Analysis Roundup – June 24, 2013

Next Analysis Roundup will be posted July 1st

Links of Interest

DRAFT Agenda for 2013 NCLGBA Summer Conference

Make sure to contact Justin Amos by Wednesday, June 26th, to register!

Call (704) 336-5022 or Email jamos@charlottenc.gov 

An Expert Opinion: Advancing Your Career

Video: Unemployment Insurance Fund Solvency (H4) Program Changes & FY 2014 Local Budgetary Impact

ABFM Line Item: June 2013 Issue

NCLM LeagueLINC Bulletin – June 21st

NCACC Legislative Bulletin – June 21st

Latest Wells Fargo Weekly Economic Commentary

Wells Fargo June Economic Outlook (Video)

Wells Fargo “Week Ahead” Podcasts

NCLM Executive Director Hankins to Retire (Press Release)

House/Senate Still Working Out Tax Reform

The North Carolina Senate did not vote last week on adoption of a Finance Committee  substitute  According to reports from media and NCLM, leaders in both the House and Senate are trying to work on a compromise plan.

The substitute plan, which was referred back to the Senate Finance Committee last Wednesday, significantly reduces local revenues starting in fiscal year 2015 by eliminating local eligibility for sales tax refunds (starting July 1, 2014) and eliminating the local share of sales tax charged on food (starting November 1, 2014).

Counties will have the option to institute (by referendum or vote of governing body) a local option sales tax on food to supplement this loss, effective January 1, 2015. If not  implemented at the County level, impacted local governments will have to offset significant reductions in local option sales tax revenues.

Click Here for By-Municipality Analysis of Loss Revenue (via NCLM)

Click Here for Comparative Analysis of House & Senate Tax Reform Plans (via NCLM)

The leadership of the NC House does not support tax reform that has a negative impact on local government revenues. Governor McCrory also appears to be supportive of efforts to keep tax reform “revenue neutral.”

House/Senate to Conference on Budget

The NC House and Senate have selected those members who will serve on a Conference Committee to iron out difference in their budget proposals. If necessary, the General Assembly is prepared to pass a Continuing Resolution in order to continue State operations on July 1st.

The Senate version of the budget does reduce support for several programs utilized by local governments by a greater margin than the version passed in the House. The Senate also eliminated the 40% set-aside of lottery funds to Counties, a measure kept in the House bill.

Housing Market Overview

Wells Fargo Economists Mark Vitner and Anika Khan presented an overview last week of current and anticipated housing market conditions.

Here are their key observations:

  • New household formation (key driver of housing growth and replenishment) remains significantly-below historic averages (980,000 in 2012, compared to historic average of 1,200,000)
  • Household wealth growth is limited to financial assets, while growing in value of housing and other intangible assets is stagnant
  • Low mortgage rates continue to benefit refinancing more than home sales
  • New mortgage applications remain in post-recessionary range near 200,000 applications/week, significantly down from the pre-recessionary range of 400,000/week to 500,000/week
  • Home prices have increased 8-10% in recent months, driven in large part by reduction in foreclosure sales and significant sales to investors (23% of sales in Charlotte are to investors)
  • Homeownership rate has fallen to 65% (pre-recessionary level was 69%)
  • Apartment vacancy rates continue to decline, though this should stabilize with accelerate growth in multifamily housing starts
  • Nationally, 20% of mortgages remain in negative equity (underwater); however, many more still have insufficient equity to fuel market activity
  • Forecasts for 2013: Construction up 28%, new housing sales volume up 28%, existing sales volume up 8%, home prices up 6-8%, 30-year fixed mortgage rate @ 3.93%
  • Forecasts for 2014: Construction up 20%, new housing sales volume up 18%, existing sales volume up 7%, homes prices up 2%, 30-year fixed mortgage rate @ 4.3%

View the Powerpoint Slides Here

Instructions for Conference Call Replay Here

Other Workshop/Event Opportunities (Click to View)

NC Unclaimed Property Holder Seminar – July 17th – Raleigh

NCLGIA Conference – July 24th & 25th – Wrightsville Beach

Introduction to Local Government Finance – August 26 to 29 – UNC School of Government

Lastly, about that Latest Fed Announcement

Fed Chairman Ben Bernanke did indicate that the Federal Reserve’s currently policy of continued asset purchases will likely end in 2014. This was a contributing factors to significant market sell offs last week (and continuing into this week).

djia062413at1148

For a professional opinion of what this means, here’s what Wells Fargo said:

As widely expected, the Fed decided this week to keep the fed funds rate essentially at zero percent and to keep purchasing $85 billion worth of securities every month. In addition, the statement that the FOMC released after its meeting this week closely resembled the May 1 statement. However, there was one notable difference between the statements. In May, the FOMC said that it “continues to see downside risks to the economic outlook.” This week, the FOMC said that the downside risks have “diminished.”

