[author: Crystal Feldman]
The N.C. General Assembly reconvened in Raleigh May 16 for the legislative “short session.” The short session occurs in the second year of the two-year biennium, which began January 2017. The main focus of this year’s session was modification of the FY 2018-2019 state budget and high profile policy issues including taxes, school safety, GenX water contamination, prison reform and constitutional amendments. Legislators also passed a number of local bills.
“Eight years ago, legislative Republicans promised to chart a new course for North Carolina, and ever since, we’ve worked tirelessly to place our state on a path to better economic growth, greater prosperity and a stronger public education system,” Sen. Phil Berger (R-Rockingham) said in an end-of-session press release. “This year, I am proud that the Senate continued to keep our promises to the voters and implement policies that will improve education and grow our economy, and I look forward to building on those successes in our next session.”
Gov. Roy Cooper continued to clash with Republican legislative leadership on budget and policy issues. Gov. Cooper’s proposed $24.5 billion budget, released a few weeks prior to the legislature’s budget, proposed eliminating the corporate and individual tax cuts for persons who earn more than $200,000 scheduled to go into effect January 2019 in order to pay for larger teacher pay raises, Medicaid expansion and workforce training programs.
“Our economic recovery has been good for those at the very top, but many families are still struggling to get ahead,” Gov. Cooper said when he released his proposed budget. “My budget makes middle class families a priority and ensures that all North Carolinians have opportunities to find good jobs, put more money in their pockets, and raise their families in safe and healthy communities.”
The General Assembly released its $23.9 billion budget May 28 in a conference report, which is a legislative vehicle not eligible for amendments. The legislature has not used a conference report as the original bill for the budget since at least the 1970s.
The budget conference report, Senate Bill 99, Appropriations Act of 2018, was heard in committee for discussion only and received an up-or-down vote on the House and Senate floors. Senate Bill 99 passed both chambers along party lines and was enacted into law June 12 after the General Assembly voted to override Gov. Cooper’s veto.
“These budget adjustments secure a strong financial future for North Carolina by sustainably increasing state investments while ensuring relief for taxpayers, a balanced approach that has consistently proven successful in growing our economy, producing revenue surpluses and saving a record rainy day reserve,” said House Speaker Tim Moore (R-Cleveland) in a press release.
During the six week session, 130 bills were enacted into law, 11 of which became law without the governor’s signature. Gov. Cooper vetoed 10 bills – Senate Bill 99, Appropriations Act of 2018; Senate Bill 486, The Elections Security and Transparency Act; Senate Bill 757, Various Court Districts Changes; House Bill 131, Motions for Appropriate Relief; House Bill 374, Regulatory Reform Act of 2018; House Bill 382, DOI Omnibus; House Bill 717, Judicial Elections Changes; House Bill 1055, Retirement Complexity Reduction Act of 2018; Senate Bill 325, The Uniform & Expanded Early Voting Act; and Senate Bill 711, NC Farm Act of 2018. The General Assembly voted to override all of the vetoes with three-fifths majority except for two (House Bill 131 and House Bill 1055), which remain eligible for override through Dec. 31 or until the legislature adjourns sine die. House Bill 335, Restore Last Saturday Early One-Stop, is the only bill pending on the governor’s desk. The governor has until July 29 to take action on House Bill 335 before it becomes law without his signature.
TABLE OF CONTENTS
Economic Development and Business Reform
Elections and Ethics Reform
Energy and Environment
Health and Human Services
Justice and Public Safety
Travel and Tourism
Legislators introduced a number of bills that propose to amend the state constitution, several of which were introduced in the final weeks of session. Constitutional amendments must receive a three-fifths majority vote in both chambers, are not subject to a gubernatorial veto and require a statewide referendum to be voted on by the electorate in November.
The November ballot will include the following constitutional amendment referendums:
House Bill 551, Strengthening Victims' Rights (Marsy’s Law), would expand the constitutional rights of victims of crime and their families in the state justice system.
