The N.C. General Assembly worked into the early morning hours on June 30 to finish its business for the 2017 legislative session. The session officially began January 11 and ran for six months for a total of 93 legislative days.
The “long session” was contentious between the Republican-led legislature and newly-elected Democratic Governor Roy Cooper. Under the leadership of Senate Leader Phil Berger and Speaker of the House Tim Moore, the legislature continued to build on conservative policies implemented since Republicans took control of the General Assembly in 2011.
The Republican supermajority in the legislature paved the way for conservative policies to sail through the lawmaking process. A supermajority is achieved by having at least three-fifths of the votes in both the House and Senate chambers to override the governor’s veto. Despite the governor’s objections and vetoes of a number of bills, Republicans managed to enact several of their priorities: tax cuts, teacher and state employee pay raises, modernizing energy and telecommunications policy, regulatory reform and changes to elections law.
“I am proud of the hard work and discipline of my Republican colleagues, who fulfilled their promises to further reduce taxes on middle-class families and job-creators, provide a fourth consecutive teacher pay raise, appropriate nearly $700 million more for public education, and rebuild communities devastated by Hurricane Matthew – all while saving for a rainy day,” Senate Leader Phil Berger (R-Rockingham) said after the General Assembly concluded its business on June 30. “Republicans’ ongoing commitment to spending discipline and tax relief have resulted in consecutive years of balanced budgets and large revenue surpluses, while other states that subscribe to liberal tax-and-spend philosophies, like Illinois, are going bankrupt.”
Governor Cooper consistently disagreed with the legislature’s policies. He vetoed the state budget and several other bills, citing different visions for how the state should move forward. The governor pushed for higher spending levels in the state budget, with specific emphases on increasing teacher pay, additional funding to fight the opioid epidemic, and expanding broadband access in rural areas of the state.
“Republican legislators have doubled down on the wrong priorities for our state,” Governor Cooper said after he vetoed the budget. “I said I would sign a budget if legislators would target the income tax breaks to middle class families and invest the savings on education and job creation. Unfortunately, legislative Republicans refuse to compromise and have passed a budget that leaves middle class families behind. We must do better for our students and working families.”
During the six month session, 92 bills were enacted into law, 45 of which became law without the governor’s signature. To date, Governor Cooper has vetoed seven bills – House Bill 100, Restore Partisan Elections/Sup. & Dist. Court; House Bill 239, Reduce Court of Appeals to 12 Judges; Senate Bill 68, Bipartisan Bd of Elections and Ethics Enforce.; House Bill 467, Agriculture and Forestry Nuisance Remedies; Senate Bill 257, Appropriations Act of 2017; House Bill 576, Allow Aerosolization of Leachate; and House Bill 511, Game Nights/Nonprofit Fund-Raiser. The General Assembly voted to override all of the vetoes with three-fifths majority except for Senate Bill 257 and House Bill 511, both of which the governor vetoed after the session concluded. Nearly 100 bills are pending on the governor’s desk.
The governor has 30 days to act on legislation sent to his desk when the General Assembly is out of session. If a bill is not signed or vetoed by the governor within the 30 days, it automatically becomes law.
The legislature will return for two additional legislative sessions in 2017. It will convene on August 3 and again on September 6 to consider veto overrides, make appointments and approve bills that are currently in negotiations between the House and Senate. The September session also allows the legislature to take up constitutional issues, judicial redistricting, and any court-ordered re-districting. Legislators have a self-imposed deadline of November 15 to consider revising the legislative maps that were ruled unconstitutional by the courts. The 2018 legislative session will begin Wednesday, May 16 at noon.
Table of Contents
Governor Cooper and the General Assembly reached a compromise during session for repealing House Bill 2, the controversial “bathroom” law that sparked tourism groups and businesses to boycott the state because they viewed the law as discriminating against the LGBTQ community. The repeal was included in a compromise bill that also grants the General Assembly authority to regulate multiple-occupancy bathrooms and prohibits local governments from changing local ordinances regulating private employment practices or public accommodations until 2020. The repeal occurred in time for North Carolina to be considered again as a host state for the NCAA and ACC championship basketball games. Also, the NBA announced Charlotte will host the 2019 NBA All Star Game. The 2017 All Star Game was moved from Charlotte to New Orleans because of HB2.
