2006 legislative session
More than Medicaid

Counties preserve revenues, autonomy during 2006 session

By Todd McGee
Director of Communications

The just-completed legislative short session was anything but short of implications for counties, as many of the more than 5,000 bills introduced during the two-year biennium – the largest total since 1913, according to officials – had direct impacts on county interests.

The $27.4 million to cap counties’ Medicaid costs for one year generated more publicity than all but a handful of items in front of the General Assembly in 2006, but there were many other notable bills for counties – some good, some bad – that cropped up this spring and summer.

“It was a very active session for counties and for the Association,” said NCACC Executive Director David F. Thompson. “We made a lot of headway on our No. 1 goal of Medicaid relief, and our members proved that they could generate a lot of pressure quickly in response to legislative developments.

“We would not have achieved the one-year cap for Medicaid costs were it not for the active engagement of our members in the legislative process. Our members also helped derail several other efforts that would have been detrimental to counties.”

Heading into the session, the Legislature had made it clear that two of its top priorities were to adopt legislation relating to eminent domain and cable franchising – issues of national prominence that directly impacted counties.

After the U.S. Supreme Court’s controversial ruling in Kelo v. City of New London last fall that local governments could acquire private property via eminent domain and turn it over to a nonprofit organization to carry out an economic development plan, states around the country reacted to the public outcry by passing more restrictive condemnation laws.

Some of the early proposals discussed in Raleigh would have placed severe limitations on local governments’ ability to acquire private property, and several legislators were touting a constitutional amendment. But the General Assembly’s focus during the early days of the session was to pass budget revisions – especially considering it had an extra $2.4 billion to spend. By the time the Legislature passed its eminent domain bill – H1965 – in the session’s waning days, many of the restrictions had been eased.

Perhaps the most significant change is that the legislation prohibits condemnation of non-blighted property when using eminent domain to rehabilitate a blighted area. Otherwise, local governments can continue to use eminent domain as a means of acquiring property for needed public projects, such as schools, roads and other infrastructure needs.

Another national effort led to the state adopting H2047 (Video Service Competition Act). The legislation is part of a nationwide push by telephone companies to eliminate local franchise agreements, allowing them better access in order to provide video programming services. Legislators in support of the bill said it would lead to greater competition for video programming services, which would in turn result in better access and lower rates for customers.

The bill eliminates local franchise taxes for cable television services effective Jan. 1, 2007, and instead designates the secretary of state as the state’s exclusive franchising authority. Unlike legislation passed in some other states, the bill does include financial compensation to counties and cities for revenues previously available from local franchise taxes, as well as for PEG (public, educational or governmental) access channels.

Counties and cities that do not currently have cable revenue will also be compensated based on population. Funds to compensate local governments will come from a state sales tax levied on providers of video programming.

A boost for mental health reform

Heading into the session, the state’s mental health reform effort was coming under increasing criticism. As a result, the Joint Legislative Oversight Committee on Mental Health, Developmental Disabilities, and Substance Abuse Services (MH/DD/SAS) made a series of recommendations that resulted in an additional $100 million in funding for the system.

H2077 (Mental Health Reform Changes) clarifies the responsibilities of Local Management Entities (LMEs) and the functions and services they provide. It also clarifies the expectations of the Legislature with regard to the role of the secretary of the Department of Health and Human Services (DHHS) and, more specifically, the Division of MH/DD/SAS.

H2077 sets out specific functions, responsibilities and services that LMEs must provide. It gives LMEs responsibility for monitoring of person-centered plans, including participation in any modifications to plans for high-risk, high-cost clients.

Improving management of state service funding was one of the objectives of the legislation. In this regard, it will now be the responsibility of LMEs to authorize services delivered through the state psychiatric hospitals and other state facilities. LMEs will now perform utilization management for state-funded services, conduct concurrent reviews of person-centered plans for clients funded by Medicaid, and authorize eligibility for CAP/MR-DD (Community Alternatives Program for Persons with Mental Retardation-Developmental Disabilities) services.

Minor modifications were made in the makeup of LME boards. Of particular interest to the counties is the requirement that LMEs provide county finance officers with quarterly reports and that county finance officers must report the findings at their board of commissioners’ next meeting.

A provision in the state budget also requires LMEs to have a minimum of six counties or a population of 200,000 in their catchment area by July 1, 2007, and directs the DHHS to “reduce by 10 percent annually the administrative funding for area authorities and county programs that do not comply with the catchment area requirements.”

One man’s trash …

Solid waste issues were an unwelcome sight for counties during the short session. Before the General Assembly even convened, Gov. Mike Easley inserted a $2 per ton tipping fee increase in his budget proposal – a measure that the Association opposed. Thompson worked closely with top aides in the governor’s office to explain the Association’s concerns, and the proposal was eventually eliminated from the budget.

Also, two other pieces of legislation relating to solid waste franchising were ratified.

S1564 establishes notice requirements for a required public hearing before a local government can issue a franchise or other contract for construction or operation of a sanitary landfill. It further requires that the franchise be consistent with a local solid waste management plan, authorizes a local government to award a preliminary franchise and clarifies that awarding of a franchise is permissive rather than mandatory.

S951 (Public-Private Solid Waste Collection) dealt with changes derived from the effect of annexation on providers of solid waste collection services, as well as criteria imposed when an existing solid waste hauler is “displaced” by formal action of a local government. The displacement portion will have the greatest impact on counties that do not currently provide a solid waste hauling service (and choose to do so), or counties that have not granted a solid waste hauling franchise(s) (and choose to do so). Prior to taking action to displace an existing private solid waste hauler, a local government must provide at least 30 days and no more than 60 days’ notice before it can discuss the possible change and must decide on the change within six months after the original notice, or start the process over again.

