2018 SHORT SESSION

Nexsen Pruet is excited to announce that Michelle Frazier has joined the North Carolina Public Policy Practice.  Michelle has successfully represented numerous clients before North Carolina’s Legislative and Executive branches and brings significant value to the Nexsen Pruet lobbying team and clients of the firm.  Michelle joins Sandy Sands, David Ferrell, and TJ Bugbee as the fourth registered lobbyist for Nexsen Pruet’s North Carolina Government Relations Team.

The North Carolina General Assembly’s “short session”, began on Wednesday.  The short session differs from the long session in more ways than just the length of time legislators are in Raleigh.  Lawmakers use the short session to adjust the second year of the State’s biennial budget, to revisit some unsettled matters from the previous year, to address proposals from Interim Committees, and to hear new legislation that falls within limited rules of what may be introduced.  Lawmakers are once again hinting that this year’s short session will in fact be “short”.  This is a claim made every other year that rarely materializes, although budget writers have been meeting behind closed doors for several weeks and have agreed on a spending target.

During the short session, only certain bills are eligible to be filed.  As of this morning, 62 new bills have been filed, 15 in the Senate, and 47 in the House.  Below are some of the items among the list of what may be considered and filed by lawmakers.  A list of newly filed legislation can be found at the end of this newsletter.  It is important to note that existing 2017 legislation that is eligible can also be used as vehicles for new subject matters as well. 

• Eligible 2017 legislation (List)
• Budget bills
• Constitutional amendments
• Interim and Study Committee recommendations
• Local bills
• Pension or retirement bills
• Nominations and appointments bills
• Resolutions, Joint Resolutions, and bills disapproving rules
• Bills responding to litigation
• Election law changes
• Impeachment proceedings
• Adjournment Resolutions

THIS WEEK

Thousands of teachers and education advocates greeted lawmakers for a rally at the NCGA on the opening day of session.  Realistic estimates from media outlets predicted there were between 10,000-20,000 people, depending on the source.  The News & Observer has a time-lapse of the march down Fayetteville Street here.  Over the course of that day, WRAL shadowed Rep. Craig Horn (R-Union), a leader in education policy in the House and in NC.  The WRAL article below is worth reading for anyone who desires civility as to how the State should move forward in education.

10 things we learned shadowing a lawmaker during the NC teacher rally – WRAL
Thousands of NC teachers rally in Raleigh for more education funding – N&O

While lawmakers were greeted by educators, those educators and the rest of the general public, were greeted by new building security that many say has been long overdue.  The NCGA Legislative Building (LB) and Legislative Office Building (LOB) have historically been among the most accessible State government buildings in NC, as well as among the most accessible legislative complexes in the U.S.  Historically, both buildings have had minimal security at the entryways, focusing security instead on the interior of the buildings.  This session however, those not employed at the NCGA will be required to go through metal detectors in order to access the LB for the first time.  While the LB will have security for the short session, the LOB will remain open in the short term, but will likely be given the same security upgrades in the interim ahead of the 2019-20 General Assembly session.

N.C., other legislatures warily begin security checks – W-S Journal

The Legislative Research Committee, which authorizes Study Committees for the interim, met Wednesday morning to accept the reports from four Study Committees recommending legislation to the NCGA.  The Intellectual & Developmental Disabilities, Private Process Servers, Resolution Options for HOA’s and Governing Entities, and Access to Healthcare in Rural NC Committees each proposed legislation to be introduced.  The measures still have to go through the normal Committee process before becoming law.

Wednesday afternoon, the House Health Committee passed House Bill 933, entitled Reciprocity/School Psychologist Licensure, which was filed that morning.  The legislation is a product of the House Select Committee on School Safety, and authorizes the State Board of Education to grant licensure to out-of-state school psychologists who are credentialed as a Nationally Certified School Psychologist.  The bill was the first of the session to pass either chamber, and it passed the House unanimously.

School psychologist license reciprocity a step closer to becoming law – Carolina Journal

While the full Senate did not hold any votes this week, the Senate Finance Committee met Thursday to hear Senate Bill 715, entitled Various Changes to Revenue Laws.  The bill proposed by the Revenue Laws Study Committee, makes technical, clarifying, and administrative changes to revenue laws, particularly in light of the recent federal changes, conforming to some of the new provisions and decoupling from others.  Among the changes the bill:

