News: CJ Exclusives

Legislative session builds on fiscal, regulatory reforms

Tax cuts, spending growth restraint, coal ash cleanup, and move toward merit pay among highlights

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Shutterstock image

The Republican-led General Assembly in the just-ended 2016 short session maintained spending restraint, created and enlarged fiscal safeguards in case of an economic downturn, granted more income tax relief, moved toward merit pay raises for state employees, resolved coal ash cleanup disputes, and eliminated some health care regulations.

Although the $22.34 billion 2016-17 General Fund spending plan exceeded the previous year’s $21.7 billion, that 2.8 percent increase was below the goal of a 2.9 percent threshold of the so-called Taxpayer Bill of Rights. TABOR is a formula combining population growth and inflation.

“On the whole this budget does a wonderful job of rewarding teachers, state employees, within the limited resources we’ve had, provides stability in budgeting for the future, which is very important, and tax relief for working families in this state,” state Rep. Nelson Dollar, R-Wake, the House chief budget writer, said when shepherding it through final House floor debate.

“You just really can’t get a better combination than that,” he said.

House Bill 1030, the 2016 Appropriations Act, makes adjustments in the two-year budget passed last year. Democrats argued during committee meetings and floor votes to ease spending restraints. Republicans were more intent on controlling spending, and saving for a future recession to avoid having to impose tax hikes in a bad economy.

The budget sets aside $475 million in savings reserve “to raise that reserve to a record $1.58 billion,” Dollar said. That is equivalent to 7.5 percent of the General Fund budget, with a goal of reaching 8 percent next year, which the state requires local governments to do, Dollar said.

The budget also creates a $10 million disaster relief fund.

“When I entered office in 2013, the state had only $419 million in savings, which represents 3 percent of the overall budget,” Gov. Pat McCrory said early in the budget process.

Under Republican direction, a shift in tax policy has put more emphasis on expanding the sales tax base and reducing the dependence on personal income tax. Senate Leader Phil Berger, R-Rockingham, said the budget provides “major tax relief for the middle class and small businesses” by increasing the standard deduction, that portion of income exempt from the personal income tax.

That deduction for married taxpayers filing jointly will by increase $1,000 in 2016, and another $1,000 in 2017, when it reaches $17,500. Berger said that is a $145 million tax cut in the 2016 tax year, and $205 million in 2017, and are targeted for low- and middle-income taxpayers. Some 75,000 filers would no longer owe any tax under this plan.

While the legislature traditionally has given across-the-board pay raises, Republican leaders have been pushing a policy of pay hikes linked to performance and experience. This budget moves in their preferred direction.

The budget channels $80 million to state agencies to issue merit-based pay hikes to rank-and-file state employees. That is part of a $550 million allocation for salary and benefits that includes an average 1.5 percent across-the-board raise, and a bonus equivalent to another 0.5 percent hike.

The education portion of the budget also allocates $10 million to be split among the highest performing third-grade reading teachers, with up to a $6,500 bonus possible. That is on top of an average 4.7 percent pay raise for all teachers.

Targeted pay raises based on experience and step level will be directed to teachers, assistant principals, principals, State Highway Patrol troopers, clerks, magistrates, and correctional officers.

Many conservatives have been fighting for years to end the certificate-of-need process in the state. While a comprehensive bill failed to get passed, supporters were able to push through a more limited version that also provides $18 million for psychiatric beds in rural areas, and $2 million for child crisis centers to help the mentally ill.

“This is generally dealing with individuals that are not stable, and couldn’t be released, and are being held in emergency departments,” said Sen. Ralph Hise, R-Mitchell, co-chairman of the Senate Appropriations subcommittee on Health and Human Services.

Hise said having psychiatric facilities regulated under the CON process hamstrung the state’s ability to address North Carolina’s mental health crisis, and is one example of why repeal of the entire regulatory scheme is needed. He is hopeful this targeted repeal keeps further CON reforms in motion.

A compromise coal ash bill sparked by a 2014 spill into the Dan River near Eden empowers the state Department of Environmental Quality to supervise Duke Power’s cleanup of its coal ash repositories, and requires provision of safe drinking water to residents with wells around the sites.

One main feature of the measure allows Duke to use material exhumed from three of its coal ash repositories for recycling into Portland cement, bricks, cinder blocks, and other building materials, for which there is a ready market.

Another significant provision requires only the highest risk sites to be excavated and the coal ash to be transported to special landfills for disposal. Lower risk sites may be drained to avoid groundwater contamination and capped in place, a less expensive solution. By not requiring all sites to be excavated and landfilled, ratepayers could be spared as much as $6 billion in pass-through costs, according to Duke.

House Bill 959 places a one-year moratorium on the state’s Map Act. That act authorized the state Department of Transportation to file a proposed highway corridor map while prohibiting local governments from issuing building permits or allowing subdivisions within the future corridor.

The legislation also rescinds all existing maps, and requires payment to property owners for litigation damages and costs. The North Carolina Supreme Court unanimously declared the Map Act restrictions an eminent domain property taking that did not offer property owners just compensation.