North Carolina General Assembly Week in Review - July 2022

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The General Assembly is on track to conclude its business for the 2022 legislative short session and adjourn as soon as today. It has been a full week, with dozens of bills with wide-ranging implications passing multiple committees and floor votes. Most notably, a budget agreement was reached between the House and Senate, and was approved with bipartisan support. Other major bills also passed, including the annual regulatory reform bill, alcohol policies, education measures, criminal justice policies, and local bills requested by municipalities and counties.

FY 2022 Budget Adjustments

Just days before the General Assembly was set to adjourn, House and Senate leaders joined together Tuesday evening for a press conference to introduce their budget agreement for fiscal year 2022, which is an adjustment to the biennial budget adopted last year. Economic indicators projected the state had an extra $6.5 billion in revenue than expected for the fiscal year 2022, which was allocated in this bill either to specific projects or to the state reserves. H103: 2022 Appropriations Act was introduced and adopted as a conference report, meaning most of the negotiations happened among legislative leadership, and members were not able to introduce amendments through committee or on the floors of either chamber.

If signed into law, the budget agreement will give most state workers an additional raise of 1% on top of the 2.5% they were slated to receive under last year’s budget. Retired state employees will get a 4% cost of living bonus, up from the 3% passed last year. Public school educators will also get an average raise increase, from 2.5% adopted last year, to 4.2% with this budget’s adjustments. Non-certified public school employees, such as cafeteria workers and janitors, will get the greater of a 4% raise of a $15 per hour wage. State agencies will also receive up to 1% of their annual payroll to address vacancies and will be authorized to target raises for retention or hiring.

Legislative leaders made it clear that they were intent on addressing inflationary concerns when drafting this budget, leading them to place $7.7 billion in various reserve accounts. They allocate one billion dollars to a newly created State Stabilization and Inflation Reserve to assist state agencies with inflation, such as cost overruns and rising gas prices. The budget will also place an additional $670 million into the State Emergency and Disaster Response Fund to prepare the state for responses to major weather disasters. Finally, to assist low-wealth school districts, the budget creates a $100 million Needs-Based Public School Capital reserve.

To assist the NC Department of Transportation (DOT) with cost increases and a pandemic-related decline in motor fuel tax revenue, which has caused many projects to be delayed or removed from programming, the budget will provide DOT with an additional funding source. Two percent of sales tax revenue – approximately $193.1 million – will be transferred to the Highway Fund to support transportation projects, and will increase to 6% - an estimated $684.4 million - in FY 2024-25. That surpasses what the state is expected to receive in just one year from the federal infrastructure bill adopted last year.

Additionally, legislative leaders replenished a funding source for local water and wastewater infrastructure projects. Last year’s budget included about $1.7 billion from federal recovery funds in grants and earmarks for water infrastructure projects, to be spent through 2026. But the NC Department of Environmental Quality, which oversees the grant administration, reported that localities applied for over $3 billion in funding from the program. Realizing the interest and real need for these projects, this budget invests an additional $883 million for that fund.

School safety was also top of mind for the budget writers. As a whole, public education spending increased by nearly $1 billion – a 6.7% increase from the budget enacted in 2021 for this biennium. An additional $15 million was allocated to the School Resource Officer Grant program, specifically for elementary and middle schools, bringing the total to $33 million. The measure also provides an additional $32 million for school safety grants to support students in crisis, and for school safety training and equipment. It also requires the Center for Safer Schools to gather data on existing school safety systems and policies, and to report their recommendation to the General Assembly. Some Democrats took issue with the Leandro ruling not being fully funded, which calls for nearly $1 billion in additional school funding to provide a “sound, basic education” to all children. However, Republican Senators pointed out in committee this week that there is a total $806 million in remedial funding throughout the budget.

The budget does not include any new reductions to tax rates. Last year, the legislature began the process to phase out the corporate income tax and lowered the personal income tax rate. Neither does the budget include Medicaid expansion, a priority for Democratic Governor Roy Cooper, which was also introduced by Senate leader Phil Berger (R-Rockingham) in H149: Expanding Access to Healthcare earlier this year. During the press conference, when asked about these issues, Senator Berger said, “Some things made the cut, and some things didn’t.”

Governor Cooper has not yet signaled if he will sign the budget bill. Both chambers of the legislature voted in favor of the bill Thursday afternoon. The House voted 84-28 and the Senate voted 38-9. Both vote totals are well above the numbers needed to override a veto. Final votes are set for today, July 1.

Medicaid Expansion

With the budget lacking Medicaid expansion, the future of closing the health care coverage gap remains unclear. Earlier this year, the Senate passed H149: Expanding Access to Healthcare, which would implement a host of healthcare reforms, including full expansion of Medicaid under the federal Affordable Care Act. The House did not take up the Senate bill, and instead introduced S408: Rural Healthcare Access & Savings Plan Act late last week, which would allow the Secretary of the Department of Health and Human Services to negotiate a Medicaid expansion plan with the federal government, and call for a final vote on the plan by the General Assembly in mid-December. Both bills passed their respective chambers, but have stalled in the opposite chamber. On Wednesday, the bill was referred to the Senate Rules and Operations committee.

Hemp Legalization

The annual omnibus agricultural policy bill, SB 762: The North Carolina Farm Act, passed the House this week and was sent to the Governor to be signed yesterday, June 30. Important provisions within the bill include an update to building code restrictions on off-site farm storage buildings and the conservation of easements running across agricultural areas. Also within the bill is a section authorizing the Agriculture and Forestry Awareness Study Commission to conduct a study on the stricken “Right to Repair” section of the Farm Act. The Commission is expected to report back to the General Assembly in the 2023 long legislative session on its findings on the controversial provision.

Notably missing from the Farm Act was the full legalization of hemp in North Carolina, a key issue as hemp’s provisional legal status was set to end today, July 1, without legislative action. However, the Senate responded in turn by passing a bill the House sent over to the Senate earlier this session, SB 455: Conform Hemp with Federal Law, permanently legalizing hemp and saving a vital industry for North Carolina. Governor Cooper promptly signed the bill into law yesterday, June 30.

Upcoming Legislative Meetings

The NC General Assembly is expected to adjourn the 2022 Short Session today, Friday, July 1

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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