• Includes IRC Update to comply with provisions of the federal Tax Cuts & Jobs Act (TCJA) and the Bipartisan Budget Act of 2018
• Decouples from the federal change regarding the deferral of gain and the exclusion of gain for assets invested in an Opportunity Fund
• Decouples from the federal changes regarding the inclusion, and deduction, associated with foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI).
• Decouples North Carolina's filing requirement from the federal filing requirement
• Amends the definition of a "corporation" for purposes of the application of the franchise tax to include partnerships that elect to be taxed as a corporation
• Provides DOR with certainty as to when the Historic Rehabilitation Tax Credit can be removed from tax return forms
• Merges the imposition of sales and use tax of repair, maintenance, and installation services with the taxation of the items themselves
• Clarifies that certain activities are exempt from the sales and use tax on admission charges
• Provides a mechanism for a retailer who pays sales and use tax on property or services and subsequently resells the property or service at retail to recover the sales tax originally paid to a seller
• Provides that remedies, vaccines, medications, litter materials, feeds, rodenticides, insecticides, and other substances may be exempt from sales and use tax if purchased for use on animals and plants held or produced for commercial purposes by a qualifying farmer
• Two clarifying amendments adopted in the Committee clarified that nonprofits leasing parking spaces, particularly urban churches that lease parking during the week, are not taxable as income; and decouples from a TCJA provision to continue the State’s policy of not charging sales tax on charitable deductions to educational institutions if the right to purchase tickets for an athletic event is provided

House Speaker Time Moore (R-Cleveland) and Senate President Pro-Tem Phil Berger (R-Rockingham), announced legislation Thursday to change how the State awards economic incentives.  Both noted that the changes were not being made to attract any specific company, but it has been no secret that NC is on the short list for large capital and job investments from both Apple and Amazon.  Apple has reportedly been very close to announcing a multi-billion dollar investment in North Carolina, bringing up to 10,000 jobs to Research Triangle Park in Wake County. 

Apple has also reportedly been meeting with the Governor and legislative leaders to draft a robust incentive deal that will likely need approval from the NCGA.  Among the proposed changes would be lowering the threshold for a “transformative project” from $4 Billion investment to $1 Billion investment, and from 5,000 jobs to 3,000 jobs.  Sen. Berger and Speaker Moore indicated that the proposal would likely be included in the NCGA’s budget proposal.

North Carolina, Apple negotiating deal on Triangle campus – WRAL
N.C. legislative leaders propose plan that boosts subsidies to lure big corporations – Carolina Journal
As Apple considers the Triangle, NC leaders propose incentives for a 'game-changing' employer – N&O
North Carolina beefs up tax breaks as Apple scouts new sites – WRAL

BUDGET

When the budget debate does begin, appropriators will have a few extra dollars at their disposal, as the State has seen its fourth consecutive fiscal year with a budget surplus.  While this is good news for the State, a surplus often prolongs budget negotiations.  This is because collectively, every department, agency, and interest group in the State has hypothetically spent the surplus 100 times over before session even begins.  The State is constitutionally required to balance the budget.

• The agreed to budget target for the 2018-19 budget is $23.917 Billion
• Revenue surplus of $356.7 Million for current fiscal year
• Projected surplus of $276.5 Million for 2018-19 fiscal year
• Next year the corporate rate is scheduled to automatically decrease from 3% to 2.5% and the personal rate from 5.499% to 5.25%

Gov. Cooper has called for a “freeze” to tax cuts scheduled to take effect in 2019 and proposed $24.54 Billion budget, an increase of $1.5 Billion over current spending and $600 Million more than NCGA leaders have proposed.  NCGA leaders dismissed the freeze as a “tax hike” and attributed the surpluses to the tax reforms they have enacted over the past several years.  They have also indicated that they intend to continue increasing average teacher pay by 6.2% for the upcoming fiscal year, as well as increasing compensation for other State employees at some unspecified level.

N.C. lawmakers wonder: What to do with an extra half-billion dollars? – N&O
Cooper calls for freezing some tax cuts to give teachers raises – WRAL
GOP leaders point to raises, strong revenue as teacher protest looms – WRAL

Only time will tell how long lawmakers stay in Raleigh.  There are no constitutional constraints for when a session must adjourn, but the fact that many lawmakers are running for reelection in new districts, with new voters, could incentivize lawmakers to avoid controversial or time consuming matters, and quickly reach an agreement on budget adjustments.  We shall see.

The John Locke Foundation has published two outlines that breakdown North Carolina’s State budget for 2017-18.  If you want the 30,000-foot view of where your tax dollars go, you can find a simplified breakdown here, or a more comprehensive overview here.

ELECTION UPDATE

The May 8th primary election brought the defeat of 8 incumbents who were running for reelection to the NCGA.  Add them to the 6 senators and 12 representatives that chose not to seek reelection, or run for a different office and the two chambers will cumulatively see a minimum of 26 new members out of 170 in 2019.