House Bill 913, Bipartisan Ethics and Elections Enforcement, changes the appointment process and composition of the N.C. State Board of Ethics and Elections Enforcement. The eight member board will be appointed by the General Assembly, with four members appointed by the Senate and four by the House. The Senate Pro Tem and Speaker of the House will select appointments from nominees submitted by their chamber’s majority and minority leaders, and no more than four members of the board may be registered with the same political affiliation. The amendment also provides that the state legislature controls all board appointments, duties and responsibilities, and no sitting legislator may be appointed to a state board or commission that exercises executive or judicial powers.
House Bill 1092, Amendment – Require Photo ID to Vote, adds a constitutional requirement that a valid form of photo identification be presented for eligibility to vote at the polls.
Senate Bill 75, Amend. – Max. Income Tax Rate of 7%, reduces the constitutional cap on personal and corporate income tax from 10 percent to seven percent.
Senate Bill 814, Judicial Vacancy Sunshine Amendment, amends the appointment process for judicial vacancies by establishing a new commission to review judicial nominations. The commission will determine, through a merit selection process to be established, whether candidates submitted by the people of the state are qualified or not qualified and submit its evaluations to the General Assembly. The General Assembly will select at least two nominees deemed qualified by the commission and submit their names to the governor for consideration. If the governor fails to appoint one of the nominees within 10 days, the General Assembly may elect an appointee to fill the vacancy.
Senate Bill 677, Protect Right to Hunt and Fish, would add the protection of traditional methods of hunting, fishing and harvesting wildlife to the state constitution.
Economic Development and Business Reform
Asbestos Tort Reform
The N.C. Chamber of Commerce and other business groups successfully pushed the legislature to end abuses in the state’s asbestos tort system. Senate Bill 470, Personal Injury Bankruptcy Trust Claims, requires plaintiffs to disclose information concerning bankruptcy trust claims in asbestos-related personal injury actions or to seek trust fund recovery if a lawsuit is filed in state court. The governor allowed the bill to become law without his signature on June 12.
The state budget includes the Growing Rural Economies with Access to Technology (GREAT) program to facilitate the deployment of broadband to unserved communities in rural North Carolina. The GREAT program sets aside $10 million to be awarded as a series of grants that will help incentivize providers and cooperatives to provide broadband to unserved rural areas. In addition, North Carolina’s share of the $600 million federal grant approved to expand rural broadband access will go to the GREAT program.
Receiving input from industry, legislators made significant changes to the state’s economic development and job recruitment programs in this year’s budget. Changes were made to eligibility for transformative projects, requiring an investment of $1 billion and the creation of at least 3,000 new jobs. Expansion positions were also included, encouraging businesses to grow operations in the state beyond their initial investment. The former $6,500 cap per job has also been lifted to attract higher paying jobs for transformative projects.
These changes come on the heels of having lost an auto-manufacturer expansion earlier this year and rumors of major interest in North Carolina by at least two other high profile technology companies.
Legislators continued to prioritize education by raising teacher salaries in the state budget, this year by an average 6.5 percent. This is in addition to funds for performance based bonuses in certain grades and subjects. Principals are also recipients of pay raises, with a 6.9 percent increase to the pay scale, which does not include the allocations made for performance based bonuses.
Lawmakers also provide $35 million for school safety initiatives, which became a central policy concern after the Parkland shooting in Florida. The House established a select committee to debate matters of mental and physical health, and some of the recommendations were absorbed through budget allocations. The committee is expected to continue working on school safety issues once short session adjourns.
The state budget continues funding for school choice, despite objections from the governor. The legislature also adopted federal guidelines for the use of 529 savings accounts, expanding their use to K-12 educational expenses.
The state budget continues to fund the N.C. Promise Program, which guarantees in-state undergraduate students a tuition cost of $500 per semester at three state universities. Additionally, the budget includes new funding for medical education, including funding increases to the UNC School of Medicine’s Asheville campus. The state budget also allocates funds to a number of areas related to community colleges, specifically $15 million for workforce training programs.