In our view, this change in language is significant. Although few analysts expected the sequester would throw the economy back into recession, it represented a
downside risk to the economic outlook. Everything else equal, the Fed would want to continue to support the economy via more quantitative easing (QE) as long as the probability of sharply weaker economic growth was not insignificant. However, the economy evidently continues to expand, despite the restraining effects of the sequester, and the probability of a near term downturn has receded.

Neither the FOMC statement nor Chairman Bernanke in his subsequent press conference did anything to disabuse investors from the notion that has gained traction over the past month that the Fed would, sooner or later, begin to “taper” its purchases of Treasury and mortgage-backed securities. However, Fed officials did not indicate that “tapering” would begin in the near future. The Fed will continue to monitor incoming economic data to ascertain whether the economy still needs the crutch of continued QE. We forecast that after growing 1.5 percent in the current quarter, real GDP will grow 2 percent or so in the second half of the year, which will lead to only a slow decline in the unemployment rate. Therefore, we believe that “tapering” won’t begin until the fourth quarter. Although bond yields could subside somewhat in the near term—the yield on the 10-year Treasury security shot up nearly 30 bps this week, a trend increase in long-term rates seems likely in the coming months.

Analysis Roundup – June 17, 2013

Next Analysis Roundup scheduled for June 24th

DON’T FORGET SUMMER CONFERENCE REGISTRATION!!!

Click Here to Register for Summer 2013 Conference Registration & Hotel Info

The conference rate rooms at Shell Island Resort are sold out. The page linked above has information on alternative hotel options.

(From Heather Drennan) The last day to register is Wednesday, June 26. This allows us to work with the hotel to ensure there are enough chairs and enough food. Also, we are on the cusp of being able to add back a snack break that was cut during the recession. If we have enough registrations by the beginning of next week (or at least an email telling Justin Amos the check is in the mail), we might be able to add it back. Yum. Cookies.

Recent Job Announcements (Click on Position Title)

Budget Director – Town of Cary (Open Until 7/15/13)

Career Advice Focus of Most Recent “An Expert Opinion”

Dr. Steve Straus, CEO and Founder of Developmental Associates LLC, shared with us some specific qualities we need to develop to be considered strong candidates for management positions in local government, including those in budgeting and finance.

Click Here for Dr. Strauss’ Career Advice

Local Governments Significantly Impacted by latest Senate Tax Reform Plan

If you happened to receive alerts from NCLM or NCACC, or paid attention to news from Raleigh, you learned just how significant an impact the Senate’s latest tax reform proposal will have on current sources of local government revenue.

Friday’s NCLM LeagueLINC Bulletin reiterated the assessment they provided in an overview of the Senate plan on Thursday (link to by-municipality impact analysis, PDF).

Click Here for the latest bulletin from the NC Association of County Commissioners

How’s the Federal Budget Doing?

Wells Fargo updated their outlook this afternoon on how the Federal Government’s bottom line is performing:

Given the higher-than-expected revenue collections along with continued outlay reductions, we have revised our forecast for the federal budget deficit to $850 billion from $900 billion for the 2013 federal fiscal year. We have also downwardly revised our budget deficit forecast for federal fiscal year 2014 to $750 billion to reflect the higher-than-expected tax revenues from January’s tax policy changes as well as our expectation that the budget sequestration will remain in effect through the next fiscal year. The ongoing cuts to federal spending will continue to negatively affect headline GDP growth through the end of our current forecast horizon of 2014.

