Major Tax Reform on Agenda for Next Legislative Session

Tired of paying state income taxes and corporate income tax?  Well, maybe soon you won’t have to if the NC General Assembly enacts legislation that would eliminate both.  According to legislative leaders, they are looking for ways to eliminate these taxes and replace the revenue (about $12 billion out of a $20 billion budget) by broadening the sales tax base to include taxes on services.

Of the 50 states, NC is on the low end of services that are taxed – we currently tax 35 services.  This number would not only have to dramatically increase to include professional services, but the sales tax would also need to be raised to over 9%.  (currently at 6.75%).

About 4 years ago legislators in a Democratic controlled state legislature were thinking of doing the same thing and looked to the Institute of Emerging Issues to help study the issues.  At that time, here’s what they found:

1)       The volatility of the personal income tax makes NC’s revenue base more vulnerable in bad times.

2)       Sales tax is a more stable source of revenue than income tax but growing more volatile as durable goods make up a large fraction of the sales tax base.

3)       At the time of the study, only 11 states had a higher sales tax rate than NC

4)       Ways to expand the sales tax base include eliminating current exemptions, eliminating refunds, eliminating preferential tax rates and including additional services in the base.

5)       For professional services which included land surveying, accounting, bookkeeping, legal, architectural, engineering, dental, medical, labs and out of hospital nursing, most tax experts do not recommend because these are primarily consumed by business. 

6)       At the time of the study only 5 other states imposed a sales tax on architectural and engineering services.

7)       Revenue impact of a tax on professional services for Architectural and Engineering was $62.3 million State; $26.2 million local.  The largest revenue impact was in the medical profession.  

8)       Because many of these professional services are also purchased by government, the revenue impact could be lower than anticipated because government would be exempt.

Legislative leaders have been adamant that major tax reform is coming but, unless the data has changed drastically since the original study, making this a “revenue neutral” plan with possible exemptions for medical services and business to business transactions (one of the rumors) will be almost impossible to accomplish.    

Progress Energy Shutting Down Coal-Burning Power Plant

Progress Energy Carolinas is shutting down a coal-burning power plant near Goldsboro as it shifts to generating power with cleaner natural gas. The utility officially closed its Lee power plant on Saturday. New gas-fueled units will begin operating early next year. The subsidiary of Duke Energy opened the first of its three coal units there in 1951 as one of Progress' first major construction projects after World War II. Progress says it plans to close all of its coal-fired plants lacking advanced environmental controls by the end of next year. Progress retired one coal-fired power plant near Lumberton last October. It also aims to shut down plants near Moncure, Wilmington and Hartsville, S.C., by the end of 2013.(THE ASSOCIATED PRESS, 9/15/12).

Asheville City Water

Asheville officials met with at least two state legislators last Tuesday to discuss the possible transfer of the city water system to the Metropolitan Sewerage District. But the legislator who has played the biggest role in forcing the issue, Rep. Tim Moffitt, R-Buncombe, is not expected to be there. City Project Manager Philip Kleisler said only two legislators the city has invited are expected to attend Tuesday: Rep. Susan Fisher, D-Buncombe, and Rep. Chuck McGrady, R-Henderson. The city has proposed several meeting dates over the past few weeks only to drop plans because of anticipated poor attendance from legislators. Moffitt had either not responded or declined to attend previous proposed dates. On Tuesday, he is scheduled to be in Raleigh for a meeting of the Joint Legislative Program Evaluation Oversight Committee that he sits on. City officials have said they wanted to get feedback from legislators on how best to follow the recommendations of a legislative study committee Moffitt headed that advocated that the water system be transferred to MSD.(Mark Barrett, ASHEVILLE CITIZEN-TIMES, 9/17/12).

Bridge Replacement for I240/I-26

The state Department of Transportation has awarded an $11.9 million contract to a Michigan company to replace the pair of bridges on I-240/I-26 eastbound and westbound near Asheville, according to a news release from N.C. DOT. The contract was awarded to DeVere Construction Co. of Alpena, Mich. The bridges were constructed in 1966 and are considered structurally deficient. While the bridge is still safe, it requires extensive maintenance and repair and needed to be replaced. Work can begin as early as Oct. 1 and should be completed by 2015.(ASHEVILLE CITIZEN-TIMES, 9/17/12).

