For the first time since the May 13 transition date, the General Assembly returned to a normal pace, with the Senate voting Tuesday through Thursday and the House of Representatives voting Wednesday and Thursday.
The ongoing impasse in the state budget is slowing the progress of both chambers. The leaders of both houses have yet to agree on a total spending figure, and the Senate thinks it unwise to go ahead until a uniform figure is reached. The chambers usually started their budget processes with the same expenditure figures, with the aim of making the conference negotiations much more manageable.
In line with the legislative tradition, the Senate should start the budget procedure this year. However, with the end of the fiscal year less than a month away and no Senate budget in sight, the House of Representatives has decided to move ahead with its budget proposal. House Speaker Tim Moore has stated that his House believes they have a constitutional duty to come up with and plan a budget. The budget subcommittees started hearings this week and leaders expect a full proposal to be put to vote within the next two weeks.
The two houses are reportedly staying several hundred million dollars apart on their spending target, with the House looking to spend more than the Senate. Senate President Pro Tempore Phil Berger has indicated that the budget may need to be split into smaller pieces if an agreement is not reached. The state has not enacted a new budget since 2018 and has relied on this mini-budget tactic in recent years due to budget disputes between lawmakers and Governor Roy Cooper. According to a 2016 law, the state can continue to operate based on the spending levels set in its most recently adopted budget if a new budget is not adopted.
WRAL: NC House goes with tradition as the battle for the budget intensifies
Confirmation from DEQ secretary fails
Earlier this year, Governor Cooper appointed Dionne Delli-Gatti as Secretary of the Department of Environmental Quality (DEQ). The post became vacant when former DEQ Secretary Michael Regan left to head the Federal Environmental Agency (EPA). This week, the Senate committee responsible for reviewing her position recommended Delli-Gatti not to ratify her, and the Senate accepted that recommendation on Thursday. During the committee hearing, Democrats opposed the ongoing process of committee chairs, calling the confirmation a "sham" and claiming that the majority's rejection of its confirmation was part of a political conspiracy theory.
In 2016, the General Assembly issued an obligation to confirm the Cabinet Secretaries by the Senate, citing their powers under Section 5 of the State Constitution. That section states: "The governor shall, in accordance with and with the advice and approval of a majority of the Senators, appoint and appoint all officers whose appointments are not otherwise provided." -Gatti was denied a cabinet secretary.
The Senate Republicans, who rejected Delli-Gatti's endorsement, said their responses during the committee hearing revealed a lack of knowledge of natural gas and oil pipelines and the reason they rejected her nomination. They cited the recent cyberattack on the Colonial Pipeline and the subsequent gas shortage by the state as a reason to give pipeline and energy infrastructure policy high priority. This was additionally pointed out during the hearing to confirm DEQ's recent decision to refuse permits for the Mountain Valley Pipeline (MVP), which would have transported natural gas through Virginia to North Carolina. Senator Paul Newton, a former Duke Energy executive and current chairman of the Joint Legislative Committee on Energy Policy, said the pipeline was vital in protecting North Carolina from future energy problems by making our system redundant. In contrast, the Democrats have encouraged greater emphasis on clean energy technologies.
While Delli-Gatti is the first cabinet secretary candidate to fail, she will remain in the Cooper administration. Shortly after the Senate vote, Governor Cooper announced that she would serve as its clean energy director. John Nicholson will serve as DEQ's interim secretary until the governor appoints another permanent secretary.
WRAL: NC Republicans Shoot Down Governor's Environment Secretary Election
WRAL: The NC Senate turned its candidate down, so Governor Roy Cooper gave her a new job
Home unemployment insurance and re-entry plan
Last week the House of Representatives passed a bill requiring the state to withdraw from the Federal Pandemic Unemployment Compensation (FPUC) program, which grants an additional $ 300 per week to people with state unemployment. Proponents of the bill have expressed concerns that the increased benefits have deterred recipients from returning to the labor market, despite the economy continuing to recover from the COVID-19 pandemic. Many companies, particularly in the hospitality and service sectors, continue to suffer from labor shortages and high job vacancies, causing some of them to close or downsize.
Currently, the additional $ 300 per week in FUPC funds is being paid for from federal funds and the Department of Commerce reports that 240,000 North Carolinians are receiving the assistance. Ending these benefits would result in North Carolina receiving $ 75 million less per week in federal funding, or about $ 500 million for the remainder of the program. Some economists fear that foregoing this extra money will hamper the state's economic recovery, as less money means less spending.
The bill also includes earlier House-passed tax rules that tie the state to two federal pandemic-related tax rules. The first would allow businesses to deduct expenses paid for with state Paycheck Protection Program (PPP) loans, which are currently taxed at the state level but not at the federal level. The second allows people who have received unemployment insurance to deduct the first $ 10,200 from their taxable income. The Senate has already spoken out against these two changes, so the future of the bill remains unclear.