FY2012 NC Municipal Benchmarking Statistics Available

(From UNC School of Government) The School of Government’s Final Report on City Services for Fiscal Year 2011-2012: Performance and Cost Data presents data for fourteen North Carolina cities in the service areas of:

  • residential refuse collection
  • household recycling
  • yard waste/leaf collection
  • police services
  • emergency communications
  • asphalt maintenance and repair
  • fire services
  • building inspections
  • fleet maintenance
  • central human resources, and
  • water services.
This report is part of the ongoing North Carolina Benchmarking Project, a joint undertaking of the School of Government and the North Carolina Local Government Budget Association.
Click here for more information or to purchase a copy of the report:
Publication information:
Title: Final Report on City Services for Fiscal Year 2011-2012: Performance and Cost Data
Prepared by: Dale Roenigk
Edition: 2013
No. of pages: 375
Order number: 2013.07
Price: $35.00, plus tax and shipping
If you have questions about this title or other School of Government publications, please email sales@sog.unc.edu or call 919. 966.4119, then press #1.

Connaughton’s Perspective on NC Economy

UNC-Charlotte Economist John Connaughton updated his economic forecast earlier this month (Click Here for PDF Slides). Here are some of his findings:

Connaughton expects the North Carolina economy to increase by an inflation-adjusted rate of 1.9 percent during 2013. The first quarter Gross State Product (GSP) is expected to increase at an annualized real rate of 1.7 percent. During the second quarter, GSP is expected to increase again, at an annualized real rate of 2.7 percent. In the third quarter, GSP is expected to pick up and record an annualized real growth rate of 2.5 percent. In the fourth quarter of 2013, GSP is expected to grow at an annualized real rate of 3.2 percent…

Connaughton predicts that 13 of North Carolina’s 15 economic sectors are forecast to experience output increases this year, with the strongest performers including

  • Business and Professional Services (+5.8%)
  • Mining (+3.2%)
  • Transportation, Warehousing and Utilities (TWU) (+3.1%)
  • Education and Health Services (+2.8%)
  • Wholesale Trade (+2.4%)
  • Hospitality and Leisure Services (+2.2%)
  • Information (+2.1%)

On the jobs front, Connaughton predicts North Carolina to gain 62,500 jobs in 2012, a workforce increase of 1.5%. 12 of the state’s 14 nonagricultural sectors should see job growth, with the best prospects taking place with information, hospitality and leisure services, and business and professional services.

Connaughton also sees a stronger economy for North Carolina moving forward. While 2013 GSP growth may remain pedestrian at 1.9%, the economist sees 2014 growth outpacing the current year by 3%.

Should We Evaluate Charities by Overhead?

According to a recent initiative by the heads of the three leading charity monitoring efforts, evaluating the performance of a nonprofit primarily on the basis of their overhead costs is not a good idea.

The percent of charity expenses that go to administrative and fundraising costs—commonly referred to as “overhead”—is a poor measure of a charity’s performance.

We ask you to pay attention to other factors of nonprofit performance:  transparency, governance, leadership, and results.  For years, each of our organizations has been working to increase the depth and breadth of the information we provide to donors in these areas so as to provide a much fuller picture of a charity’s performance.

That is not to say that overhead has no role in ensuring charity accountability. At the extremes the overhead ratio can offer insight: it can be a valid data point for rooting out fraud and poor financial management.  In most cases, however, focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance can do more damage than good.

In fact, many charities should spend more on overhead.  Overhead costs include important investments charities make to improve their work: investments in training, planning, evaluation, and internal systems—as well as their efforts to raise money so they can operate their programs.  These expenses allow a charity to sustain itself (the way a family has to pay the electric bill) or to improve itself (the way a family might invest in college tuition).

When we focus solely or predominantly on overhead, we can create what the Stanford Social Innovation Review has called “The Nonprofit Starvation Cycle.”  We starve charities of the freedom they need to best serve the people and communities they are trying to serve.

Click Here for More on this Topic

Analysis Roundup – June 10, 2013

Next edition will be published June 17th

Click Here to Participate in our Online Feedback Survey

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.

Per NCLM:

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.

gsp_0613SE

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

ComparativeGDPGrowth9712NC

 

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.

WaldenUnempForecast0613

Analysis Roundup – May 31, 2013

Next Analysis Roundup will be published Monday, June 10th

Click Here to Participate in our Online Feedback Survey

Followup on Tax Reform, League Analysis Now Available

Yesterday, we shared an overview of the tax reform plans introduced for legislative review yesterday in the NC House and Senate Finance Committees (click here for the summary).

