I hope that everyone enjoyed their Mother’s Day weekend and the wonderful weather that accompanied it.
This week I will be discussing the General Assembly’s Crossover Deadline, the Updated Revenue Outlook and its effect on the budget process, North Carolina’s Outdated Tax System, Classic Car Legislation and Anti-Bullying Legislation.
CROSSOVER DEADLINE
This upcoming Thursday is the Crossover Deadline for the General Assembly. This means that any bill that is not passed by one chamber of the General Assembly, and has not “crossed over” to the other chamber, will not be considered this session. This deadline is a self-imposed way of sifting out the bills that are of lessor importance or that do not have enough support at this moment.
This deadline, like any deadline, creates a rush to get things done right before time runs out. As you can imagine, this has created quite a busy schedule for the upcoming week, but this does not mean that the bills being debated are given any less attention or any less review. These bills are discussed extensively in the weeks leading up to the crossover deadline and they are all given their due diligence. This deadline does not affect bills that deal with appropriations or taxes. This allows the Senate and the House to work on bills that affect the budget without a deadline. Please see this article for further discussion.
BUDGET SHORTFALL UPDATE
This past Thursday, the Senate was given a report on the revised revenue projections. Below I’ve recreated three charts, which were presented to the Senate as part of that report, with a brief explanation of each.
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The 15% change in the budget is due to a 10.8% decline from last year’s revenue collections. This change is unprecedented. This current shortfall is for the current fiscal year, meaning that Governor Perdue has had to bridge this $3.1 billion gap by using her executive powers to balance the budget. She has done so specifically by utilizing funds from a variety of reserves such as the Rainy Day Fund, the Lottery Reserve, and the Clean Water Management Fund as well as cutting state employees’ pay by 1/2 of 1 percent. She has even utilized $200 million dollars from stimulus funds originally slated to be used for the upcoming 2009-2010 budget. Fortunately, the Governor did not resort to massive layoffs to balance the budget for fiscal year 2009-2010. See this video for further discussion of the Governor’s actions.
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This chart shows the shortfall that affects the proposed budget that will go into effect this next fiscal year. The General Assembly will have to find another $1.5 billion to meet the revenue forecast for next fiscal year. Keep in mind that this is just the next fiscal year and the budget that is enacted by the General Assembly covers the next two fiscal years. The General Assembly will have to make up an additional $2 billion dollar shortfall for fiscal year 2010-2011.
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* Federal Medical Assistance Percentages (or matching Medicare funds from the Federal Government) considered revenue for the sake of comparability
** OSBM plans to use $200 million in ARRA funds to balance the 08-09 shortfall. This number assumes FAMP relief.
Because the Governor is using the $200 million in ARRA (federal stimulus) funds to cover the current fiscal year deficit that means that there is $200 million less for the budget the General Assembly is working on. So in addition to the revenue shortfall the General Assembly also has to find a replacement for the lost stimulus funding.
The size of the shortfall is staggering. To put it into perspective, this shortfall is 7.5% of the full budget proposal for Fiscal Year 2009-10 and is a 50% increase in the projected shortfall that caused the Senate to make its original cuts. The shortfall is equivalent to ½ of the State Medicaid budget for FY 2009-10. It is also roughly equivalent to ½ of the State University Budget.
Antiquated Tax System Exacerbates Budget Shortfall
The General Assembly will have to identify an addition $1.5 billion dollars in cuts and/or tax increases, or a combination thereof, to balance the upcoming 2009-2010 budget. This figure already takes into consideration that we will have $1.4 billion dollars in federal stimulus money to be used to balance the budget. Keep in mind these additional cuts and/or tax increases are above and beyond the proposed cuts and tax increases proposed by the Governor and by the Senate. The Senate has already passed a budget proposal that reduces classroom sizes by an average of two children, eliminating over 6000 teacher positions saving the state $324 million. Other cuts in the Senate budget include a $40 million cut in the More at Four program, a $15 million cut in Smart Start, and a $54 million cut in personal care services for the elderly and disabled. The Governor’s budget proposal included an additional $500 million in taxes on alcohol and cigarettes whereas the Senate budget did not specify from where over $500 million in taxes would be generated.