Elections and Ethics Reform
The General Assembly worked on several measures to modify election processes and procedures. The legislation inspired partisan floor debates, with Republicans describing the measures as common sense while Democrats opposed the bills as partisan election meddling.
Senate Bill 486, The Elections Security and Transparency Act, made various changes to election laws, including a “sore loser” provision, which prevents people who ran and lost in a primary election from switching parties and running for the same seat. The governor vetoed this bill stating that judges’ races should be free of partisan labels. The legislature voted to override the veto June 20.
Senate Bill 325, The Uniform & Expanded Early Voting Act, makes early voting opportunities uniform statewide and directs counties to adopt the same early voting schedule for all voting sites. Opponents of the bill said that this measure limits voter access by removing the Saturday before Election Day as an early voting option. The governor vetoed the bill and the legislature voted to override the veto June 26. Two days after Senate Bill 325 became law, the House introduced House Bill 335, Restore Last Saturday Early One-Stop, to reinstate early voting on the last Saturday before election for the 2018 election cycle. House Bill 335 passed its final vote June 28 and is the only bill pending on the governor’s desk.
The legislature also modified the process to appoint a U.S. Senate vacancy. House Bill 659, Filling Vacancies/U.S. Senate, became law without the governor’s signature and requires the governor to fill a vacant U.S. Senate seat by appointing from a list of three nominees submitted by the state party of the vacating senator.
Of the many bills filed regarding changes to judicial appointments and judicial districts, only a few passed and became law. Senate Bill 757, Various District Court Changes, was vetoed by Gov. Cooper and overridden by the legislature. The bill enacts changes to the districts for Superior Court in Mecklenburg, Pender and New Hanover Counties, as well as District Court changes in Mecklenburg and Wake Counties. It also adds judgeships in Mecklenburg and Wake Counties and subdivides the counties into districts to eliminate countywide District Court judicial races.
House Bill 717, Judicial Elections Changes, reduces judicial divisions from eight to five, restructures certain judicial and prosecutorial districts, and requires that ballots contain a designation of the seat sought by a candidate when there are two or more vacancies for the office. House Bill 717 also encourages the Chief Justice to keep resident superior court judges in the district from which they were elected at least six months a year. Gov. Cooper vetoed House Bill 717 on June 25 and the veto was overridden June 28.
The least controversial of these bills, House Bill 496, Fair and Nonpartisan Ballot Placement, makes changes to the placement of candidates on official ballots, directing that names appear in either alphabetical order or reverse alphabetical order by the last name of the candidate. The order would be determined each election by a drawing at the State Board of Elections and Ethics Enforcement after the closing of the filing period for all offices on the ballot. House Bill 496 became law without the governor’s signature June 26.
Energy and Environment
The General Assembly addressed water safety and public health concerns related to GenX and other emerging contaminants in the state budget. Last summer, reports of unregulated contaminants, including Gen X, in Wilmington’s public water supply raised public concern and garnered the attention of North Carolina’s environmental agency. The legislature formed interim committees to study the issue and make recommendations, which were rolled into the budget conference report. The budget allocates more than $10 million to provide access to clean drinking water for those impacted by GenX contamination and fund the state’s efforts to address emerging compounds and their threat to safe drinking water.
Farm Act of 2018
Senate Bill 711, North Carolina Farm Act of 2018, is an agricultural omnibus bill that gained public attention for a provision added in response to several nuisance lawsuits filed by residents living close to large hog farms. The bill establishes new limitations on when a nuisance lawsuit can be filed as well as when punitive damages can be awarded. An earlier version of the bill contained a provision prohibiting plant-based beverage suppliers from labeling their products as milk. The provision was amended in committee to require 11 states to adopt similar policies to address the mislabeling of plant-based products before it can take effect in North Carolina. Gov. Cooper vetoed Senate Bill 711 on June 25 citing his opposition to the restrictions on residents’ ability to bring nuisance lawsuits. The General Assembly voted to override the veto June 27.