Following the court ordered redistricting, four incumbent Republican senators found themselves “double-bunked” with a colleague, meaning that two would not be on the ballot in November.  In District 31, Sen. Joyce Krawiec (R-Forsyth) defeated Sen. Dan Barrett (R-Davie), and in District 45 Sen. Deanna Ballard (R-Watauga) defeated Sen. Shirley Randleman (R-Wilkes).  In District 44, Sen. David Curtis (R-Lincoln) lost his bid for reelection to former Shelby Mayor, Ted Alexander.  In District 38, Sen. Joel Ford (D-Mecklenburg), considered a moderate and more business friendly, was defeated by Mujtaba Mohammed, who challenged him from the left.

In the House, two representatives were casualties of redistricting.  In House District 6, freshman Rep. Beverly Boswell (R-Dare) lost her bid to Bobby Hanig, a County Commissioner from the new part of the district.  In House District 67, five-term Rep. Justin Burr (R-Stanly), was defeated by challenger Wayne Sasser.  In House District 11, Rep. Duane Hall (D-Wake), who has recently faced allegations of sexual misconduct, lost his bid to Allison Dahle.  Hall maintains his innocence and resisted calls from the Governor and party officials to resign.  In House District 99, Rep. Rodney Moore (D-Mecklenburg), who is serving his fourth term in the NC House, was challenged from the left in a four-way primary.  Rep. Moore came in third place, losing to former Charlotte City Councilor Nasif Majeed.

Legislative incumbents had a tough night – N&O

All but one of the 170 legislative seats are contested in November.  In the one uncontested seat in Wilson County, the NC Republican Party is supporting an Unaffiliated candidate to face Rep. Jean Farmer-Butterfield (D-Wilson), in the fall, which will make every seat contested.  Last year, the NCGA made it easier for Unaffilitated candidates and third parties to gain ballot access, reducing the threshold of signatures required.  Other Unaffiliated candidates are likely to enter State legislative races, but we will not know how many for sure until June.

State GOP funds mailers to place Fontenot on ballot – Wilson Times
Democrats and Republicans file for every legislative seat, but are voters energized? – Carolina Journal

Earlier this year, the Green Party was unanimously granted regular ballot access in NC by the State Board of Elections & Ethics Enforcement (NCSBE).  It appears that the Constitution Party has also gained enough signatures to obtain ballot access, although NCSBE has not formally granted them access at this time.  Both will hold conventions in the near future to place candidates on the ballot for the general election in the fall.

Green Party gets NC ballot access; Democrats vote GOP official off local board – WRAL

IN OTHER NEWS

Sen. Toby Fitch, Jr. (D-Wilson) is the North Carolina’s newest senator.  Fitch was appointed to the seat following the resignation of Sen. Angela Bryant (D-Nash), who was appointed by Gov. Cooper to serve on the Post-Release Supervision and Parole Commission.  Fitch, who had previously served in the NC House, most recently served as a Superior Court Judge.  He reached the mandatory judicial retirement age of 72 and chose to seek election to the NC Senate in the newly redrawn Senate District 4, which includes Halifax, Edgecombe, and Wilson Counties.

Fitch tapped to fill Angela Bryant's state Senate term – Wilson times
Senator resigns and takes a job that pays $100,000 more – N&O

In light of the recent U.S. Supreme Court ruling overturning a federal ban on new states adopting sports betting, the UNC School of Government published an explainer.  This matter, which originally was not on the radar, could become a topic of discussion during the interim and potentially materialize in the 2019 long session.

Is Sports Betting Legal Now? Understanding Murphy v. NCAA – UNC SOG

After hosting the Democratic National Convention in 2012, the City of Charlotte, NC is making a bid to host the 2020 Republican National Convention.  While the RNC is not commenting specifically on its site selection process, many consider Charlotte to be a finalist.

Charlotte looking like a finalist for 2020 Republican convention – WRAL

According to a report released by UNC’s Carolina Population Center, North Carolina’s population grew by 117,000 people, or 1.1% between July 1, 2016 and July 1, 2017.  Among the fastest growing counties in terms of their percentage growth were suburban and coastal counties.  The five counties with the fastest rate of growth, in order, were Brunswick, Pender, Johnston, Cabarrus, and Currituck.  Not surprisingly, the counties with the fastest rate of decline were rural eastern counties.  The five counties with the fastest rate of decline, in order, were Hyde, Northampton, Martin, Bertie, and Halifax.  Thirteen of the 100 counties in NC account for more than half of the State’s total population, two of those counties, Wake and Mecklenburg, account for roughly 20% of the State’s total population.  For more detail, see full report below.

Are NC county growth patterns shifting? – UNC Carolina Demography
NC's rural-urban divide reveals 'classic tale of two Carolinas' at N&O forum – N&O
How many people living in NC are not natives? Nearly half, data shows – N&O