House leadership announced earlier this week that they anticipate the 2018 short session will be adjourning next Friday, June 29. Republican leaders said both chambers will spend next week debating and voting on local bills, 5 or 6 constitutional amendments, and Governor vetoes. After last week’s whirlwind of committee meetings and late night voting sessions, Speaker Tim Moore and President Pro-Tem Phil Berger assured their respective chambers that they will not be taking up anything controversial that could be vetoed for the remainder of the session. Remember that constitutional amendments do not go to the Governor, they instead go to the voters (statewide referendum).CONSTITUTIONAL AMENDMENT – SB75 LOWER TAX CAP
The Constitutional Amendment to significantly lower the personal and corporate income tax rate cap- SB75– passed the House Rules Committee Wednesday after a lengthy debate. Republican leadership wants to let the voters decide whether to decrease the maximum allowable income tax rate from 10% to 5.5%. The current personal income rate is 5.49% and is scheduled to go down again next year to 5.25%. The corporate rate is 3% and will go down to 2.5% next year. Supporters make the case that the NC economy has been strong since enactment of recent tax cuts and that future sessions of the General Assembly cannot raise income tax rates above what they deem to be appropriate levels.
NCSBA has several concerns about this amendment. Such a restrictive cap would tie the hands of the State to respond to economic recessions or other events that cause State revenue to drop. It could also negatively impact debt service and make bond issues more expensive by jeopardizing NC’s AAA bond rating.
Having already passed the Senate, the amendment would need to receive support of three-fifths of the House, or 72 members, in order to go to the voters. It is unclear when it will be put on the House calendar. Please contact your House member(s) in opposition. Click here
Note that this weekend’s episode of Education Matters will focus on education and business community concerns with this const. amendment. NCSBA will be represented by Assistant Director of Governmental Relations Richard Bostic on the panel.
Education Matters will air at these times:
Saturday at 7:30 PM, WRAL-TV (Raleigh/Durham/Fayetteville)
Sunday at 8:00 AM, FOX 50 (Raleigh/Durham/Fayetteville)
Sunday at 6:30 AM and Wednesday at 9:30 AM, UNC-TV’s North Carolina Channel (Statewide)
BILLS OF NOTE
HB131/HB382- BAIL BONDS
Last week two bills passed the General Assembly that make significant changes to the bail bonds forfeiture laws. Provisions were added in the Senate to H 131 and H 382. On behalf of the NC Council of School Attorney we have asked the Governor to veto both bills. The purpose of the bond forfeiture system is to ensure the appearance of the bonded defendant in court and facilitate the administration of justice. The amendments to NCGS §15A-544.5(b) and §15A-544.8(b) in House Bills 382 and 131 are contrary to that purpose and will significantly increase the likelihood that defendants will not appear in court to face justice. They have the ancillary consequence of further burdening financial planning for school systems. State law creates seven specific grounds upon which sureties may seek relief from their financial obligations on a forfeited bond. These options are carefully balanced to ensure that sureties only receive relief when the defendants’ failure to appear has been remedied in a timely fashion or was impossible due to incarceration in another jurisdiction on the scheduled court date. House Bills 382 and 131 upend this balance by providing gratuitous relief to sureties with no attendant benefit to the administration of justice. The added language in NCGS §15A-544.5(b)(6a) and (b)(7) relieves sureties of their financial obligations solely because a defendant is arrested in another jurisdiction any time before final judgment of forfeiture (up to 150 days after the failure to appear). This relief does not provide any incentive to sureties that will make defendants’ return to court more likely, nor does it represent an appropriate excuse for missing court in the first place. The amendments’ only purpose is to reduce the financial burdens on sureties when they fail to uphold their end of the bail bond contract. The changes fly in the fact of well-settled court precedent, and provide no benefit whatsoever to the State. Finally, House Bill 131 also amends NCGS §15A-544.8(b) to provide broad relief to sureties for up to three years after final judgment. That statute had provided a narrow justification for such relief if the surety could show “extraordinary circumstances.” Courts have, appropriately, held that such language sets a high bar. House Bill 131 removes the word “extraordinary” from the statute, upending decades of case law and leaving relief entirely to the discretion of judges with no guiding standard. This will result in wildly disparate results across counties and drastically reduce the efforts sureties will put into finding missing defendants, all of which burdens the courts and hinders the administration of justice. In addition, because of the time delays involved in relief under section 544.8 and the much lower standard created in these bills, school boards around the state will be left with no choice but to create trust accounts to hold bond forfeiture proceeds for three years, in case they have to pay them back years after collection. This will be a massive administrative burden, especially on smaller counties.
