FOOD FOR THOUGHT

A House bill that would allow local governments to post notices of public hearings on their Web sites instead of being forced to purchase expensive ads in newspapers would help local governments keep up with a trend on how citizens receive news. According to a recent survey by the Pew Research Center for the People and the Press, the number of people who get their news from a printed version of a newspaper dropped from 58 percent in 1993 to 27 percent in 2008 (a historic presidential election year). The same poll found that the number of people who read the news online had jumped from 13 percent in 1998 to 37 percent in 2008. If the trends continue for two more years, by 2011 fewer than 20 percent will get their news from a printed newspaper, while nearly 50 percent – or more – will be using the Internet as their primary news source.

ACTIVITY PICKS UP AS CROSSOVER DEADLINE LOOMS

Activity in committees is picking up as the May 14 crossover deadline is getting nearer. Bills that do not impact the state budget must pass either the House or Senate by May 14 in order to be considered during the remainder of the 2009-10 biennium. The Association will pay particularly close attention to House and Senate committee calendars over the next two weeks, as bills are being added to the calendar at the last minute in some committees.

SENATE FINANCE COMMITTEE LEADERSHIP UNVEILS TAX OVERHAUL PLAN

Senate Finance leadership this week released its much-anticipated plan to restructure the state’s tax system. The complex plan impacts almost every one of the state’s existing revenue streams, including state and local sales taxes and individual and corporate income taxes. Sen. Dan Clodfelter, the plan’s chief architect and proponent, asked Senate Finance Committee members on Wednesday – when he unveiled the plan – to receive the proposal with an open mind and to offer any feedback on how they can improve the plan. The Senate’s budget included a $500 million revenue gap, and Sen. Clodfelter’s plan is one way to address the revenue shortfall. Sen. Clodfelter met with NCACC and NCLM staff Tuesday to outline local government impacts. Sen. Clodfelter emphasized that one of the underlying objectives of the revenue restructuring is to disentangle state and local revenues. The plan would largely eliminate state-shared local revenues, leaving the revenues at the source of the levy. For example, beer and wine revenues would no longer be shared with participating counties and cities. Sen. Clodfelter stated he believed this would help protect local revenues during a state fiscal crisis. The plan calls for extending the sales tax to a number of “end point” services, especially those services where like tangible goods are already subject to sales taxation. For example, plumbing maintenance and service would be taxed, along with the current tax on plumbing supplies. The combined general sales tax rate would be lowered from 6.75 percent to 6 percent, with the local rate at 1.9 percent (0.1 percent ceded to state) and the state rate at 4.1 percent. The corporate tax would be lowered over two years, from 6.9 percent to 4.25 percent, and county ADM funds would be eliminated entirely. The restructuring plan would also eliminate the public agency sales tax refund provision and restrict nonprofits to refunds less than $5 million. Business sales tax exemptions and exclusions would also be constrained. Per Sen. Clodfelter’s calculation, local governments would have a net gain of $131 million in 2009-10 and $177 million in 2010-11 as a result of the sales tax changes. County-by-county impacts are not yet available. No action is anticipated in the immediate future as members of the Senate Finance Committee will take some time to digest the complex changes included in this proposal

SENATE BUDGET IN VIOLATION OF ARRA GUIDELINES FOR SCHOOLS SPENDING

The House Appropriations Subcommittee on Education was told during a presentation Tuesday that the Senate’s budget was apparently in violation of rules regarding the use of Education Stabilization Fund (ESF) monies from the American Reinvestment and Recovery Act. Guidelines from the U.S. Department of Education had not been finalized when the Senate was putting the finishing touches on its budget, and so Senators were not aware of the restrictions that accompanied the use of the ESF monies. In essence, the Senate’s budget did not properly restore funding to Public Schools and Higher Education. According to Recovery Act guidelines, the state must spend on education what it spent in 2005-06, and it must use the $1.16 billion made available through the ESF to restore funding to the higher of either the 2008-09 or 2007-08 levels. The Senate’s plan spent half of the ESF in each of the two years of the biennium, or roughly $581 million per year. For 2008-09, the state’s revised budget for public schools is $8.3 billion, meaning that the state has to spend at least that much in 2009-10. The Senate budgeted only $7.7 billion for public schools. In addition, the Senate’s spending plan actually included more for both the community college system and the university system than what it spent in 2007-08 (the higher of the two years for those two systems), which also put it in violation of the ARRA guidelines, which say that a state cannot use ESF monies to increase spending in one area at the expense of another.

For the Senate’s budget to come into compliance with ARRA guidelines, spending on community colleges would have to be reduced by $32 million and spending on the university system would have to be reduced by about $150 million while spending on public schools would have to be increased by about $500 million for 2009-10. Assuming all the extra spending comes from the state’s ESF monies, only $302 million would be left for 2010-11, which would leave the state with a gap of almost $600 million for 2010-11. This assumes that the state decides to match its 2005-06 spending based on total money spent instead of money spent per pupil. If the state decides to match its per pupil spending, then it would cost approximately $500 million more in each year of the biennium and would require the state to spend almost its entire ESF allotment in 2009-10, leaving a gap of almost $900 million for 2010-11. Fiscal research staff emphasized that there were still some unanswered questions about how the ESF can be used, which could impact the state’s education spending obligations.

WHEN IS UNANIMOUS NOT ENOUGH?

In 2005, both the House and Senate unanimously passed a bill that required motor vehicle property taxes to be paid at the same time as a vehicle’s registration fee. The change would help counties increase their collection rates on vehicle property taxes and would result in as much as $80 million for cities and counties each year. Since then, the General Assembly has made numerous efforts to repeal or delay the implementation of the bill. During the last biennium, the Legislature decided to push back implementation for a year amid concerns by car dealers that collecting the additional taxes during a sale was too difficult for them to figure out how to do. Now, legislators in both the House and Senate have introduced bills yet again to undo the entire bill, which would once again make North Carolina the only state to collect property taxes on automobiles in arrears. S996 (Repeal Combined MV Registration/Tax System) is sponsored by Sen. Clark Jenkins (Edgecombe), while H1434 is sponsored by Rep. Nelson Cole (Rockingham). County officials are urged to contact their legislators and let them know how important it is to counties that the combined motor vehicles registration/taxes system be allowed to proceed as scheduled so that counties will have the tools necessary to collect all taxes that are owed. Each year the system is delayed costs counties almost $50 million in uncollected property taxes.

SOME COUNTIES MAY BE GIVEN A MULLIGAN

A bill has been introduced in the House that would allow some counties that have a revaluation that went into effect Jan. 1, 2009, an opportunity to rescind that revaluation and use the previous year’s property tax values if the Board of Commissioners so chooses. H1530, Rescind Advanced Property Tax Appraisal, is sponsored by Reps. Nelson Cole (Rockingham), Bryan Holloway (Stokes), Justin Burr (Stanly) and Edgar Starnes (Caldwell). The bill impacts only counties that advanced its revaluation earlier than the eight-year cycle required by the state. The Board of Commissioners could choose to rescind the revaluation and use the values from the last valuation provided that the board “adopts a resolution rescinding advancement of the general reappraisal and promptly forwards a copy of the resolution to the Department of Revenue.” The resolution must also state that the Board will conduct its next reappraisal no later than the eighth year after the previous reappraisal. In addition, counties must take action before a budget has been submitted to the governing board, meaning counties must decide whether or not to delay implementing the new tax values before June 1.

BILLS OF INTEREST

The Association has created a section on its Web site to track bills of interest to county officials. Visit www.ncacc.org/legislation/about.html for updates on key legislation, including the bills listed below.