Weekly Legislative Update

Overview

Negotiations on the State Budget have stalled as a new State fiscal year began on Wednesday this week. The General Assembly passed and Governor Perdue (D-Craven) signed into law legislation that authorizes State spending in absence of a formal budget, but House and Senate negotiators appeared to make little other progress toward producing a budget this week. The General Assembly was actively moving legislation through the process prior to leaving for a 4^th of July Holiday weekend. Because of the upcoming holiday we publish this report a day early and in abbreviated form.

State budget negotiations appear to have reached a stalemate between the House and Senate. Having failed to produce a compromise on budget legislation, the General Assembly enacted a "continuing resolution" (Senate Bill 311) to allow for appropriations to support State Government operations through July 15. The "continuing resolution" provides that spending is only authorized at 85% of the spending levels allowed under the budget adopted last year. The 15% decrease was ordered to align spending with slack revenue collections. Because the authority in Senate Bill 311 runs out in less than two weeks, chief budget negotiators are under pressure to reach agreements on the State Budget.

Central to reaching an agreement on a compromise is for House and Senate leaders to strike a deal on tax law changes. Disagreements about who to tax and how much are at the center of the standoff. The Senate is pursuing a radical rewrite of the tax code that would include changes to calculation of personal income tax, sales taxes on services, increased sales taxes on electricity and elimination of economic development tax credits. Under the Senate plan, most tax rates would likely be reduced because additional transactions would be taxed. The House put forward a more traditional proposal that is modeled after the temporary tax increases enacted in 2001. The key sources of revenue in the House tax plan are increases in the upper income tax bracket rate and the sales tax rate, however the House version of the budget also included onerous changes in taxation of businesses. The only point of agreement between the two chambers is that North Carolina taxes must be increased, likely by as much as $1 billion.

Governor Perdue reentered the budget debate this week after wrapping up a statewide tour in which she campaigned for a tax increase of $1.5 billion. This week, Governor Perdue told members of the capitol press corps that she has no preference as to how taxes are raised. The Governor's priority is raising additional revenue and enacting a formal State Budget as soon as possible. The Governor estimates that delay in passing the budget is costing the State $5 million each day in foregone revenue and spending that would not be included in the budget. The Governor's comments quoted in reports today implored the General Assembly to reach consensus and send budget legislation to her desk. That will not happen this week of course, and the relationships between the House and Senate seem to be deteriorating.

On Wednesday, the Senate delayed scheduled consideration of a dozen bills sponsored by House members. Senate leaders were quoted as saying the votes were delayed to allow budget negotiators to return to work. House members seemed skeptical and the move will likely be viewed as a precursor to more drastic steps to put pressure on budget negotiators. For example, near the end of each session, the Senate and House terminate committee meetings, effectively stopping the flow of legislation. In recent years the Senate has taken the lead in stopping committee meetings, although the move this week is far short of that action. This week did in fact bring numerous committee meetings with legislation actively moving through the process.

Committee Meetings

The House Insurance Committee has approved legislation (House Bill 1305) that would make significant changes to the North Carolina Beach Plan, the insurance administration available to insure coastal properties. The Beach Plan was created to be an insurer of last resort, but increasing development and skyrocketing property values have driven policy holders to the plan at unsustainable rates. The changes in House Bill 1305 are designed to help North Carolina's insurance industry prepare for and cope with a catastrophic hurricane. Experience in other states, especially Florida and Louisiana, has shown that North Carolina insurers may not be financially prepared for the damage massive storms can cause. Because of that some insurers have limited writing policies in North Carolina or pulled out of the state altogether. House Bill 1305 would address these problems by requiring the Beach Plan to retain its $8000 million surplus rather than make refunds to member companies, reduce the maximum coverage limits from $1.5 million to $750,000, and lower the coverage for the contents of the property from 40% to 10% of the building's value. These provisions would only be activated if a major storm hits the state. Also, the Beach Plan would be renamed the Coastal Property Insurance Pool. House Bill 1305 now awaits action by the House Finance Committee.

In the House Finance Committee this week legislation (House Bill 524) to reform North Carolina's annexation laws was considered in an extended meeting. Committee members debated several amendments to the bill, but an early amendment approved by the Committee brought on a sharp divide between committee members. The politics of annexation generally align Republican legislators with the opponents of the current law who demand an end to annexation that occurs without a vote approving the annexation by the residents being annexed. Democratic legislators, who are in majority in both the House and Senate, generally prefer the current law that allows cities to bring residents within their jurisdiction without approval by those voters. House Bill 524 contains numerous compromises including a referendum process that requires a petition signed by 15% of the affected area and of the municipality to halt a proposed annexation. Also, under separate provisions, municipalities would be encouraged to provide meaningful services to the areas that are newly annexed. Those provisions were not enough to appease opponents who criticized the bill and the tactics used to put the bill together. House Bill 524 now awaits scheduling at the House floor.

In the House Ways and Means Committee legislation (Senate Bill 1017) that would allow Registers of Deeds and Clerks of Court to remove documents from the internet that contain personally identifying information. Also, Registers and Clerks would eventually have to implement optical scan technology to prevent future disclosures of personal information. The bill next heads to the House Judiciary II Committee.

In the Senate Finance Committee this week, legislation (Senate Bill 460) to regulate commercial dog breeders was approved. The "puppy mill bill," so-termed because the legislation seeks to regulate the unethical and irresponsible practices of abusive dog breeders, elicited a boisterous response from hunters and other dog breeders at the committee meeting. Senator Don Davis (D-Wayne), the primary sponsor of the bill, recounted the story of an egregious dog farm discovered in Wayne County where dozens of dogs were found in horrid conditions. The responsible party was selling the dogs produced on the farm. Opponents, however, say the current law, if properly enforced, would provide sufficient deterrent for these types of abuses. The bill was approved and now awaits further action by the Senate.

Printable Version

The articles published in this newsletter are intended only to provide general information on the subjects covered. The contents should not be construed as legal advice or a legal opinion. Readers should consult with legal counsel to obtain specific legal advice based on particular situations.

Nelson Mullins Riley & Scarborough

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Nelson Mullins Riley & Scarborough

Weekly Legislative Update

Overview

Committee Meetings

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