SB15- ISD Changes and Capital Grant Clarification In Senate Rules
At the time we published last week’s update, it was uncertain what would happen to SB15. We noted in previous updates the two major concerns with this bill- raising the cap on 5 schools that can be put into the ISD and making Reform Model and other turnaround schools eligible for inclusion in the ISD. We were anticipating SB15 might come up on the Senate floor Friday for a concurrence vote. Instead it was sent to the Senate Rules Committee. Since the Senate has said no statewide bills will be considered for the rest of the session, we do not expect any further action on this bill.
HB374- Regulatory Reform Act of 2018 Awaiting action by the Governor
This bill was among the flurry of bills that passed last week while legislators were finishing up statewide bills. There are a few education provisions. The most notable is Section 26, a provision that repeals a section in a different bill that got rid of protections for public schools where road improvements are occurring. The protection prevented cities from putting conditions on zoning or permit request approvals from schools to get around the requirement that they reimburse LEAs, charter schools, or private schools for road improvements around schools. A budget technical corrections section repealed this protection. Section 26 restores the original budget language.
Section 27 of HB374 deals with the SBE. It directs the SBE to put all its policies through rule-making; policies not put through rule-making are expired May 30, 2019. It also directs the SBE to repeal a couple policies setting out its authority in relation to the State Superintendent.
HB1031- Local Ed. Funding Dispute Process Awaiting action by the Governor
This would remove the option for local school boards to file lawsuits over current expense if mediation fails. It would continue the mediation process but if the mediation is not successful instead of the board filing suit, an automatic funding formula would be triggered.
The formula is:
Per-student local appropriations from the previous schoolyear X 1+ the Employment Cost Index (ECI) for primary and secondary education X the ADM for the upcoming year. If this formula is used 3 years in a row there would be an additional 3% added to the ECI. It would not alter any existing local funding formulas.
There is also a provision to have a working group study a mechanism to resolve disputes related to capital outlay, which will include representatives from NCSBA and the Association of County Commissioners.
Below are bills mentioned in previous updates that are still awaiting action by the Governor:
ONLINE SALES TAX
In a 5-4 decision on June 21, the U.S. Supreme Court ruled that states canrequire e-commerce companies to collect sales tax on purchases made by their state residents. Prior to this ruling, a business had to have a physical presence in the state before it was required to collect sales taxes. This case was prompted by the passage of a 2016 South Dakota law that required companies registered with the state to collect and remit sales tax if it had annual remote sales exceeding $100,000 or had more than 200 separate remote transactions in the state in a calendar year. South Dakota sued four retailers for not complying with the law, thus the name of the court case, South Dakota v. Wayfair, Inc., et.al.
North Carolina may need to update its sales tax statutes before implementing the sales tax on internet sales. While still in session during the last week of June, the General Assembly could take up Senate Bill 81 that was modeled after the South Dakota internet sales tax law. This bill passed the Senate in 2017 and is in the House Finance Committee.
This decision could generate additional sales tax revenue at the state and local level. An estimate from the federal Government Accountability Office projected that the potential revenue gains from expanded remote sales tax collection for North Carolina could be $223M (low-end estimate) to $358M (high-end estimate).