The Senate is developing a proposal that would do the following:
a. lower the statewide sales tax by expanding the number of services taxed
b. lower personal income taxes on families earning under $50,000
c. lower the corporate income tax to the lowest in the Southeast
d. increase the earned income tax credit for poor working families
During the Great Depression, the North Carolina General Assembly restructured its tax collection system by assessing a sales tax on goods. We had moved from an agrarian based economy and were transitioning to a manufacturing economy. Now, with the decline in textiles and furniture production over the past two decades, we have witnessed North Carolina’s transition to a service based economy. Despite this transition, we continue to utilize the sales tax on goods as a major source of the funding for our public services in this state. (For a more detailed discussion please visit this site). If you buy a lawn mower, you will pay a sales tax on that lawn mower. If you pay someone to cut your lawn, you will not pay a sales tax on the purchase of that service. There are over 166 different services taxed in the United States. The average number of services taxed in any individual state is in the mid 50 range. North Carolina only taxes 16 different services. The tough political questions for the General Assembly to consider are as follows:
1. If we increase taxes should we limit increases largely to goods like cigarettes and alcohol?
2. If we expand the coverage of the sales tax, what services should be included?
For example, we can generate over $178 million for the 2009-2010 fiscal year if we tax warranties and installations that are sold with products purchased at stores, as well as the repairs of those products. The current proposals being considered by the Senate would include plumbing services but not haircuts. It would include framing but not accounting. I am interested in what if any action you believe we should take to address this additional $1.5 billion shortfall. Almost all of the letters I receive dealing with the budget address cuts that people oppose or tax increases people oppose. At the federal level, Congress avoided unpopular cuts in services and adopting popular tax cuts by borrowing money. At the state level we are constitutionally required to adopt a balanced budget. Rarely do I receive letters that identify a major specific spending cut or a specific tax increase. Letters that simply state “cut wasteful spending” and “no new taxes” offer little guidance as to how to address the budget crisis. In order to balance this budget, we have to, and will continue to have to, cut programs that are working in addition to those programs that are wasteful because we simply do not have the money to continue to fund all of the services we have come to expect to receive.
I have available the documents that were provided to the General Assembly detailing the tax proposals that are being considered by the Senate. These are just proposals and are not current tax code. If you would like copies of the documents my office will happily forward them to you upon request.
NEW TITLING CATEGORIES FOR CLASSIC CARS
Classic cars are a treasured pastime in our district. Not to long ago Henderson hosted an event where classic cars and hotrods were on display in downtown. See here for pictures. This event attracted very large crowds of people, many of whom were from out of the state. Recently the DMV changed its titling policies with regards to these classic cars, and two pieces of legislation have arisen to address that policy change. These two competing bills up for debate in the Senate Commerce Committee this Tuesday, Senate Bills 820 and 476. I am a primary co-sponsor of SB 820 along with Senator Fletcher Hartsell. You can view SB 820 here and SB 476 here.
Beginning in January 2008, the DMV instituted a policy that all cars 35 years or older with out-of-state titles would be required to undergo a mandatory inspection program administered by DMV. This policy was not made through the required rule-making procedures and was done without the opportunity for public comment. The effect of this policy was that classic cars bought from out-of-state were unfairly subject to additional inspections, and were often damaged, by inspectors who were unfamiliar with classic cars and how to handle them. This policy also conflicts with the General Assembly’s intent for historic cars to be exempt from safety inspections of this sort. The exemption is due to the fact that most of these cars are not used for transportation but are used in car shows and events. In other words, these cars are not every day drivers but are antiques that are shown off and used in commerce.
SB 820 seeks to prevent this government encroachment through the DMV titling process while SB 476 seeks to expand the inspections. SB 476 would also add a $30 inspection fee to pay for the unwanted inspection. The bill also adds an additional tax on custom built cars based on the time and labor that was spent in building them. This is unfair because, in practice, custom built cars are mostly built for personal enjoyment and therefore there is no money made on the time and labor invested in them. In other words, this bill attempts to tax the time spend on a hobby.
