North Carolina General Assembly Week In Review - June 22, 2015 - Fiscal & Monetary Policy

Senate Passes Budget

The Senate passed their version of the budget Thursday with a final vote of 32-15, after a long week of debate that resulted in over 29 amendments on the Senate floor. The budget bill had previously cleared a preliminary second reading vote of 30-19 on Wednesday which saw Republican senators Bob Rucho (R-Mecklenburg), Andy Wells (R-Catawba) and Fletcher Hartsell (R-Cabarrus) break ranks with their party and vote against the bill. On Thursday's final reading of the proposal, only Sen. Rucho voted against the bill, saying that he could not support provisions in the bill which shift sales tax revenues from urban to rural counties and would result in his home county of Mecklenburg losing $33 million per year. No Senate Democrats voted in favor of the plan.

The $21.4 billion Senate budget increases state spending by just two percent, compared with a five percent increase in the House's $22.2 billion plan passed on May 22. Major highlights of the budget include a reduction in personal income taxes from 5.75 percent to 5.5 percent beginning in 2016, a reduction of corporate taxes from four percent in 2016 to three percent in 2017, a move to calculating corporate income taxes on the basis of a single sales factor over three years and the institution of a new system of sales tax redistribution that seeks to broaden the base by cutting tax refunds for non-profits. The budget also includes key provisions from the Senate's new economic development package released last week; review the full summary of the tax and economic development provisions here.

The Senate budget now returns to the House, where members are likely to vote down the changes due to large discrepancies between the two spending plans on key policy areas such as Medicaid and economic incentives. A conference committee of House and Senate members would then be appointed to iron out a budget compromise before the end of the fiscal year on June 30. Should they fail to do so, a continuing resolution would be passed to keep state government running on a temporary basis until final agreement on a budget can be reached. Legislators do plan to take a break for the July 4 holiday and House Speaker Tim Moore (R-Cleveland) joined Senate President Pro Tempore Phil Berger (R-Rockingham) on Thursday in saying that he felt it was "unrealistic" to have a budget in place before July 1. Both men expressed their desire to stay in Raleigh for as long as is necessary to finish the budget.

To review summaries of each subsection of the budget, see below.

Natural and Economic Resources

The Senate's budget proposes to move the aquariums, zoo, and state parks out from the state Department of Environment and Natural Resources (DENR), and into the renamed Department of Natural and Cultural Resources (currently, Department of Cultural Resources). Senate leaders stated that this move will allow for DENR to become primarily a regulatory agency, being renamed the Department of Environmental Quality. The change is supported by Governor Pat McCrory (R-NC), who believes this change reflects his desire to streamline and consolidate state government. This provision was not included in the House's version of the budget.

Additionally, the budget includes:

$746,000 for the Clean Water Management and Trust Fund.
$590,000 for the Parks and Recreation Trust Fund.
$900,000 to expand support for the aquaculture industry.
$12 million in additional funding for dredging the state's port system, and establishes a Deep Draft and Navigation Channel Dredging and Maintenance Fund.
Eliminates funding for the NC Biotech Center, in contrast to the House's version of the budget, which provided $5 million in recurring funds for the Center.

Read the full subcommittee special provisions report here and the money report here

Education

The Senate education budget fully funds enrollment growth, fulfils a federal promise to provide in state tuition rates for the state's veterans and includes across the board funding increases from last year's budget at the K-12, community college and university levels. Further, the budget raises starting teacher pay to $35,000 per year, a provision supported by Gov. McCrory and included in the House budget.

Additionally, the budget includes:

$453 million in additional funds for K-12.
$58 million for textbooks and digital resources.
$163 million to the university system.
$5 million in additional funds to community colleges.
$7 million for the opportunity scholarship program.

Read the full subcommittee special provisions report here and the money report here

Health and Human Services

The Senate's version of the budget includes their idea of what reforming the Medicaid program would look like for North Carolina. Their plan calls for the state to form a new agency, the Health Benefits Authority, to manage Medicaid, taking that duty away from the Department of Health and Human Services (DHHS). While the legislature would still be responsible for determining eligibility, the Authority would be charged with contracting with managed care groups (MCOs) and provider-led entities (PLEs) for Medicaid services.