Legislators spent much time behind closed doors producing another regulatory reform bill, House Bill 374, Regulatory Reform Act of 2018. Since taking control in 2012, regulatory reform has become a hallmark of the Republican legislature. Of the thirty-section omnibus bill, the effort includes most of the environmental changes from session, with exceptions to include motorcycle financing changes, tweaks to state boards, and adjustments to positions within district attorney offices. Environmentally, the legislation amends statutes regarding wastewater, stormwater, solid-waste and mitigation services, among other things. Gov. Cooper vetoed the bill June 25 because he believes revisions to environmental protections are unnecessary and it includes changes to coastal stormwater rules involving impervious surfaces in subdivisions. The legislature voted to override the governor’s veto June 27.
Health and Human Services
Legislators considered two bills that establish some of the rules to govern the state’s transition to Medicaid managed care. House Bill 403, Behavioral Health and Medicaid Modifications, provides more guidance on integrating behavioral health services into Medicaid managed care contracts covering physical health. House Bill 156, Medicaid PHP Licensure & Transformation Modifications, requires Medicaid prepaid health plans to obtain a license from the Department of Insurance. This bill applies certain state insurance protections for patients and providers to Medicaid managed care plans. Gov. Cooper signed both bills into law June 22.
On the heels of the passage of the STOP Act in 2017, legislators worked on their next iteration of legislation to address the opioid crisis.
Senate Bill 616, Heroin & Opioid Prevention & Enforcement Act (HOPE Act), gives law enforcement access to the state’s controlled substance reporting system. The legislation also strengthens the penalties against health care workers who steal, dilute or substitute a patient’s drugs. The bill became law with Gov. Cooper’s signature June 22.
In an effort to address disparities in rural healthcare, legislators worked on House Bill 998, Improving NC Rural Health. Taking recommendations from the interim Committee on Access to Healthcare in Rural North Carolina, the bill directs the N.C. Department of Health and Human Services to study incentives for medical education in rural areas, designate teaching hospitals, target loan repayment for rural areas and improve dental care in rural North Carolina. Gov. Cooper signed House Bill 998 into law June 25.
Justice and Public Safety
In the wake of two tragic incidents in which North Carolina correctional officers were killed in the line of duty, legislators turned their attention to improving safety and security within the state’s prison system. In the months leading up to short session, legislators sought advice from state public safety personnel and outside experts on ways to combat unsafe working conditions, increase salaries and reduce vacancy rates that attribute to staffing shortages and mandatory overtime.
Gov. Cooper’s administration and the legislature prioritized prison reform during the short session to improve the prison working environment and assist in correctional officer recruiting and retention efforts. In addition to raising correctional officer and prison staff salaries, the state budget allocates $15 million for prison safety and security upgrades, which will be used to purchase man-down technology and the installation of internal and perimeter security cameras.
The legislature also enacted prison reform legislation that increases criminal penalties for malicious conduct by a prisoner. House Bill 969, Enhance Prison Security, increases the criminal penalty for several prisoner offenses, prohibits prisoners from possessing a tool to escape and authorizes the State Bureau of Investigation to analyze information related to threats to individuals associated with an educational property or place of worship. Gov. Cooper signed House Bill 969 into law June 25.
State Employee Salaries and Benefits
The state budget provides more than $200 million for state employee salary increases, including a two percent pay raise for most state workers and larger increases for State Highway Patrol troopers and correctional officers. Senate Bill 99, Appropriations Act of 2018, raises the minimum salary for all permanent, full-time state employees to at least $31,200, which is equivalent to $15.00 an hour, and provides most state employees five days of bonus leave.
The budget also allocates an average 5.6 percent pay raise for teachers and a 6.9 percent increase to the principal salary schedule. The average teacher base pay has increased by nearly 20 percent since the 2013-2014 school year.
Corporate and Income Tax Reductions
The state budget retained corporate and income tax reductions set to take effect Jan. 1, 2019. The corporate tax applicable to income earned in 2018 is three percent and income earned on or after Jan. 1, 2019 will be 2.5 percent. The personal state income tax rate for income earned in 2018 is 5.499 percent and will drop to 5.25 percent for income earned on or after Jan. 1, 2019.
