Ten Things You Should Know About the 2012 North Carolina Legislative Session

by Brooks Pierce

[authors: Ed Turlington, Elizabeth Biser]

The North Carolina General Assembly has completed its 2012 session. Often referred to as the "short session" since its primary purpose is to adjust the second year of the biennial budget adopted in 2011, Legislators also considered a number of matters other than the budget during their seven weeks in Raleigh. Here are some highlights from this year's session:

Spending increased slightly, and no taxes were raised.

Legislators did not raise taxes during the session and increased overall spending to about $20.2 billion for FY 2013, which is up about $475 million from FY 2012. Much of the increase was restoring money cut from education funding last year and providing new money to make up a large hole in the Medicaid budget. 

Some tax credits were extended. A state tax code overhaul will likely be a focus in 2013.

Legislators extended a number of existing tax credits for another year, including those for investing in certain business property and the earned income tax credit. Legislative leaders have signaled that the 2013 session could include an overhaul of the entire state tax code with ideas under consideration including a reduction in the corporate income tax rate, a cut in the sales tax rate (but substantially broadening its coverage), and a decrease in various credits and deductions. Legislators also passed a bill requiring the North Carolina Secretary of Revenue to conduct rulemaking on the combined reporting of corporate income taxes. This issue has been a focus for business groups in recent sessions.

Regulation of business continues to be lessened.

Continuing a trend started last year, legislators passed various bills reducing regulation of business. The Governor has already signed some of them although one remains on her desk for consideration. One bill would exempt some emission control sources from regulation under the state Air Toxics Program if those sources are subject to regulation under the federal Clean Air Act. Another accomplishes several regulatory efficiency goals including clarifications to the Administrative Procedures Act, clarifying that state Air Quality regulations cannot be superimposed with state Water Quality regulations, and allowing for the option of five- or ten-year permits for solid waste applicants.   

New energy exploration may be on the way.

A bill was enacted that could lead to natural gas exploration and production through underground horizontal high pressure drilling (often known as "fracking"). It begins the establishment of a regulatory infrastructure needed to support these operations, which is expected to take a minimum of two years. Once that infrastructure has been created, the General Assembly will have to vote on authorizing fracking in a future session provided the process proves to be environmentally safe.

More change is coming to K12 schools.

Legislators approved a number of proposals related to K12 schools including allowing local school boards to develop performance pay plans, creating a program designed to improve reading in the early grades, restricting social promotion for third-graders not reading at grade level, establishing a North Carolina Teacher Corps and creating an A-F grading system to judge schools based on their academic performance. They considered, but did not adopt, a proposal to fund scholarships for some students attending private schools by providing a tax credit to businesses making a donation for this purpose.

Privatization of some additional state services is on hold.

Legislators put additional restrictions on information technology privatization without Legislative approval and cancelled an RFP to privatize inmate health care. The information technology privatization provision expires early in 2013, which could signal that next year's Legislature will want to revisit this topic in a new session and with a new Governor in place.

The motor fuels tax is capped--at least for a while.

A portion of the State motor fuels tax fluctuates depending on the price of motor fuel and has increased in recent years due to rising prices at the pump. Legislators capped this tax at 37.5 cents until June 30, 2013.          

Contingent fee-based tax audits are significantly limited.

In response to concerns from retailers and other businesses, legislators passed a bill limiting the use of contingent fee-based audits to determine the tax liability of a taxpayer. The new law applies to the Secretary of Revenue, cities and counties and in some cases, to the State Treasurer.

No health benefit exchange was created.

The House in the 2011 session passed a bill creating a health benefit exchange pursuant to the federal Affordable Care Act. The Senate did not take up the bill this year.  

The focus now is on the election.

All 170 Legislative seats will be on the November ballot. Most observers expect Republicans to maintain control of both chambers, although control of the House is probably more competitive than the Senate. In addition, all ten statewide offices--including Governor and Lieutenant Governor--will be before voters this fall. Given this reality, legislators will probably focus more this fall on campaigning than coming to Raleigh for meetings. The 2013 session is scheduled to convene on January 30.

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.

© Brooks Pierce | Attorney Advertising

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