For these reasons I introduced SB 820. It will eliminate these problems and allow classic car enthusiasts to enjoy their passion.
THE ANTI-BULLYING BILL
Last year, I helped lead the fight in the Senate for the adoption of a statewide this news article. It was detailing in this news article.
The legislation passed in the House and proponents in the Senate were one vote short of passage. The bill was reintroduced this session and passed a vote of the Senate last week. The vote was 26-22 in favor of the bill. The controversial component of the legislation is whether or not the legislation should identify the type of individual characteristics that would apply; such as race, color religion and disability. Opponents want individual characteristics removed from the bill because of the identification of the characteristic of sexual orientation contained in the bill. (See 115C-407.5, in the last paragraph of Section (a)) You can view the bill here.
One of the most common factors in bullying incidents is ridicule aimed at students based on their sexual orientation or perceived sexual orientation. Bullying related to sexual identification is also aimed at persons who associate with students who are perceived to be homosexual. My discussions with constituents throughout Senate District 7 reveal that most citizens do not believe students should be subject to bullying because of their sexual orientation or whom they associate with. For more detail about this bill please see this article.
Please view the following video clip of Anderson Cooper’s news story about an eleven year old boy who was accused of being gay by his classmates.
COMMITTEE SCHEDULE
Please take a look at the bills that are scheduled to be heard in committee this week. If there is a bill that you feel passionately about, please let me know. I would be happy to discuss it with you.
Tuesday, May 12th
Health Care
SB 877 Health Benefit Plan Provider Contracts
Judiciary II
SB 372 Clarification of Nuisance Abatement Laws
SB 612 Partition Sales/Extend Report & Answer Times
SB 613 Partition Sales/Commrs., Sellers, Buyers
SB 614 Partition Sales/Notice, Credit, Appraisal
SB 807 Public Safety Registration
SB 850 Liens/Condominiums and Planned Communities
SB 880 Certificates of Rehabilitation
SB 978 Firearms Qualification Sites/Retired LEOs
SB 1013 Citizens’ Right To Know Act/Pretrial Release
SB 7 Allow Hunting on Sunday
Commerce
SB 6 Beach Plan and Ins. Rate and Deductible Stay.
SB 18 Amend Cemetery Act
SB 476 Create Titling Categories-Replica/Street Rod
SB 534 Healthy Families and Healthy Workplaces Act
SB 607 Disapprove Building Code Council Rule
SB 649 Modify Speed Zone Restrictions
SB 660 Auto Insurance/Diminution in Value
SB 687 Exempt Plumb’g Contractor/Well Contractr Reqs
SB 698 City/County Fee Increase on Internet
SB 795 Real Estate Disclosure/Military Installation
SB 811 Fuel Rationing Authority for Governor
SB 820 Create New Titling Categories
SB 887 Amend Electronics Recycling Law
SB 889 Utilities/Carrier of Last Resort.
SB 893 Workers’ Comp Self-Insurance Security Ass’n
SB 911 North Carolina Building Code/Council Changes
SB 913 Clarify Motor Vehicle Franchise Laws
SB 914 Clarify MV Dealer Termination Assistance
SB 916 Tenant Security Deposit/Interest-Bear. Acct
SB 3974 Consumer Economic Protection Act of 2009.
SB 982 Small Business Assistance Fund
Wednesday, May 13th
Education/Higher Education
SB 583 Tuition Reciprocity/Community Colleges
SB 824 Bus Transportation/After-School Programs
SB 1012 Home Schoolers in Public School Prog./Study
SB 1028 Encourage Volunteerism in Schools
SB 962 Probationary Teacher Appeals
As always I welcome your comments on this newsletter or anything else that concerns you. My office is here to help in whatever manner we can. It is an honor to serve as your Senator and I will do everything in my power to live up to that honor.
Sincerely,
Doug Berger