This afternoon, the NC League of Municipalities published its comparative analysis of how each plan would impact local government revenues, specifically looking at the impact on municipalities. You can view it by clicking here.

Here is further analysis from today’s NCLM League LINC newsletter:

The League thanks the sponsors of all three bills for working to limit the fiscal consequences of tax reform to municipalities. Of the three bills, HB 998 appears to provide the cleanest mechanism for ensuring that no individual city or town’s revenues will decrease under tax reform.

The House is expected to approve HB 998, possibly as part of its version of the budget. Prospects for the Senate bills are less clear. Although supported by the Senate leadership, SB 677 contains some provisions that are expected to meet resistance, such as applying sales tax to food and medicine not covered by insurance. The Governor already has indicated that he opposes such measures, as well as a sales tax expansion that imposes the responsibility to collect taxes on too many businesses. The eventual compromise plan may include elements of all three bills. Fiscal impact information is available on only two of the bills, HB 998 (impact) and SB 394 (impact), but some of the figures in the impact statements do not appear to reflect the actual bill language. Sufficient data is not yet available to allow city-by-city impacts to be estimated. Only SB 394 would significantly affect municipal revenues for FY 13-14.

All three bills would expand the local sales tax to cover services, but the range of services covered varies widely, with SB 677 applying the tax to most services delivered to consumers, but not on business-to-business transactions. Both Senate bills would affect the municipal privilege license tax, SB 394 by eliminating it and SB 677 by capping it at $500 per location. Each of the three bills would eliminate the franchise tax on electricity and natural gas and the local distribution of a portion of such taxes, but the bills differ in how this revenue would be replaced. Both Senate bills also would eliminate the local distribution of beer and wine taxes and the local government sales tax refund. SB 677 also would reduce the local sales tax rate, but it would cap sales tax refunds to non-profits.

Each of the bills attempts to ensure that cities and towns receive as much revenue under its new system as they do under the current system, but how this would be done varies.

HB 998 would replace the franchise tax revenue with a distribution equal to the amount of franchise tax each municipality received during FY 13-14. Combined with the additional revenue received from the sales tax expansion, HB 998 would ensure that each city and town would receive at least as much revenue in the future under the new tax system as it did during FY 13-14.

SB 677 includes a transitional hold harmless provision that would ensure that each municipality receives as much revenue in FY 14-15 and FY 15-16 as it did from sales taxes and the repealed state-collected taxes during 2014. It would not hold citiesharmless for the privilege tax change. The hold harmless would phase out by 10 percent each year and expire after FY 24-25.

SB 394 includes a hold harmless only for the electricity franchise tax, but its combination of tax changes are designed to provide each city and town with more revenue than under the current system. Sufficient data is not yet available to determine whether this goal is met at the individual municipality level, or only in the aggregate.

In reference to the point made about the Governor’s preferences, Governor McCrory did indicate he prefer a “measured” tax reform effort similar to that of the House, as opposed to that of the Senate.

Employment Continues to improve in most of NC

The NC Division of Employment Security released April 2013 employment and unemployment statistics for counties and metropolitan areas this week. Overall, they found that unadjusted unemployment rates declined in 97 of North Carolina’s 100 counties.

32 counties have rates still above 10%, compared to 42 in March. 75 counties saw actual increases in employment for the month, with 17,252 jobs added in April compared to March (+0.4%).

Dare County had the largest growth in jobs for the month (2,730).

In-depth statistics on local unemployment are available at their Demand Data Driven Delivery System (D4) website (click here).

Economic Updates from Richmond Fed District

The Richmond District of the Federal Reserve provides monthly updates on economic data for its region and each member state, including North Carolina. It is a good way to see how we size up with our neighbors and other states in the Mid-Atlantic.