Brunch Bill and Other Changes to Alcohol Laws
Counties and cities throughout the state now have the option to move the time alcohol may be sold on Sundays from noon to as early as 10 a.m., thanks to a law enacted this session. Advocates of the law hope that it will stimulate economic development by bringing in greater revenue to restaurants, bars and other entertainment venues. Raleigh, Carrboro and Hendersonville were among the first cities to adopt early Sunday alcohol sales, and several other towns are planning to do likewise.
Other modifications to North Carolina alcohol laws made this session include changes to distillery permits and increasing the limit on liquor purchases by distillery visitors from one bottle to five. Several lawmakers pushed to incorporate a provision that would raise the self-distribution limit for craft breweries, but these sections were eventually dropped and the bill became law without raising the cap. In response, several craft breweries filed a lawsuit challenging the constitutionality of the state’s self-distribution cap.
Under a new law, nonprofit organizations are allowed greater freedom to raise money through raffles and games. An organization may hold up to four raffles annually with no quarterly limitation and may operate fundraisers in which games of chance are played and alcohol is served. Game nights must be permitted, and a $100 fee is required to obtain a permit. The bill would benefit non-profit organizations and the venues that host such events, such as restaurants and hotels. The bill passed both chambers during session, but the governor vetoed the bill citing concerns about video poker parlors. The legislature can choose to attempt to override the veto in future sessions.
Job Creation Incentive Program
A provision in the budget outlines the creation of an incentive program intended to draw businesses to North Carolina. The provision allows a company that invests $4 billion or more and creates at least 5,000 new jobs to receive a tax refund for up to 25 years, twice as much as current incentives. House Speaker Tim Moore suggested that this program was intended to attract companies that have the capacity to transform certain areas of the state through their extensive investments and the number of new jobs created in North Carolina.
Economic Development Incentive Awards
A bill that would exclude less prosperous counties (Tier 1 and 2 counties) from the $20 million limit on the total value of Job Development Investment Grants (JDIG) awarded in a calendar year is one vote away from passage in the legislature. The JDIG program is a performance-based, discretionary incentive program that provides cash grants to new and expanding companies to help offset the cost of capital investment and creating new jobs in the state. The amount of the grant is based on a percentage of the personal income tax withholdings associated with the new jobs. Senate Bill 223, Exclude Tiers 1 & 2 From JDIG Cap, passed the House and can be passed by one vote by the Senate, a vote to concur in the House version of the bill.
The state budget includes an aggregate 10 percent raise in teacher salaries over the next two years and more than $35 million for pay increases for principals. While proponents tout the teacher pay raises as one of the budget’s major selling points, its critics, including Governor Cooper, believe the increase does not go far enough and the teacher bonuses included in the budget fail to encourage teacher retention.
The state budget includes more than $27 million over two years to add 3,525 new Pre-K slots, eliminating 75 percent of the waitlist for at-risk children, yet falls short of Governor Cooper’s call to eliminate the entire waitlist for Pre-K students.
A much debated bill that changes the way that career-switchers can enter the teaching profession passed out of the General Assembly and awaits action by the governor. The bill establishes a new residency model to replace the old lateral entry model, authorizes entities meeting certain criteria to become educator preparation programs, changes the GPA requirement for licensure, and makes other modifications. Some lawmakers were wary of the move to allow any approved entity to become a preparation program, arguing that the colleges and universities that currently run such programs have thoroughly studied the issue and are the best to educate future teachers. Others took issue with the GPA change, saying that a 2.7 GPA requirement may be too high, as individuals who are switching careers may have lower GPAs from a more rigorous major. The final version of the bill created an exception to the GPA requirement for students with at least 10 years of relevant experience.
Community College Funding
The state budget allocates funds to a number of areas related to community colleges. The system will receive $10 million in additional compensation for community college employees and additional assistance for workforce training programs.
The state budget includes a number of funding changes to the UNC system. $18 million in new funding is allocated for medical education, including increases to the UNC School of Medicine and its Asheville campus. Additionally, the budget allocates $2.5 million yearly to North Carolina A&T to support doctoral programs and another $1.4 million to the Cheatham-White Scholarship Program, which will provide up to 20 scholarships at N.C. A&T. The budget also provides additional funding to help financially stabilize Elizabeth City State University.
