NC Legislative Update June 2020 #4

Nexsen Pruet, PLLC

The General Assembly wrapped up the majority of its work for the 2020 short session last week in the early hours of Friday morning. The adjournment resolution has the Legislature adjourning on July 11, 2020, and returning to Raleigh on September 2, 2020. The Legislature will hold skeletal (no vote) sessions until July 11, except for a one-day session to handle any pending bills on the Governor’s desk that are vetoed. Holding skeletal sessions for several days will only allow the Governor 10 days to take action on bills.

When the Legislature returns in September, the session will be limited to appropriating federal Covid-19 dollars and state matching requirements, as well as nominations and confirmations. Therefore, the September session should be void of any policy bills. Upon adjournment in September, the resolution states it will be sine die, which means they will not return for this biennium, unless called back by the Governor. Numerous bills or ideas that garnered attention during the session failed to gain consensus or approval in the last few days of session including: workers compensation reform to add a presumption that essential workers who contract COVID-19 were infected at work; the No Patient Left Alone Act, COVID-19 Economic Recovery Grants; and the Education & Transportation Bond Act of 2020.

WRAL: Session Wrap: Hits, misses from long final night

Phase II Extended

Governor Cooper’s executive order establishing Phase II of his three-part plan to reopening was set to expire on June 26, and he was expected to announce more reopening and potentially put the State in Phase III. However, he announced that, due to a rise in COVID-19 cases and hospitalizations, the state would stay in Phase II for another three weeks. Under Phase II, restaurants and personal care salons are open at limited capacity, while gyms, bars, and various entertainment facilities remain closed. In addition to extending Phase II, Governor Cooper’s executive order also put a mandatory face covering order in place for public areas and situations where social distancing is not possible. Under the face covering requirement, businesses can be given a citation for not enforcing the order amongst their patrons. Cooper contends the order is based on science and is necessary to help slow down the virus spread.

The legislature has also sent the Governor various bills to reopen parts of the economy, including gyms, bars, stadiums, bowling alleys, playgrounds, arcades, and skating rinks, but none have become law and several have been vetoed. Among the reopening bills that passed, one would allow for Fourth of July parades and fireworks to take place. The Governor will have until July 3 to veto that bill. He has raised concern with these bills and claims they limit the power to act quickly and respond to spikes in cases. The House attempted to override the Governor’s veto of a bill that would have allowed bars and gyms to open, but it was unable to get the necessary three-fifths vote, and the motion failed.

The General Assembly also passed a bill that would limit the Governor’s power in all emergency situations by requiring the Governor to obtain approval of the Council of State to issue any emergency declaration beyond 30 days. That bill would give Governor Cooper two days to obtain Council of State approval to keep, for instance, his current COVID-19 restrictions in place. Current Lieutenant Governor and 2020 Gubernatorial Candidate Dan Forest has said he is going to file a lawsuit over Governor Cooper’s use of his emergency power during the COVID-19 pandemic. Forest claims the law currently requires the Governor to obtain a vote of the Council of State, and Cooper pushed forward with his emergency orders after first asking the Council of State for approval and being denied. The Council of State is currently made up of six Republicans and four Democrats.

WRAL: Lt. Gov. Forest to sue Cooper over coronavirus shutdown orders

WRAL: Citing bad coronavirus trends, Cooper extends Phase 2 business closures, issues mask mandate