Under the Senate's plan, the Health Benefits Authority would contract with three healthcare providers, which could be either MCOs or PLEs, who would serve Medicaid recipients statewide. Furthermore, the state would be divided up into six regions, and the Authority would be authorized to contract with two additional PLEs within each region, if they chose to do so. This proposal, which does eliminate the state's current fee-for-service system in place for full-risk capitation, would go into effect on August 1, 2017, if it became law.

Upon releasing the budget, Senate budget writers stated that they prefer to contract with both MCOs and PLEs in order to encourage competition, and that their plan will give Medicaid patients a choice of three to five plans in which to enroll.

In addition to Medicaid reform, the Senate's budget proposal includes the following:

Calls for a total repeal of the state's Certificate of Need (CON) laws by 2019.
Requires the NC Boards of Dental Examiners, Nursing, Podiatry Examiners, and the Medical Board to mandate continuing education on the abuse of controlled substances as a condition of license renewal.
Ends all contracts and payments to the N.C. Community Care Networks, effective 1/1/16.
Increases Medicaid reimbursement rates for primary care physicians by 20% and for obstetricians by 26%, effective 1/1/16.
Extends the foster care age from 18 to 21. Senate budget writers stated that this will help support foster children as they shift to independence.

Read the full subcommittee special provisions report here and the money report here

Justice and Public Safety

The Justice and Public Safety budget provides for a 30 percent increase in funding for vital court personnel such as interpreters, expert witnesses and juror fees. However, NC's out of date technology at the Administrative Office of the Courts would receive nothing under the Senate plan. This stands in stark contrast to a $19 million appropriation the House made over the biennium to bring the outdated system into the digital age. The Senate budget also includes no provision for dashboard cameras in highway patrol vehicles, something specifically carved out in the House budget. The Senate proposal does, however, allocate $1.5 million to increase the capacity of NC's Business Court and attempts to deal with the much-advertised backlog at the state crime lab by providing funding for independent toxicology and DNA analysis. Moreover, senators provided funding to equip and train officers in the appropriate use of force, while appropriating recurring funds to aid in vehicle replacement for members of the state highway patrol.

Read the full subcommittee special provisions report here and the money report here

Transportation

The transportation budget increases DMV fees by 20 to 25 percent to pay for highway construction and bridge maintenance, something that is projected to generate $29 million next year. This stands in contrast to the House plan which called for a 30 percent increase in DMV fees and would have generated around $40 million. It also features a provision sponsored by Sen. Ralph Hise (R-Mitchell) to eliminate the driver's education course requirement for 16 and 17 year olds, in favor of increasing the number of supervised hours young drivers must spend behind the wheel with a parent from 65 to 85 hours and increasing a passing test score on permit examinations from 80 to 85.

Additionally, the budget includes:

$334 million increase in Strategic Transportation Investment (STI) funds.
$339 million for highway projects.
$66 million to improve the safety of secondary roads.
$140 million for bridge replacement funds.
$216 million elimination in transfers from the Highway Trust Fund to the General Fund, which the House budget did not include.

Read the full subcommittee special provisions report here and the money report here

H372, 2015 Medicaid Modernization Clears House Appropriations committee

House Bill 372, 2015 Medicaid Modernization, cleared the House Appropriations committee on Thursday morning. Sponsored by Reps. Nelson Dollar (R-Wake) and Donny Lambeth (R-Forsyth), the plan calls for PLEs to bid for contracts that would allow them to manage networks of at least 30,000 of the state's Medicaid recipients. As with the Senate's proposal, H372 would end the state's current fee-for-service system in exchange for full-risk capitated plans.

According to the timeline laid out in the bill, within five years of becoming law, 90 percent of recipients must be enrolled in full-risk, capitated health plans for all physical health services (the last 10 percent, those with the highest-cost needs, would continue to be covered under the current fee-for-service system). It does exempt services dental and pharmacy services, pharmacy dispensing fees, and services currently provided by LME/MCOs. A year later, each PLE must meet the risk, cost, performance, and quality goals that are in their contract with the state.

H372 has now been approved by the House Health and House Appropriations committees, and is expected to be on the floor for debate this upcoming Tuesday, June 23.