Sewer Lines Replaced in Pinehurst

Pinehurst will get $683,200 in federal funds to run sewer lines to 16 homes, Gov. Beverly Perdue announced Tuesday. The Community Development Block Grant will be provided by the U.S. Department of Housing and Urban Development. The North Carolina Department of Commerce's Division of Community Assistance administers the grants, which are dedicated for projects serving low- and moderate-income people. The Pinehurst grant is among 18 in the state that will be used to improve water and sewer lines. The money will pay for the installation of a 1,950-foot sewer line that will serve homes on the east side of N.C. 5, along Arnette and Olivia streets. Bladen County also will get $400,000 in Scattered Site Housing funds to improve housing conditions for low-income households.(THE FAYETTEVILLE OBSERVER, 9/18/12).

DOT Project in Eastern NC – U.S. 17

Residents of eastern North Carolina have another chance to tell state transportation officials what they think of plans to widen U.S. 17 between New Bern and Jacksonville. The state Department of Transportation is holding the second of two public hearings on the proposal to widen the highway to four lanes from south of Belgrade to the New Bern bypass in Craven County. The next hearing is scheduled for Tuesday. DOT representatives will be on hand to provide information and receive comments from the public. Plans call for widening a 16-mile stretch of the highway. The project would convert the two-lane road to a four-lane divided highway.(JACKSONVILLE DAILY NEWS, 9/18/12).

I-95 Tolls

The N.C. transportation secretary says a new economic analysis of tolling on Interstate 95 has been ordered in the wake of public opposition this spring. Secretary Gene Conti said the analysis will involve input from the trucking industry, retailers and other groups that would be affected by a proposal to install tolls to pay for a proposed $4.5 billion makeover and widening of I-95. The analysis is due next spring, when more public hearings will be held, he said. "Everybody wants a better highway, but nobody wants to pay for it," Conti said during a visit Tuesday with the editorial board of The Fayetteville Observer. Opposition to the toll proposal sprung up earlier this year from many people, including congressmen and county commissioners. Conti said there is no current alternate plan to making the improvements without relying on existing revenues that fall way short of what's needed. He said existing revenues for improving I-95 total about $450 million over 10 years - well short of the $4.5 billion price to widen the entire 182-mile stretch from South Carolina to Virginia.

The state planned to turn the highway into eight lanes between mile markers 31 and 81. Under the proposal, electronic tolls would be placed every 20 miles, making the cost to travel the entire length of I-95 in the state almost $20 starting in 2019. Construction would start in 2016 and take nearly a decade to complete. The proposed tolls would be automated, like those used in Raleigh. There, vehicles with toll transponders are charged as they pass through overhead sensors at 20-mile intervals; owners of vehicles without transponders are mailed bills, at higher toll rates, based on pictures taken of their license plate numbers.(Andrew Barksdale, THE FAYETTEVILLE OBSERVER, 9/18/12).  

I-295 Extention

The state of North Carolina has approved more than $100 million to build another section of Interstate 295 into western Fayetteville. The road known as the outer loop is being built in sections. Transportation department engineer Greg Burns says the nearly 6-mile stretch of road is expected to cost nearly $105 million. Bids are expected for the work in May 2014. Gov. Beverly Perdue announced last year that the state would accelerate construction of the highway. Officials say the new road will help ease traffic congestion around Fort Bragg, which has almost 60,000 soldiers and airmen.(THE FAYETTEVILLE OBSERVER, 9/19/12).