Click on the links below for their latest monthly reports, many of which were updated this week and today:

Regional Survey of Business Activity

Regional Survey of Business Conditions

Regional Mortgage Performance Summaries

Survey of Business Conditions for the Carolinas

Economic Indicators

District Snapshop

LGC Delays Debt Term Limit Resolution

From Deputy State Treasurer T. Vance Holloman:

The staff of the Local Government Commission (LGC) has received numerous comments, and continues to receive comments, concerning a proposed LGC resolution that documents our long-standing approach to establishing debt term limits.  I want to thank each of you who have responded for your interest and for the time you have taken to respond.  The comments we have received reflect a great deal of thought and analysis on your part.  In order to give your comments the thorough consideration they deserve, the decision has been made to remove this resolution from the LGC’s June 4th agenda.  We anticipate that the resolution will be considered at the August meeting.  In order to incorporate your comments into the proposed resolution, we request all comments be made by the end of the day on June 14th.  We anticipate releasing an updated proposed resolution sometime in the late June, early July time period.  You will be given an opportunity to comment again before the resolution is presented to the LGC in August.  You may submit your comments to me at vance.holloman@nctreasurer.com, Tim Romocki at tim.romocki@nctreasurer.com or Robin Hammond at robin.hammond@nctreasurer.com.

Thank you for your interest in this matter.

The resolution (click here to view the full PDF document) would have set in place the following guidelines:

General Obligation Bonds: “…the normal maturity will be twenty (20) years or less, with exceptions for special circumstances or needs, and a requirement of even principal payments annually so that approximately one-half of total principal will be repaid within ten (10) years. Some flexibility may be allowed at the beginning of a term to allow blending with the existing debt service schedule of the Unit. In no case should the term allowed exceed the expected useful life of the asset being financed.”

Installment Purchase Contracts and Certificates of Participation (Limited Obligation Bonds): “…the normal maturity will be twenty (20) years or less with a requirement of level principal payments for governmental activities so that approximately one-half of total principal will be repaid within ten (10) years. Level annual payments may be permitted for debt issued to acquire assets supported by user fees so that customer charges may remain fairly constant from year to year. Some exceptions may be appropriate for larger projects with an asset life extending beyond twenty (20) years such as parking facilities.”

Revenue Bonds: “…the normal maturity shall be between twenty (20) and twenty-five (25) years depending on the life of the asset, with some exceptions for large enterprise financings with longer asset lives. For revenue bonds, the normal bond structure contemplates level annual payments to reflect the normally level stream of revenues generated by the project. With even annual payments, principal payments are initially smaller and increase gradually over the term of the financing much like a home mortgage amortization. Sometimes an exception might be in order to allow a term of thirty (30) to forty (40) years for projects where the asset financed has a longer useful life, such as a nuclear power facility.”

Refunded debt: “…the expectation is that net present value savings from the refunding will be at least three percent (3%) of the amount of bonds or debt refunded. There should be no extension of maturities, and level annual savings. In no event should an original term combined with a refunded term exceed forty (40) years.”

Restructured Debt: “…the (jurisdiction) must be experiencing severe, unforeseeable loss of revenues or additional expenditures. In no event should an original term combined with a restructured term exceed forty (40) years.”

USDA Refinancing: “…the (LGC) has concluded that the USDA terms are no longer advantageous or necessary for (jurisdictions) to achieve its capital improvement goals. When the USDA loan is refinanced with a conventional tax-exempt loan, it should be placed on a conventional footing from the date of the original loan in relation to the remaining term. The (jurisdiction) should have the capacity to make level principal payments and to pay the balance of the loan over the remnant of the period of twenty (20) to thirty (30) years from the date of the original loan. The savings to the (jurisdiction) should be due primarily to actual interest rate-created savings as opposed to solely cash savings realized by shortening up the term. In no event should an original term combined with a refinanced term exceed forty (40) years.”

Economic Commentary from Wells Fargo

Click Here to view this week’s report

Highlights:

  • The second look at Q1 GDP growth showed little change from the first release. The economy grew at a 2.4 percent annualized rate. Personal consumption was revised slightly higher.
  • Personal incomes were flat in April as was wage and salary growth. Personal spending contracted for the month, falling 0.2 percent.
  • Consumer confidence bounced back sharply in May as consumers’ expectations of future economy growth improved.

 

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 http://www.wral.com/asset/news/state/nccapitol/2013/05/30/12498354/House_Tax_Plan_Summary_Chart.PDF) 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).
1369935086-taxcompare2-600x380

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.

 

Analysis Roundup – March 22, 2013

Let’s kick off with a significant issue.

