tiers: statewide, regional and division.
North Carolina Secretary of Transportation Tony Tata said the state needs to find more efficient ways to fund transportation because of increasing population and decreasing revenues.
“We’re expecting 1.3 million citizens to come to North Carolina over the next 10 years and we have a continued decline in revenue,” he said. “We’re seeing a 1.7 billion decrease in revenue over the next 10 years so we have to find more efficient and strategic ways to fund, distribute and prioritize transportation projects that will have the biggest impact statewide, regionally and locally.”
He said the declining funds are a result of all three revenue streams being flat, decreasing or down from previous highs.
“Our motor fuels tax is declining even when factoring in population growth because vehicles are more fuel efficient, and so we’re losing about 2 percent a year in our revenue.
Tata said there would be roughly $10 billion available to distribute between the tiers over 10 years.
Forty percent of the funds, roughly $6.4 billion, would be allocated to the statewide tier and could be spent on the interstate, national highways system, national defense highways, turnpikes and Appalachian Highways system.
These projects will be prioritized solely on data driven factors.
“The Strategic Mobility Formula is data and fact driven to ensure we are investing in the areas with the most pressing needs to reduce travel time, reduce congestion, attract business, enhance safety and improve the quality of life for all North Carolinians,” he said.
The plan would designate another 40 percent, around $6.4 billion, for the regional tier.
Projects that qualify under the regional tier include any projects that did not succeed in the statewide tier and projects of significance to the region. The money will be distributed to paired highway divisions.
The division pairings include: Division 1 and 4, 2 and 3, 5 and 6, 7 and 9, 8 and 10, 11 and 12, and 13 and 14.
Projects will compete within their paired divisions for the funding and will be prioritized 70 percent on data and 30 percent on MPO/RPO ranking.
Finally, those projects that don’t succeed in the regional tier would qualify for the division tier along with other projects important to the divisions.
This tier will receive 20 percent of the funding, about $3.2 billion. Funds in this tier will be distributed equal share to each division, and projects will be prioritized by 50 percent data and 50 percent MPO/RPO ranking.
The plan would also allow all modes of transportation to compete for funding.
“It allows for more local input and allows for all modes to compete for funding,” Tata said.
Tata said the new plan would create many new, much-needed jobs.
He said, under the current 10 year plan, there are about 175 projects that are supporting 174,000 jobs, and the new plan would allow for about 260+ projects supporting 240,000 jobs.
The plan would create these jobs by giving people better access to better job opportunities, he said.
“We’re not just moving people,” Tata said. “We’re connecting them to greater opportunities, jobs, healthcare, education, recreation centers, and we’d love to get all of our people moving forward.”
He said the plan would make this possible by using the same amount of money just employing it differently.
Praise and Criticism
McFarlane talked with Tata during the development of the plan specifically on the Coalition’s concerns surrounding changes to the Powell Bill. The plan as introduced today calls for Powell Bill to be paid only from the Highway fund, but at the same level as previous years and without any changes to the distribution formula.
Rep. Bill Brawley, R-Mecklenburg, said he supports the plan, because it will help fund the most beneficial projects.
“We can build what we need instead of building what we can get funded,” he said. “Because sometimes, there will be money available for a type of project which may not be the optimal answer for a region. But it’s what they can get funded, so it’s what they do.”
Brawley said a good example of an area this plan would help is I-85 near Charlotte.
“You’ve got an area where you’ve got four lanes. You go to two lanes, and then you go back to four lanes,” he said. “Well those two lanes in the middle, it’s almost like a blood clot.”
Rep. John Torbett, Rep-Gaston, said he supports the plan, because it allows all modes of transportation to compete for funding.
“There’s more to economic opportunity and job development if you incorporate everything,” he said. “I think the broader focus on every avenue of transportation is a very positive thing for the state.”
Sen. Tom Apodaca, R-Henderson, said he hoped once the bill reached the General Assembly it wouldn’t change much at all.
He said he wanted to retain the access to funds by all modes of transportation even though he knows several people who do not think light rail should be included.
Rep. Marilyn Avila, R-Wake, said she did not think all modes of transportation would get the same funding based on the number of people that use them.
“There is no way that light rail could be considered on level footing with roads and streets,” she said.
Transportation plan would focus dollars on big-ticket items
Governor announces new funding formula for state, local transportation projects
Gov. Pat McCrory has announced a change in the way transportation projects are funded and prioritized-a formula he said will improve the state’s economic recovery and involve more local input in the process.