Undisclosed Economic Development Project – State Ports Authority

The State Ports Authority wants the N.C. Railroad Co. to pay $7 million per year over the next decade for an undisclosed economic development project. It was unclear Thursday whether the project is being driven by the ports or an outside company seeking incentives or infrastructure improvements. The ports authority's request for cash is spelled out in a Sept. 4 letter from Ports Authority Executive Director Tom Bradshaw to John Atkins III, chairman of the N.C. Railroad Board. "The intent of this request is to work toward ensuring that the Railroad Company remains an active and contributing participant in the state's on-going logistics efforts," Bradshaw wrote in the letter. Two members of the ports authority board of directors would talk only in vague terms about what the money could be used for. George Rountree III, a Wilmington lawyer and member of both the ports authority and Railroad Co. boards, said the Ports Authority was working on a "legitimate, long-term, genuine, lawful business activity" and that the $7 million a year would be used as seed money to help obtain additional dollars. The N.C. Railroad Co. owns and manages the 317-mile rail corridor from the Port of Morehead City to Charlotte, which carries up to 60 freight trains and 10 passenger trains a day. It was originally chartered as a private railroad in 1849 and financed primarily with state funds. In 1998, the remaining shares were bought out by the state, making North Carolina the sole shareholder. It is overseen by a 13-member board appointed by the governor and Legislature.

Former Rep. Danny McComas, who is now chairman of the ports authority board, said the money could be used for rail infrastructure improvements at the ports of Wilmington and Morehead City. He said both that ports lack adequate rail service and that repairs and upgrades are needed. Asking the Railroad Co. to participate as a partner in improving rail service to the ports makes sense to McComas. "Things are calling for a little attention, so this is a way to do it," he said. Gov. Beverly Perdue is aware of the situation, but a staff member wouldn't disclose details on Wednesday. "The Governor knows that the ports are critical to the economy in North Carolina. She supports their efforts to create jobs and economic development," Perdue spokeswoman Chris Mackey said in an email. "Beyond that, we can't discuss potential economic development projects."(Patrick Gannon, WILMINGTON STAR-NEWS, 9/20/12).

Alcoa Plan

State regulators have approved a plan by Alcoa Inc. to cover a lake bottom to prevent a health-harming contaminant near its closed aluminum smelter from moving. The state Division of Waste Management said Thursday it is allowing Alcoa to cap PCB-contaminated sediments in two areas of Badin Lake. Federal regulators also must approve the plan after a public-comment deadline in two weeks. The project involves lowering water levels in Badin Lake by up to 20 feet, digging up as much contaminated sediment as possible, and covering the rest with sand and rocks. Work is scheduled to start in November. Environmental groups have criticized the plan for not doing enough to clean the lake of PCBs. PCB-contaminated stormwater polluted the lake from Alcoa's now idle aluminum smelting plant.(THE ASSOCIATED PRESS, 9/20/12).

Bridge Replacement at Oregon Inlet and Hatteras Island

State environmental regulators have signed off on a plan to replace the nearly 50-year-old bridge spanning Oregon Inlet and linking Hatteras Island to points north such as Nags Head and Kill Devil Hills. The Division of Coastal Management announced Thursday its decision to issue the permit to the state Department of Transportation to build the 2.8-mile Bonner Bridge replacement and demolish the existing bridge when the new structure is complete. The permit followed a public comment period and reviews by more than a dozen federal and state agencies. Other permits are still required before construction can begin early next year on the $200 million-plus project. Environmental groups have sued to try to prevent the replacement plans from going forward. They prefer a longer bridge going out into Pamlico Sound.(THE ASSOCIATED PRESS, 9/20/12).

Greensboro Economic Development Grant

Greensboro has won a $1 million economic development grant, acting U.S. Commerce Secretary Rebecca Blank announced this week. With the money, the city will host a competition to generate creative economic development plans. Greensboro will be one of three cities to test the new program. “This is a big deal folks,” Mayor Robbie Perkins said at a brief announcement at city hall. “because this administration is coming up with a way to create jobs. They’re gonna let us be a part of that strategy.” Blank’s comments at the event were part stump speech for President Barack Obama, touting the recent job growth. “Our challenge is to make sure cities like Greensboro lead that growth, create more good jobs and strengthen the economic security for their middle class,” Blank said. Details of how the program will work and what types of jobs might be created at the have not yet been determined.(Amanda Lehmert, THE NEWS & RECORD, 9/20/12).