That bill also seemed likely to have been vetoed by Governor Cooper until a House amendment endorsed some Democrats. The change will allocate $ 250 million to federal stimulus funds for the childcare subsidy program. Supporters claim this will resolve individuals' inability to return to work as they cannot afford childcare while their children are out of school in the summer.
While the Senate doesn't support the House of Representatives' proposals, it has taken a different approach to getting people back to work and recently passed a bill that gave individuals a $ 1,500 bonus check for getting a job and maintains it for six months. This payment would be made with federal funds; However, concerns have been expressed that this approach would require state approval.
WRAL: NC House votes for a $ 300 weekly federal unemployment benefit cut
Senate funding package
Last week the Senate unveiled a comprehensive tax reform bill that focuses on drastic tax cuts and their elimination. The bill would reduce collections by $ 2.16 billion over the next five years, with $ 644 million in fiscal 2021-22 and $ 1.45 billion in fiscal 2022-23. In addition to these cuts, the bill has four main parts.
Part one introduces the Job Grant Program, which is designed to help companies that have received forgeable state or federal loans as part of the COVID-19 recovery effort, such as: Currently, North Carolina allows companies to exempt from income tax exempt PPP loans, but companies cannot deduct business expenses paid through PPP loans. The federal government allows companies to deduct this expense, and North Carolina is one of the few states that does not adhere to this decision. The House of Representatives recently passed a bill that complies with the federal code and allows these expenses to be deducted. The Senate's plan does not conform to the federal code, but instead uses the Job Grant Program to provide grants to companies that have received those loans. The Senate's plan would include PPP loans and any state or federal loans related to COVID-19. The grants would be calculated by multiplying the company's loan by 7.5% with a cap of $ 250,000, with the highest allowable grant being set at $ 18,750 per COVID-19 loan.
The bill stipulates that grants will be awarded in three phases. In the first phase, the Ministry of Finance (DOR) must automatically identify eligible companies that received loans before June 30, 2021 and grant grants by September 30, 2021. The second phase runs from October 1, 2021 to November 19. Application period 2021, scholarships are paid out on a rolling basis. If the funds remain, the third phase will have an application period from January 1, 2022 to February 18, 2022 and the grants will be awarded on a rolling basis.
The Jobs Grant program is funded with $ 1 billion in federal stimulus money received from the state through the American Rescue Plan. With the Job Grant Program capping grants at $ 18,750, many companies are advocating the house approach to PPP loans because their tax liability is greater than the maximum grant amount.
Part two of the bill contains numerous tax cuts that the Senate leadership believes to be right in view of the state's current budget surplus. Senate Finance Chairman Paul Newton reiterated a common topic of conversation used to argue in favor of tax cuts, claiming that if the state takes too much money, it has an obligation to return it to taxpayers. The Democrats said any additional revenue should be used to meet needs across the state that have not been addressed for years. Senator Newton claims that the state can afford tax cuts as well as finance necessary projects.
The tax cuts include a reduction in income tax from 5.25% to 4.99%. The standard deduction in all enrollment classes would be increased by an average of 18.5%, while the childcare tax credit would also be increased and the marginal income level increased from $ 120,000 to $ 140,000. The bill provides for a gradual abolition of corporate income tax by 0.5% per year from 2024 and an abolition of corporate income tax by 2028. In the future, the state will rely solely on net worth when calculating taxes.
Part three of the bill includes an update to the Internal Revenue Code (IRC), an annual provision where the state selects sections of federal tax law to comply with state law.
Finally, part four contains recommendations from the Revenue Laws Study Commission that are primarily administrative and technical in nature. The bill also includes a provision to abolish transfers from the Highway Fund to the General Fund and to move $ 1.4 billion from the General Fund to the Savings Reserve (Rainy Day Fund).
The bill does not include a provision the house included in its tax plan to exempt unemployment insurance benefits from taxable income. The Senate Finance Committee and Budget Committee approved the bill last week but haven't received a majority.
Invoice summary
Tax note
WRAL: GOP lawmakers are trying to lower income taxes for individuals in NC
Session Acts 2021
So far, 27 draft laws have come into force at this meeting. Click here to view these new laws.
List of all submitted invoices: https://www.ncleg.gov/Legislation/Bills/WithAction/2021/10
2020 summary of the substantive legislation
The Legal Analysis Department has published the Summary of Substantive Legislation 2020, which breaks down new laws by subject. Below is a link to the document: https://www.ncleg.gov/Legislation/SummariesPublication/Subjects/2020/