Medicaid Transformation

The General Assembly passed a bill to finalize the last few steps in the Medicaid Transformation process. Governor Cooper is expected to sign the bill. Medicaid Transformation moves the state’s Medicaid program from fee-for-service to a capitated payment system. The state went through a bidding process last year and awarded four statewide prepaid health plan (PHP) contracts and several regional contracts. The program planned to launch in November of 2019, but was forced to delay, largely because of issues at DHHS. The new legislation would stipulate that Medicaid Transformation contracts will begin no later than July 1, 2021. The final draft of the bill removed earlier language that would have required the state to pay $4 million a month to each PHP if Transformation is delayed again. Some members expressed concern about the department being able to meet the July 2021 deadline and where the funds would come from if they were required to pay the PHP while still paying providers under the existing fee-for-service program to treat low income citizens. In an effort to get a bill both parties could agree on, the final compromise version of the bill contained an additional $100 million for COVID-19 testing and tracing and additional funds for the child welfare system. The bill also makes various changes to the Medicaid Transformation program and hospital assessments. Another section within the bill would abandon a legislative push made last year to move DHHS to Granville County and appropriates funds for the department to select a new location for its headquarters in Wake County. The Governor has until July 6 to act on the bill.

Patient Visitation Bill

The legislature failed to pass a bill that would have allowed patients the right to have one visitor present while they are in the hospital. The bill was in response to hospital safety restrictions limiting visitation in an effort to prevent a COVID-19 outbreak at facilities. Throughout the legislative process, committees heard from members of the public who spoke about their experience while a friend or loved one was hospitalized. The North Carolina Healthcare Association worked with members throughout the process to reach a compromise and remove many parts of the bill which were believed to violate federal law. In the last few hours of session, the bill became a vehicle for other legislation that needed a bill to call home, even having COVID-19 testing funding added. Some legislators pushed for Certificate of Need reform or repeal to be added to the bill. In the end, the two chambers were not able to agree on a compromise bill, and it did not receive a final floor vote.

Education & Transportation Bond Act of 2020

Another bill that failed to make it across the finish line was the Education & Transportation Bond Act of 2020. The legislation would have put $3.1 billion in General Obligation bonds on the 2020 ballot for voter approval. The money would have gone to the following areas: $800 million for public school capital projects, $600 million for UNC System capital projects, $200 million for community college capital projects, and $1.5 billion for transportation infrastructure. The bill would have placed the bonds on the 2020 ballot as two separate questions, one for the $1.6 billion in education bonds and one for the $1.5 billion in transportation bonds. Both would have required approval by a majority of the voters. The House has pushed for several years for another bond bill, but the senate has opposed. House sponsors claimed the bonds would have allowed the state to take advantage of its good credit rating and low interest rates. Bill sponsors also pointed out that the bonds would have helped boost the state’s economy, which is suffering from COVID-19 fallout. The Senate remained opposed to the bond idea, and the bond was a non-starter in their chamber.

Revenue Laws Recommendations

Before adjourning last week, the legislature passed its annual Revenue Laws Update bill. The bill contains the following parts: IRC Update, excise tax changes, sales and use tax changes, personal income tax changes, corporate tax changes, and tax enforcement and administrative changes. The bill updates the State Tax Code to reflect changes to the federal code and adopts most of the federal code, but decouples from certain provisions. The bill allows payments from the federal Paycheck Protection Program to be exempted from taxable income. The bill also allows businesses to deduct 100% of their net operating losses over five years instead of a single year like the federal government. The House pushed for the threshold for individuals claiming the medical expense deduction to be lowered to 7.5% of income instead of 10% of income, which would have allowed more people to qualify, but the Senate kept the threshold at 10%, citing revenue instabilities.

COVID-19 Economic Recovery Grants

The House and Senate failed to agree on a compromise for a bill aimed at assisting businesses affected by COVID-19 but unable to qualify or receive other avenues of government assistance. The bill would have established a grant program for businesses that employ at least 90% of their workforce during the COVID-19 period, have seen at least a 10% decrease in sales, and did not participate in the federal Paycheck Protection Program or the Mainstreet Loan Program. The bill would have appropriated $200 million for grants, and grants would have been in amounts up to two months of the average payroll of a business plus 25%. Grants would not have exceeded $500,000. The bill also would have created the COVID-19 Increased Investment in North Carolina Program to award grants to businesses that increase their investments in North Carolina. The COVID-19 Local Government New Infrastructure Program was also established in the bill and would have been used to help local governments match and receive federal funds.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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