What's Next for Tax Reform
A small group of attorneys, tax experts and lobbyists gathered together earlier this week at the offices of Womble Carlyle in Raleigh to hear from Senator Bob Rucho on what’s next for tax reform. Senator Rucho and Mike Hannah a tax attorney and CPA who is advising the legislature on these reform measures explained the tax reform measures passed last year as a first, incremental step and offered further evidence of why NC needed to continue these reform efforts.
While the new law reduced the personal income tax from a range of 6-7.75% to 5.8% in 2014, eliminated many tax credits and deductions, and reduced the corporate income tax from a flat rate of 6.9% to 6% in 2013 and 5% in 2014, it stopped far short of Senator Rucho’s goal of completely eliminating the personal income tax, joining nine other states such as Florida, TN and Texas in the South. In order to reach this goal, further reduce the corporate rate and continue the elimination of credits and deductions, the sales tax base would have to be even further expanded to include more goods and services beyond the few, like movies and attractions, which were part of the 2013 legislation.
What’s Next for Tax Reform? One recommendation being proposed by the legislative Revenue Laws Study Committee would cap how much cities could charge for business privilege licenses. The committee wants to cap this at $100 per business. The reason behind the cap is to create uniformity from one city to another as not all cities charge a business privilege tax and those that do vary in their approach. Cities such as Charlotte and Raleigh, where the tax is imposed, argue that they will lose millions in revenue if a cap is imposed. However, Senator Rucho contends that the cities can make up for this revenue with increases from the sales tax expansion.
The General Assembly will likely consider this proposal and other less controversial tweaks to the state tax laws during the upcoming short session beginning in May. The more significant efforts to further expand the sales tax base to more goods and services will not be considered until 2015.
Participants at a transportation conference sponsored by the NC Chamber earlier this week heard from state transportation officials and the governor that projects could be delayed this summer if congress fails to approve a long term funding plan to address the nation’s transportation needs. “We’re going to stop writing checks in July and August this year if the federal government does not reauthorize the transportation law” said Secretary Tony Tata. Federal transportation money is dwindling because of flat collections from a fuel tax rate unchanged since 1993. Congress has not signaled interest in increasing the gas tax or finding new transportation revenue sources. Nick Tennyson, Tata's chief deputy secretary, said Congress might agree on just a stop-gap measure to continue transportation funding for another six months. "When we get a new act, we need to know that it is both going to be sustainable and will increase funding," Tennyson told the group. Federal funding accounts for 28% of the total NCDOT budget.
Both state and federal tax receipts are dwindling due, in large part, to a changing economy – more fuel efficient vehicles, fewer new cars being purchased and fewer miles being traveled. Transportation experts agree that the state will need to transition from its heavy reliance on the fuels tax to a revenue source that is more sustainable and one that reflects the new way consumers are purchasing goods and services. One idea would be to adopt the “Virginia model” where they significantly reduced their gas tax (now one of the lowest in the country) but added a sales tax. This change provided an additional $1 billion a year in new transportation funding. While Governor MCCrory and Secretary Tata were not willing to reveal yet how they might address the funding need, they are working on a 25 year plan that will be released later this year.
PENC will be initiating a call to action later this Spring to encourage our members and others interested in NC’s transportation infrastructure to contact their member of Congress and Senators Burr and Hagan to urge Congress to take action on transportation funding reauthorization. Look for our Call to Action e-mails starting later in April.
In Other News This Week:
Energy and the Environment
The state Department of Environment and Natural Resources announced Friday that the U.S. Environmental Protection Agency and the state intend to pursue a joint approach to an enforceable resolution of violations associated with the Dan River spill and resolve Clean Water Act violations at other Duke Energy facilities. (NEWS RELEASE, 3/21/14).
Attorney General Roy Cooper isn't heeding the governor's advice to butt out of the coal-ash controversy. Cooper has asked the U.S. Environmental Protection Agency to help North Carolina ensure the coal ash lagoons are secured using the latest technologies. On March 21, Cooper wrote to the regional administrator for the EPA, calling on the agency to learn from the Feb. 2 Dan River spill and come up with rules to make sure it doesn't happen again. (Dome, THE NEWS & OBSERVER, 3/23/14).
Duke Energy took out a full-page advertisement in newspapers Sunday in an effort to "regain" customer confidence after a spill from a coal ash dump last month. The company's president and chief executive officer, Lynn Good, wrote in the ad, addressed to "the People of North Carolina," that the company is taking action to "ensure the safety of our ash basins and develop a plan for long-term management, including closure." (Kelly Gardner, WRAL NEWS, 3/23/14).
Everyone wants to see coal ash go away. But just where it might go when Duke Energy begins cleaning up its 14 sites in North Carolina remains unknown. The general discussion is that it will be shipped off to lined and covered landfills somewhere. But on Monday, the Blue Ridge Environmental Defense League issued a report saying that's a bad idea. (Dome, THE NEWS & OBSERVER, 3/24/14).
Duke Energy officials assured South Carolina regulators that the utility's two coal ash ponds in the state are safe in part because they are designed differently from a pond in North Carolina that dumped millions of gallons of contaminated water into a river. But an environmental lawyer told the Public Service Commission on Monday that there are plenty of other ways the primitive structures can fail and send millions of gallons of ash-polluted water into nearby streams and rivers or allow contamination to seep into groundwater. (Jeffrey Collins, THE ASSOCIATED PRESS, 3/24/14).
North Carolina regulators say Duke Energy has repaired a crack in a dam at a coal ash pit near the Cape Fear River. The state Department of Environment and Natural Resources said Monday that Duke had finished the work. (THE ASSOCIATED PRESS, 3/25/14).