Some of the most important tax changes made by the legislature in 2018 are changes made in response to provisions in the federal Tax Cuts and Jobs Act (“TCJA”) and the Bipartisan Budget Act of 2018 (the “BBA”). North Carolina decided to conform to some of these federal changes and decouple from others.
While the General Assembly made many changes to North Carolina’s tax laws during the short session, it is worth noting two things that the legislature did not do. First, pursuant to legislation adopted in prior years, North Carolina implemented single sales factor apportionment in 2018. Most states with single sales factor apportionment also use market-based sourcing rules to source income from services and the sale of intangibles when applying their apportionment factor. North Carolina has not adopted market-based sourcing rules and continues to source such income under its historic rules based on where the activities that give rise to the income take place.
Second, on June 21, the United States Supreme Court issued its decision in South Dakota v. Wayfair, Inc., overruling its 1992 decision in Quill v. North Dakota. The Court in Wayfair upheld South Dakota’s economic presence statute, which requires a remote seller to collect sales tax if it makes more than $100,000 in sales into the state or engages in at least 200 sale transactions with in-state residents, even if it has no physical presence in the state. In 2017, the North Carolina Senate passed an economic presence bill almost identical to the South Dakota statute, and it was thought the legislature might take the measure up again in anticipation of or reaction to the Wayfair decision. To date, however, this has not happened.
You may read more 2018 changes to N.C. tax code here.
Heavily supported by Gov. Cooper and Transportation Secretary Jim Trogdon, lawmakers passed Senate Bill 758, Build NC Bond Act of 2018, which allows the state Department of Transportation to access up to $300 million each year over the next ten years in order to complete smaller road projects in quicker fashion. This effort is modeled after the federal GARVEE Bond Program, with additional oversight and approval from the state treasurer. Build NC funds must be used to build projects using the State Transportation Improvement Program (STIP), which is a data-driven formula that measures factors such as congestion, benefit/cost, safety, accessibility and freight/military along with local support. Gov. Cooper signed Senate Bill 758 into law June 20.
Travel and Tourism
Legislators included an additional one million dollars for tourism promotion in the state budget. This appropriation helps replace the non-recurring funding from last year’s budget and will be used to market North Carolina as a tourist destination. Studies show for every $1 invested in promotion, the state receives $15 in state and local tax revenue.
Legislators passed an omnibus bill that makes numerous changes to the regulation and sale of alcoholic beverages. House Bill 500, ABC Omnibus Legislation, increases the ability of nonprofit organizations to hold fundraising raffles from two to four times per year. Gov. Cooper allowed the bill to become law without his signature.
The General Assembly adjourned June 29 allowing legislators to focus their attention on re-election. Session requires legislators to be in Raleigh for much of the week to attend committee meetings and cast floor votes, which minimizes the amount of time they can spend with constituents. State law also prohibits legislators from collecting campaign donations from political action committees while in session.
All 170 House and Senate seats are up for re-election Nov. 6, which is a blue moon election in North Carolina. A blue moon election occurs every 12 years when there are no presidential or U.S. Senate candidates on the ballot. Participation is historically low during a blue moon election, which puts pressure on both parties to increase voter turnout through fundraising and campaign activities.
Gov. Cooper and legislative Democrats will seek to break the Republican House and Senate supermajorities in November, while Republicans will fight to preserve their veto-proof margins of 72 Republicans in the House and 30 in the Senate. Democrats must gain four seats in the House and six seats in the Senate to end the GOP veto-proof majorities.
The short session adjournment resolution calls legislators back into session Tuesday, Nov. 27 and includes no restrictions on what legislation can be considered during the post-election session.
The 2019 legislative session is likely to convene in mid- January.
Special thanks to B. Davis Horne, Jr., Dana Simpson, Kara Weishaar, Joshua Grant and Liz Hatter for their contributions to this publication.