(6-18-2015)The Senate passed its proposed 2015-16 state budget on Thursday morning and the gulf between the upper chamber and the House in terms of each approach to funding infrastructure and tax policy couldn’t be more dramatic.
Infrastructure
The biggest difference, that is surely to become a major negotiating point when the two chamber leaders meet to work out their differences in conference committee, is the concept of funding two major state building programs; one for transportation and the other for state buildings.
While none of the Governor’s Connect NC program is explicitly identified in either budget, the House made provisions in it’s version to carry enough re-occurring debt to fund at least $1 billion in long-term bonds. In addition, House leaders included $270 million worth of prescribed projects to be funded without general obligation bonds under a financing mechanism known as two-thirds bonds.
Over in the Senate, leaders created a restructuring of the Highway Trust Fund so that over $250 million a year would be diverted directly to transportation construction rather than other uses that have been siphoning off this money for years. This shift actually creates a consistent amount of annual transportation construction money, as the Trust Fund was originally intended to produce when it was established.
With regard to state building capital spending, the Senate chose to ignore the Governor’s call for a long-term bond program for new construction. However, the upper chamber did put an additional $100 million over the House into the state’s Repair & Renovation set aside fund.
Construction Oversight
Both budgets would create the Joint Legislative Oversight Committee on Capital Improvements. With this new provision, clearly the General Assembly wants to have more of a say in what, and how, state building projects get funding. The new committee will be comprised of 8 House and 8 Senate members and calls for a 6-yeat capital plan.
The Senate plan, which was brought over from SB 556, is to take the oversight an additional step further by creating yet another bureaucratic hurdle to get state capital construction projects off the ground. Their proposal calls for a “Responsible Capital Planning Commission” that would be in charge of approving capital improvement planning funds. The seven member commission, mostly comprised of state agency capital project coordinators, would be required to authorize funds through the schematic design phase using a prescribed list of requirements, some of which are included below:
- The project, or components of the project, will be planned using a standard, reusable design as determined by the Department of Administration.
- The project will minimize the inclusion of design elements that are not related to the core function of the project.
- The estimated total cost of the project is lower than the total cost of similar facilities or otherwise meets the need of the State agency at the lowest possible cost to taxpayers.
- The project will incorporate design elements that have yielded documented operating cost savings in similar facilities.
- The requesting agency’s total repairs and renovations needs are not excessive.
- The amount of planning funds allocated for the project does not exceed four percent (4%) of the estimated total cost to complete the project.
- The request for the project is accompanied by an estimate of the operating costs for the completed facility for the first five and 10 years of its operation.
- The requesting agency agrees not to spend any of the funds allocated to it from the Capital Improvement Planning Fund to seek LEED® Certification from the U.S. Green Building Council.
Tax Policy
Perhaps the biggest battleground over the budget debate in the next few weeks will come over tax policy direction for the state. The gulf between the two bodies here is massive. We’ve highlighted the major list of difference as they pertain to the design and construction industry below:
Historic Preservation Tax Credit– Early in the legislative session the House squarely planted its flag on the side of bringing back some meaningful form of the Historic Tax Credits by both passing a stand alone bill and putting it in its version of the budget. The Senate has completely ignored the issue by removing it from their version of the budget and refusing to take up the stand alone bill.
Renewable Energy Tax Credit– Just as with the the Historic Tax Credits the House supported a two-year extension of the renewable energy tax credits and sent it over to the Senate for their adoption. Again, the Senate chose to remove it from its version of the budget.
Sales Tax Redistribution– The battle between rural and urban North Carolina rages in the Senate version of the budget as the upper body seems intent on facilitating local government wealth redistribution from sales tax. The largest of the state’s counties stand to loose hundreds of millions of dollars over a 6 year phase in period with rural counties being the beneficiaries.
Lowering Personal and Corporate Income Tax– Tax reform version 2.0 makes its debut in the Senate budget as the Finance Committee Chair, Bob Rucho (R-Mecklenburg), continues to steadily wind down corporate and personal income tax rates on his way to his the ultimate goal of 0. 2016 rates would fall by another 1/4% for personal income tax and 2% for corporate income tax.
Adding New Service Taxes– To account for the loss in income taxes a few new services will be added for tax collection. Automotive repair, veterinary services and advertising services will be tasked with collecting new services taxes.
We’ve prepared a spreadsheet highlighting some of the budget difference for the design & construction industry between the House and Senate versions. Click here to access it.
The budget now goes back to the House where they will not concur with the Senate changes, setting the stage for a conference committee to iron out the differences between the chambers. It’s looking like this might be one of those years where the Legislature won’t meet the June 30 deadline for completion of the spending plan.