Judicial candidates are now required to include their political affiliation on the ballot when seeking election. House Bill 100, Restore Partisan Elections/Sup. & Dist. Court, was the first bill Governor Cooper vetoed and the first bill the General Assembly voted to override. Proponents of the bill say the requirement gives elections more transparency, while the governor and other opponents claim judges should be elected based on experience and ability, not political party.
State Elections & Ethics Board
The legislature changed the composition of the newly formed State Board of Elections and Ethics Enforcement early in the 2017 session to require the governor’s eight appointments to be evenly split between Republicans and Democrats. The General Assembly voted to override Governor Cooper’s veto of the bill.
Governor Cooper is seeking legal recourse to block implementation of the law. The governor’s legal challenge was appealed to the N.C. Supreme Court after being rejected by a three-judge Superior Court panel and the N.C. Court of Appeals. Governor Cooper stated the board will remain vacant until the Supreme Court makes a decision on the case.
The House and Senate compromised late on the last day of session to pass House Bill 589, Competitive Energy Solutions for NC, a bill that transforms energy policy in North Carolina. The bill changes the state’s rules for solar development and includes an 18-month moratorium on wind energy development. Provisions include the creation of a competitive bidding process for solar developers that will help lower consumer costs and a new solar leasing program that allows customers to work with private parties in leasing solar facilities. A strong bipartisan majority in the House strongly backed the original bill, which only included the solar provisions, but the Senate refused to allow the bill to pass without a moratorium on wind energy development, arguing that such projects may put state military facilities at risk. The bill is on the governor’s desk for him to sign, veto or allow it to become law without his signature.
Environmental Laws Changes
A number of bills entitled “Amend Environmental Laws” were introduced during the legislative session. House Bill 56, for example, amends a number of environmental laws including land-use restrictions for property contaminated by petroleum discharge, wastewater discharges reporting, and water quality testing along the Catawba River. Additionally, the bill repeals a ban on the use of plastic bags in stores in a number of areas along the Outer Banks. Critics of the ban argued that it hurts businesses and has failed to reduce the number of plastic bags that are left on the beach. The House failed to concur with the Senate’s version of the bill and it was sent to conference committee, where legislators from both chambers will attempt to reach a compromise before the legislative sessions in August or September.
Governor Cooper vetoed a bill that would permit disposal of leachate through aerosolization. The bill authorizes the Department of Environmental Quality to allow the disposal of landfill wastewater and any leaking fluids by spraying it into the air by way of aerosolization, a process that separates the water from the harmful chemicals in leachate and then sprays it over the landfill area, leaving a more compact version of the leachate behind. The governor vetoed the bill in June and the General Assembly will have the opportunity to override the veto in its August session.
Efforts to combat the state’s growing opioid epidemic was one of the rare instances that garnered bipartisan support from Governor Cooper, Attorney General Josh Stein and the General Assembly. The governor signed House Bill 243, Strengthen Opioid Misuse Prevention (STOP) Act, into law on June 29. The STOP Act strengthens oversight and tightens supervision on opioid prescriptions; institutes a five-day limit on initial prescriptions for acute pain, with exemptions for chronic pain, cancer care, palliative care, hospice care, or medication-assisted treatment for substance use disorders; increases access to a drug used to counteract opioid overdose; and allows local governments to support needle exchange programs. The state budget also includes $10 million for opioid and substance abuse treatment statewide.
In May, Gov. Cooper was appointed to serve on the Commission on Combating Drug Addiction and the Opioid Crisis by President Donald Trump. President Trump established the Commission by Executive Order to study ways to combat and treat drug abuse, addiction, and the opioid crisis throughout the country.
The state budget allocates $75 million to grow the Medicaid Transformation Reserve in preparation for the transition to Medicaid reform. The General Assembly passed a Medicaid reform law in 2015, which calls for most Medicaid services to be delivered using a managed care system instead of the current fee-for-service. The Senate included a number of proposed changes to the 2015 Medicaid reform law in House Bill 403. These changes include a faster integration of behavioral health and Medicare dual eligible patients into the new medical managed care plans. The House did not concur with the Senate’s changes to HB 403 and the two chambers appointed a conference committee to find a compromise. If such a compromise is reached, the bill will be eligible for consideration in the August or September sessions of the legislature.
