N.C. Metropolitan Coalition Update - Sept. 6, 2002 General Assembly Budget Debate The legislative conferees on the state budget from the House and Senate are now considering a proposal to repeal the reimbursement payments and run a separate bill for a local option sales tax to replace the reimbursements: As reported in the Winston Salem Journal (9/6/02) Because the House has already rejected a proposal to let counties raise the sales tax rate by a half-cent this year, negotiators will not include the local tax option in the budget, he said [Senate Pres. Pro Tem Basnight]. But legislators plan to keep $333 million this year in reimbursements that the state has traditionally paid cities and counties. Black [House Speaker] said that members would consider a second bill for the local sales tax that would come later. "That would give the counties and cities enough time to strong-arm members and get support," said [House Appropriations Chair] Redwine. "We tried it once and it failed, but new days bring new opportunities." It is worth noting that the revenue bills in each chamber repeal the reimbursement payments but both offer some compensation: House swaps the state ½ cent sales tax with local governments early- January 2003 instead of July 2003. It also includes a "hold harmless" provision for some localities worst hit by the loss of reimbursements this year. Senate authorizes a new ½ cent local option sales tax this year to replace the reimbursements and includes a substantial hold harmless payment for this year Both chambers rejected the other's proposals - leading to the current impasse over budget availability. The impasse over budget availability/revenue, along with the lottery, appear to be the primary sticking points that are keeping the General Assembly from finishing their work this session. Context State government is currently operating on a Continuing Resolution from the General Assembly and an Executive Order of Fiscal Emergency issued by the Governor. The current fiscal year is presently out of balance by more than $1.5 billion. Both chambers have proposed spending cuts (based on the 02/03 budget portion of the biennial budget). Both chambers are also using a mixture primarily of one-time reserves or sources (e.g., Highway Trust Fund, etc) and some minor new revenue sources (loophole closings, stepped up tax collections, etc) in order to balance the budget. Based on last year's legislation - beginning July 1, 2003 counties will be able to levy a ½ cent sales tax in lieu of the reimbursement payments. Many counties have already authorized the tax. Projections are for the next General Assembly to face very difficult biennial budget - even more so than this year (some projections are for more than a $2 billion shortfall). Background on existing bills Senate Bill 1292 - Revenue Bill Senate version Senate bill 1292 includes: ½ cent local option sales tax as early as practical and repeals of the reimbursement payments Would include a hold harmless provision funded by the state for FY 02/03 Maintains the state's ½ cent (results in an overall increase in sales tax) Included most of the provisions from HB 1490- Secure Local Revenues (see below) It is difficult to calculate the impact on locals since the original date for this bill was August 1. Some projections are that it could mean a loss of at least $45 million in FY 02/03 in relation to the $333 million in reimbursement payments (using a October 1 for a local sales tax). House version Passed Senate Bill 1292 with amendments and includes: ½ cent sales tax for local govt beginning on January 1 as replacement for the repeal of the reimbursement payments. Includes repeal of a state ½ cent sales in concert with the local option (results in no increase in overall sales tax) Represents a loss of funds for FY 02/03 for all our cities based on the fact that a sales tax levied on Jan 1 does not fully replace the reimbursement payments Includes a partial hold harmless only for the most impacted cities and counties (Winston-Salem, Salisbury, Hickory and High Point) Included all the provisions of HB 1490 - Secure Local Revenues (see below) Local governments would lose approximately $160 million in FY 02/03 in relation to the $333 million in reimbursement payments House Bill 1490 - Secure Local Revenue House version House Bill 1490 is based on language from the League and Association: The first part of the bill clearly outlines that specific local revenues (electric, gas, telecom, Powell Bill and beer/wine) are local revenues - not "state expenditures" and as such it specifically prohibits the governor from withholding these local revenues. The NC Constitution states the Governor may withhold "state expenditures." The second part of the bill limits the Governor's authority to withhold all funds committed or appropriated to local governments (including the reimbursements). It states he can only withhold local funds if all other funds have been expended and he has specific authorization from the General Assembly to withhold local funds. Senate version Senate passed HB 1490 with amendments Deleted language from second part of the bill that requires authorization of the General Assembly before the governor can withhold local funds. Includes language that prohibits municipalities from collecting electric utility gross receipts taxes under local ordinances. For more information, please contact : Beau Mills, Director NC Metropolitan Coalition www.ncmetros.org