Budgeting for Unemployment Insurance Reserve Payments

Karl Knapp agreed to a phone call this morning to discuss the steps local governments need to take in order to properly budget for establishing their unemployment insurance reserve with the State in the upcoming fiscal year. You can check out the following 21-minute video tutorial, which includes some simulations of how the payments of “taxable wages” will be applied on a per employee basis. If the video is not visible below, click here to view it.

This NCLGBA video is a followup to a presentation Karl participated in, along with NCACC’s Rebecca Troutman and DES Unemployment Administration Director Antwon Keith on the same topic during this month’s NCGFOA Spring Conference. You can view the slideshow from that presentation below, or click here.

Expect a separate NCLGBA website post featuring these presentations and some additional analysis early next week (March 25th-27th).

Legislature’s Tax Reform Plan would create challenges for Municipal Revenues

Click here to consult today’s NCLM Legislative Bulletin for information and analysis on how legislation introduced this week in the General Assembly would impact local revenue sources, including local option sales tax, utility franchise fees, and business privilege licenses.

How would eliminating the Tax Deduction on Municipal Bond Interest impact Local Governments?

Click here to review a report from GFOA and the National League of Cities.

GFOA Approves New “Best Practices”

Many of these new best practices deal directly with budgeting, including the pricing of internal services and developing “structurally balanced budgets.”

Click Here to Review their latest Best Practice Recommendations

Economy Looks to Be Improving?

Wells Fargo’s Mark Vitner sees some improvement in the first quarter of the national economy, fueled by home construction and durable good sales. Depending on activity in your local area, this may help foster some revenue growth.

With respect to sequestration, Vitner believes that Federal budget cuts implemented due to the sequestration will be limited in amount and impact outside the Washington, DC, MSA, with the actual national impact more than likely recorded back in the final quarter of 2012.

If the video does not appear below, click here.

Click Here for their latest Weekly Economic Commentary Report

Walden Sees Jobs for 2013 in North Carolina

NC State University Economist Michael Walden spoke this week in Chapel Hill and stated that he sees job growth of 90,000 statewide in 2013, ahead of 55,000 jobs the state gained in 2012.

Click Here for the Story from NEWS14Carolina

Click Here for His Latest Economic Update Audio Recording

Inflation Picks Up Across Board, Moderate Outlook Remains

From Wells Fargo Economics Group:

CPI inflation rose 0.7 percent in February, which was slightly more than markets were expecting. The increase marks a notable acceleration in prices from the past two months when the broad level of consumer prices was unchanged. As expected, the pickup in headline inflation was largely due to a rise in energy prices. All components of the energy index, which includes fuel oil, natural gas and electricity rose in February, but the largest increase was in gasoline. Gasoline prices jumped 9.1 percent, accounting for about 75 percent of the headline’s gain. While alarming for consumers in our view, some reprieve is already in sight. Since the end of February, the average price of a gallon of gas has fallen from $3.77 to $3.70. 

Food price inflation was significantly tamer. The CPI for food ticked up 0.1 percent after a flat reading in January. A 1.4 percent rise in fruits and vegetables and a 0.5 percent rise in meats, poultry, fish and eggs were mostly offset by a decline in bakery and dairy products. The 12-month trend in food price inflation remains manageable for consumers at 1.6 percent.

Excluding food and energy products, prices rose 0.2 percent in February. Shelter costs, which comprise the bulk of core goods, rose 0.2 percent and are now up 2.3 percent over the past year. The recovery in home prices has steadily pushed the owners’ equivalent rent index higher, while costs for rented residences have risen amid a tight rental market. Also contributing to the increase in core prices was the 0.8 percent increase in prices for used cars and trucks. The gain was the largest since May for this category, but prices remain down from a year earlier. Core CPI is now up 2.0 percent over the past year.

Other Items of Interest

Summer Conference Information – More Updates Next Week!

Job Postings:

Senior Fiscal Analyst – Mecklenburg County Department of Human Services (Closes April 3rd)

Budget & Management Analyst – City of Greensboro (Closes April 15th)

Other Articles:

Governor McCrory Announces 2013-15 Budget

Learn More About “Tax & Tag Together”

LGC Provides Guidance on GASB 63 & 65 Implementation