Raise the Age
North Carolina will be the last state to “Raise the Age” for juveniles that are automatically prosecuted as adults in the criminal justice system. A provision in the state budget raises the juvenile jurisdiction age from 16 to 18 for teens accused of misdemeanors and low-level felonies such as larcenies, break-ins and other non-violent crimes effective December 1, 2019. Until this year, North Carolina and New York were the only states in the country that automatically tries 16 and 17 year olds as adults in the judicial system. New York passed its own Raise the Age bill in April.
Rainy Day Fund
House Bill 7, LRC/Strengthen Savings Reserve, was the second bill to become law this session and requires the General Assembly to transfer 15% of each fiscal year’s estimated growth in State tax revenues to the Savings Reserve, or rainy day fund. Governor Cooper signed the bill into law despite warning the bill “could ultimately hurt efforts to give tax breaks to middle class families and to invest in schools and economic development” when combined with other bills.
The new 2017-2018 state budget allocates $363 million to North Carolina’s rainy day fund and will bring its total to $1.838 billion, or 8.2 percent of last year’s budget, which is the largest dollar amount and percentage in state history. The fund is intended for unanticipated events and circumstances including natural disasters; economic downturns; threats to public safety, health and welfare; and other emergencies.
Salaries and Benefits
The state budget provides a $1,000 salary increase to state employees and a one percent cost-of-living adjustment to retirees. It also offers experience-based step increases to teachers, State Highway Patrol troopers, clerks and magistrates, and provides $10 million toward hard-to-hire positions across state government.
The most widely discussed tax changes passed during the session included reductions in the corporate and personal income tax rates and an increase in the standard deduction, all to take effect in 2019. In addition, the mill machinery tax has been repealed effective July 1, 2018.
A number of other widely discussed proposals were not enacted. Most notably, the General Assembly did not enact the provision included in the Senate budget bill that would have adopted market-based sourcing for apportioning receipts from services and intangibles by multi-state corporations. Multi-state taxpayers will continue to use the income-producing activities method of sourcing service receipts.
Senate Bill 628, Various Changes to the Revenue Laws, an omnibus tax bill that makes numerous technical and other changes, was sent to a conference committee, but was not reported out before the session ended. It is expected the bill will be taken up when the General Assembly reconvenes in either August or September. Among the bill’s provisions are:
- numerous clarifications to the sales taxation of repair, maintenance and installation services;
- a limited restoration of the franchise tax deduction for real property indebtedness in computing the total actual investment in tangible property tax base;
- a change to the corporate income tax net interest expense deduction limitation;
- various changes to the taxation of captive insurance companies; and
- changes to the procedures for the Departmental review of proposed assessments and proposed refund request denials aimed at reducing the number of taxpayer conferences.
Personal Income Tax Changes
The personal income tax rate has been reduced from 5.499% to 5.25% for taxable years beginning on or after January 1, 2019.
Increase in Standard Deduction
The standard deduction has been increased from $17,500 to $20,000 for joint filers, from $14,000 to $15,000 for heads of households, and from $8,750 to $10,000 for single filers and married taxpayers filing separately, effective for taxable years beginning on or after January 1, 2019.
Conversion of Child Care Tax Credit
The child care tax credit has been repealed and replaced with a deduction for child care expenses, effective for taxable years beginning on or after January 1, 2018. The deduction starts at $2,500 and is reduced to $2,000 for joint filers with over $40,000 in AGI, to $1,500 for joint filers with over $60,000 in AGI, to $1,000 for joint filers with over $80,000 in AGI, to $500 for joint filers with over $100,000 in AGI and to zero for joint filers with over $120,000 in AGI. Similar phase outs are provided for other types of filers.
Corporate Income and Franchise Tax Changes
In 2015, the General Assembly reduced the corporate income tax rate from 5% to 4% and provided for a further decrease to 3% if a General Fund revenue target was met. That rate reduction trigger was met, and the rate dropped to 3% in 2017. The corporate income tax rate is further reduced to 2.5% for taxable years beginning on or after January 1, 2019.