If the local government decides to displace a private hauler, it must wait at least 15 months after the original notice was filed. If it wants to make the change sooner, it must provide the displaced hauler six months’ compensation, or – if the hauler has been in operation in the affected area for less than six months prior to the original notice – compensation equal to all the revenues it had received up to that time.

“The original legislation virtually eliminated local decision-making by requiring local governments to provide up to 18 months’ compensation to displaced haulers, and we worked diligently to provide reasonable options for counties: 15 months’ notice or six months’ compensation,” said NCACC Assistant General Counsel Paul Meyer, who represented the Association in negotiations.

The session ended with the Legislature passing a controversial 12-month landfill moratorium in response to several counties’ efforts to site large landfills. Before passing the moratorium, the House created the Joint Select Committee on Environmental Justice to study current and proposed landfill sites, identify the ones close to minority and low-income communities, and look at the whys and impacts of such locations.

Vehicle tax collection system circumnavigates roadblock

One of the more serious challenges to county revenues occurred late in the session, when Rep. Nelson Cole (Rockingham) spearheaded a push to repeal H1779, which passed both chambers unanimously in 2005. H1779, sponsored by Rep. Dale Folwell (Forsyth), enhances counties’ ability to collect property taxes on motor vehicles by combining the issuance of a vehicle registration with the payment of property taxes.

The legislation, scheduled to be fully implemented by July 1, 2009, should net local governments approximately $80 million in additional property tax revenues on motor vehicles that is already due and payable but is difficult and costly to collect. North Carolina is currently the only state to collect property taxes on motor vehicles “in arrears,” and counties report a paltry collection rate of around 86 percent.

Responding to concerns expressed by automobile dealers, who worried that the duty of collecting property taxes could have a negative impact on automobile sales, Cole rewrote S600, an unrelated piece of legislation, and attempted to repeal H1779. Responding to an NCACC alert, commissioners and other county officials voiced their concerns about the potential loss of revenue to the Legislature, which eventually decided only to extend the implementation deadline by one year to July 1, 2010, in order to give all the parties more time to reach an equitable solution.

“We were able to once again – in a short period of time – bring a lot of pressure to bear on the legislators by asking our commissioners to get involved and speak to their senators and representatives about this,” Thompson said. “Even though we were able to stop this attempt this session, we expect that they will come back in future years and try it again.”

Prior to his attempt at repealing H1779, Cole had also inserted an amendment into another bill that would have required counties to value automobiles at wholesale instead of retail when determining property taxes, a move that would have cost counties more than $108 million. The Association was able to scuttle that effort as well after engaging the assistance of county commissioners and managers.

Water, water everywhere …

Water quality issues also were in play during the session. The General Assembly approved S1566, which significantly amended the Phase II Stormwater program in North Carolina. The bill expanded the number of full-coverage counties, but maintained that counties will not be responsible for administering Phase II programs unless the county owns or operates the stormwater system.

Also, the Legislature – via H2873 – voted to require inspections and water sampling of newly constructed private wells statewide. Program start-up funds were included in the state budget to assist counties.

Legislative goals achieved

Early in the session, the General Assembly passed S912, phasing out video poker by July 1, 2007.

The Legislature also voted to increase by seven the number of local government representatives on the Board of Trustees of the Local Governmental Employees’ Retirement System. Under H1237, approved by the House during the 2005 session, the governor will appoint a county commissioner and a county manager, two municipal officials and three local government employees or former employees.

Additionally, the Legislature adopted a study on the cleanup of abandoned manufactured homes.

Local-option sales tax for schools denied

What began during the 2005 long session as local bills for Lee and Pitt counties authorizing sales taxes for school construction needs turned into an effort to grant all 100 counties an additional local-option, half-cent sales tax. Three different measures that included 45 counties passed the House in the waning days of the 2005 session, and as the bills began moving through the Senate early in the session, Sen. Doug Berger (Franklin) introduced a bill that would give all 100 counties a local-option half-cent sales tax for school construction needs.

Senate leadership, however, denied all requests, and cited its desire to keep a local-option sales tax in play during future discussions on a long-term strategy to eliminate the county Medicaid share.

“The consensus among members of the Senate is that fixing Medicaid costs is more of a long-term solution for counties than a local half-cent sales tax for education,” according to a statement released by the office of Senate President Pro Tem Marc Basnight.

The state’s $2.4 billion budget surplus may have also worked against counties. With both chambers intent on lowering the state sales tax and cutting other taxes in light of the surplus, it became more difficult to pass any bill – even a local measure – that could have been construed as a tax increase.

Three tiers for Bill Lee

The General Assembly instituted major modifications to the Bill Lee Act’s tier system. H2170 reduced from five to three the number of tiers that are used as indicators of economic distress. Tier 1 – indicating the highest level of distress – and Tier 2 each have 40 counties, and Tier 3 has 20 counties. Any county with a population of less than 50,000 and more than 19 percent of its population below the federal poverty level is automatically placed in Tier 1. The bill also directs the Department of Commerce and the N.C. Rural Center to develop strategies to enhance economic growth in Tier 1 areas.

An in-depth legislative summary will be made available at Annual Conference.

– Jim Blackburn, Jason King, Paul Meyer, Patrice Roesler, David F. Thompson and Rebecca Troutman contributed to this report.