Read the proposed committee substitute for H372 here

H836, Elections Modifications Heads to the Governor

House Bill 836, Election Modifications, passed both chambers on Thursday with a significant change from its original version. As initially drafted, H836 made no mention of creating an exception in the state's voter identification law which is slated to take effect in 2016. The law requires that voters submit photo identification at polling stations to be able to vote. Disagreements between the House and the Senate over H836 led in recent weeks to the appointment of a conference committee to resolve differences between the two chambers. The measure that emerged from the conference committee included a provision which would allow voters who do not possess photo identification to be able to submit a sworn affidavit and to present other forms of identification to cast a ballot.

Under the new provisions, voters would be able to swear that they were unable to obtain photo identification because of eight broad reasons, including "work schedule" and "lack of transportation." New forms of acceptable identification for those signing the affidavit would now include the last four digits of a voter's social security number and their birth date, among other things. The measure now heads to Gov. McCrory for his signature or veto.

Read the proposed committee substitute for H836 here

H168, Exempt Builders' Inventory Passes House, Advances to Senate

The House voted 109-8 on Wednesday to give approval to House Bill 168, Exempt Builders Inventory, which is meant to encourage new homebuilding by giving each residential builder in NC a three year property tax exemption for any increase in the value of residential property which the builder is attempting to sell. Under the terms of the proposal, the increased tax values would have to be attributed to improvements the builder implemented, the tax exemption would dissolve upon the sale of the property and builders would continue to pay taxes on raw land owned.

Some local governments, however, have expressed opposition to the bill, saying it would limit revenue sources for cities and counties. An analysis from the legislature's Fiscal Research Division estimates that the bill could cost counties and cities throughout the state $53 to $66 million every year.

Read the proposed committee substitute for H168 here

H482, Employee Misclassification Reform Clears House Commerce committee

A bill which would form a team of investigators to pursue cheating businesses passed the House Commerce committee on Wednesday and now awaits another hearing in the House Judiciary II committee. Were the measure to become law, it would allocate dollars to be devoted to a special investigative unit dedicated to collecting data on businesses suspected of violating NC's tax and labor laws. Businesses found guilty of illegally treating their employees as independent contractors would be faced with a hefty fine or the potential of losing their business license.

The move to curtail the practice, known as misclassification, has drawn bi-partisan support in recent months from labor unions as well as business leaders. Senate members unanimously passed a similar version of the proposal last month.

Read H482 here

H562, Amend Firearm Laws Passes House with Changes, Advances to the Senate

House Bill 562, Amend Firearm laws passed the House on Thursday by a final vote of 78-37, after a lengthy period of debate. The measure, sponsored by Rep. Jacqueline Shaffer (R-Mecklenburg), was changed significantly from its original form through a series of amendments during the Tuesday House session. A coalition of House members succeeded in removing a provision which would have repealed NC's pistol permit system, which requires individuals seeking to purchase a handgun to obtain permits from their local sheriff. They also eliminated a second provision which would have made it permissible for legislators and staff members to carry concealed weapons within the legislative complex, in addition to removing a provision requiring that medical forms which ask for information on a patient's firearm possession include a notice stating that a patient is not required to provide that information.

The final version of the bill did include other changes such as a provision prohibiting local governments from passing gun laws stronger than NC's, as well as a lifetime prohibition on obtaining a concealed weapons permit for individuals who are convicted of misdemeanors involving domestic violence.

Read H562 here

Conference Report for H640, Outdoor Heritage Act Adopted

The conference committee report for House Bill 640, Outdoor Heritage Act, passed the House this week by a vote of 88-26. Among other things, the bill includes provisions that would permit hunting with shotguns and rifles on Sunday. When House members gave initial approval to H640 in April, the bill placed no time constraints on Sunday hunting. The Senate, however, elected to prohibit the activity before 12:00pm on Sundays because some felt hunting during the morning hours would take away from the tradition of Sunday being set aside for religious observance.

The House rejected the Senate's changes to the bill and a conference committee was appointed to iron out differences between the two chambers. The proposal which came out of the conference committee prohibits Sunday hunting from 9:30am until 12:30pm, except on existing hunting preserves which must be at least 500 yards away from places of worship. Senators are scheduled to take up the conference report on June 23, and if they give approval, the bill would go to Gov. McCrory.

View the proposed conference committee substitute for H640 here

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