Beginning on or after Jan. 1, 2019, the corporate income tax rate will be reduced to 2.5% from 3%.
More information about the tax legislation enacted during the Regular Session can be found here.
5G Wireless Service
The General Assembly passed legislation that will make it easier for telecommunications companies to provide 5th Generation, or 5G, wireless service in North Carolina. Unlike 4G signals that are transmitted and received by big cellular towers, 5G requires the installation of smaller transmitters in closer proximity to each other. House Bill 310, Wireless Communications Infrastructure Siting, will streamline the development of 5G technology while allowing cities to co-locate 5G transmitters on utility poles in public-rights-of-way and assess fees to the wireless provider for the collocation. Supporters of this legislation believe it will encourage wireless telecommunication companies to deploy capital to North Carolina to build 5G infrastructure ahead of other states. This creates an economic development advantage for North Carolina and also creates thousands of jobs. The bill was sent to the governor’s desk on June 29.
In addition to the bills that will be eligible for consideration during the August and September sessions, the following bills will be eligible in the 2018 legislative session:
(1) Bills directly and primarily affecting the State budget, including the budget of an occupational licensing board for fiscal year 2018‑2019.
a. Proposing an amendment or amendments to the North Carolina Constitution and containing no other matter.
b. Proposing an amendment or amendments to the North Carolina Constitution and containing no other matter other than statutory conforming changes to implement such bills.
c. Solely making statutory and transitional changes to implement bills under sub‑subdivision a. of this subdivision.
(3) Bills and resolutions introduced in 2017 that passed one chamber before “crossover.”
(4) Bills and resolutions implementing the recommendations of:
a. Study commissions, authorities, and statutory commissions authorized or directed to report to the 2018 Regular Session.
b. The General Statutes Commission, the Courts Commission, or any commission created under Chapter 120 of the General Statutes that is authorized or directed to report to the General Assembly.
c. The House Ethics Committee.
d. Select committees.
e. The Joint Legislative Ethics Committee or its Advisory Subcommittee.
(5) Any local bill that has been submitted to the Bill Drafting Division of the Legislative Services Office by 4:00 P.M. Thursday, May 24, 2018, is introduced in the House of Representatives or filed for introduction in the Senate by 4:00 P.M. Thursday, June 7, 2018, and is accompanied by a certificate signed by the principal sponsor stating that (i) no public hearing will be required or asked for by a member on the bill, (ii) the bill is noncontroversial, and (iii) the bill is approved for introduction by each member of the House of Representatives and the Senate whose district includes the area to which the bill applies.
(6) Bills providing for the selection, appointment, or confirmation as required by law, including the filling of vacancies of positions for which the appointees were elected by the General Assembly upon recommendation of the Speaker of the House of Representatives, President of the Senate, or President Pro Tempore of the Senate.
(7) Bills providing for action on gubernatorial nominations or appointments.
(8) Any matter authorized by joint resolution passed by a two‑thirds majority of the members of the House of Representatives present and voting and by a two‑thirds majority of the members of the Senate present and voting. A bill or resolution filed in either house under the provisions of this subdivision shall have a copy of the ratified enabling resolution attached to the jacket before filing for introduction in the Senate or introduction in the House of Representatives.
(9) A joint resolution authorizing the introduction of a bill pursuant to subdivision (8) of this section.
(10) Any bills primarily affecting any State or local pension or retirement system.
(11) Joint resolutions and simple resolutions authorized for introduction under Senate Rule 40 or House Rule 31.
(12) Bills returned by the Governor with objections under Section 22 of Article II of the North Carolina Constitution, but solely for the purpose of considering overriding of the veto upon reconsideration of the bill.
(13) Bills responding to actions related to litigation concerning the districts for Congressional, State House, State Senate, judicial, municipal, county, and other elected officials' actions and any other litigation challenging the legality of legislative enactments.
(14) Any bills relating to election laws.
(15) Bills to disapprove rules under G.S. 150B‑21.3.
(16) Bills providing for impeachment pursuant to Article IV of the North Carolina Constitution or Chapter 123 of the General Statutes.
Special thanks to Joshua Grant, Elizabeth Hatter, Rachel Nixon and Kara Weishaar.