The Charlotte City Council was skeptical Monday about Duke Energy's plan to move 4 million tons of coal ash to Charlotte Douglas International Airport, but members voted unanimously for the city to further study the issue. Duke and Charah Inc. have proposed moving the ash from unlined ponds near Mountain Island Lake to the airport, where it could be used as fill material, possibly for a new runway. (Steve Harrison, THE CHARLOTTE OBSERVER, 3/25/14).
The U.S. House of Representatives on Tuesday passed a bill that would allow coal mining companies to return to an old practice of dumping mining waste into streams. House Speaker John Boehner, a Republican from Ohio, called it part of an effort to stop what Republicans call the “war on coal” and a “pro-growth jobs bill.” (Dome, THE NEWS & OBSERVER, 3/25/14).
Duke Energy is asking the state Department of Environment and Natural Resources to rescind six notices of violation over stormwater discharges. The notices were issued by DENR on Feb. 28, four weeks after the massive coal ash spill at Duke's Dan River plant. (Laura Leslie, WRAL NEWS, 3/27/14).
North Carolina energy regulators postponed for a second time a state requirement that electric utilities generate power from fuels derived from swine waste and poultry droppings. The N.C. Utilities Commission on Tuesday agreed with energy companies that there's not enough animal waste available in the state to convert to energy fuels, noting that the necessary technologies are immature, regional markets undeveloped and potential suppliers inexperienced. (John Murawski, THE NEWS & OBSERVER, 3/27/14).
The N.C. Department of Transportation is about to begin work on a project to add 11 miles of a second track on the Norfolk Southern line between Salisbury and Kannapolis. The $19.9 million project is part of the Piedmont Improvement Program, a series of projects to improve the rail corridor between Raleigh and Charlotte for freight and passenger trains. (THE ASSOCIATED PRESS, 3/22/14).
A national research group funded by road builders reckons that Triangle motorists are losing $1,005 apiece every year, simply because North Carolina doesn’t spend enough money to keep our travels safe, smooth and free of congestion. A 24-page report released Tuesday by The Road Information Program, known as TRIP, calls for more state and federal money to relieve urban traffic jams, replace obsolete bridges and upgrade poor-quality roads. (Bruce Siceloff, Dome, THE NEWS & OBSERVER, 3/25/14).
Last week, while speaking to a group of building contractors and architects, Lt. Gov. Dan Forest mentioned the possibility of a bond issue to pay for a growing backlog of state building repairs. That sentiment may or may not be shared by a majority of state legislators, but if so, it would mark the first time since 2000 that a bond referendum was put before state voters. It also would be the first significant capital borrowing of any type that legislators have approved since Republicans gained control of the legislature. Forest, speaking at a joint meeting of the Carolinas Associated General Contractors and the state chapter of the American Institute of Architects, said he would push for a study of the issue. He said generating the state dollars needed for building repairs may not possible through savings elsewhere in state government "so a bond referendum may be needed if it can be done without raising taxes." The comments were well-received by the audience.
Dave Simpson, government relations director for Carolinas CGC, said investing state dollars in a new building and building repair program makes sense on several fronts. Simpson, in an interview this week, cited figures showing that $1 billion in construction would be a big boost to the economy, creating 28,500 jobs. He added that delays in repairing state buildings now may lead to more costs later and that the poor condition of some state buildings may not reflect well on the state during talks aimed at attracting private-sector investment. "It is hard to catch a fish when you've got such sorry bait," Simpson said. Simpson's comments are not so different from those of Gov. Pat McCrory, who has also spoken about the poor condition of state buildings. Legislators, though, did put $150 million into building repair and renovations this fiscal year. They set aside another $27.9 million for various construction projects.
Any borrowing proposal, meanwhile, would have to overcome general wariness among legislators at a time when voters don't always make distinctions between operational debt like that at the federal level and the capital debt incurred by state and local government. Rep. David Lewis, R-Harnett, emphasizing that he was speaking for himself, said he did not see "the appetite to take out any more credit cards at this time." Lewis, who co-chairs the House Finance Committee, acknowledged that building repairs have been neglected, but that pay-as-you-go financing is more appropriate. Sen. Louis Pate, R-Wayne, was more open to the idea. Pate said legislators ought to at least look at the idea in light of low interest rates. He noted that building needs always suffer in tight financial times. "The overriding factor is what shape are the buildings in, and what's the best way to repair them," Pate said.
A report issued by the State Construction Office earlier this year said state government faces more than $3.9 billion in building deficiencies because of deferred maintenance and repairs. According to an annual debt study issued by State Treasurer Janet Cowell, the state could afford to take on $570 million in each of the next five years and stay under a self-imposed cap. That cap has the state paying no more than 4 percent of General Fund revenue for annual debt payments.(THE INSIDER, 3/27/14).
The N.C. Rural Infrastructure Authority has approved grants totaling more than $8.1 million for 18 cities, towns and counties. Commerce Secretary Sharon Decker and Assistant Secretary for Rural Development Pat Mitchell made the announcement Thursday. (Fran Daniel, WINSTON-SALEM JOURNAL, 3/27/14).
A new state report envisions a future when government agencies fly drones to track suspects, locate missing people, detect disease and insect infestation in crops, assess storm damage and inspect bridges. It envisions a state-funded drone program and a new state board to regulate the use of the unmanned aircraft systems, or UAS. And it sees all that happening soon. Patrick Gannon, THE INSIDER, 3/23/14).