The House and Senate finally rolled out a compromise budget on Monday night. The 429 page document details spending plans for all state agencies and includes a number of policy changes affecting industries across North Carolina. Here’s a brief look at what we’ve been able to identify so far that affects the design and construction industry:
Historic Preservation Tax Credits– The compromise agreement puts back inplace a modified historic tax credit that originally was introduced in the House’s version of the budget.
Renewable Energy Tax Credits– After an intense amount of lobbying on this issue, both chambers agreed to let the renewable energy tax credits expire at the end of this year. Earlier in the session a bill was passed and signed by the Governor that allows for safe harbor for projects already in the pipeline, but after 2015 no new projects will be able to use these tax credits.
Sales Tax Expansion– There are new provisions written into the tax code that will apply sales tax to services where the service provider is already charging sales tax on a product. Auto repair is a good example where you pay tax for replacement parts, you’ll now pay tax on the service too. One big exemption written into the bill is for real property contractors. Part of the expansion includes a redistribution plan to send the bulk of the new money collected on service taxes to rural counties.
Bond Financing– The budget is carrying enough debt service to accommodate a $2 billion construction bond. HB 943is the measure still to be voted on that will officially send the bonds to a public referendum some time next year, but at least the financing piece of the construction plan is in place. Over the next couple of weeks we will learn more about the details of the Connect NC Bonds.
Repair & Renovation– If the Connect NC Bonds pass then the budget only calls for $150 million to be put into state building R&R. If the Bonds do not pass then the budget calls for $400 million.
Transportation Funding– The compromise sends all of the Highway Trust Fund money that was being used for other budget priorities back to true transportation construction funding. This is a gain of almost $216 million a year.
Stock Building Plans– The Senate version of the budget had contained a provision that required State Construction to use standardized building plans for new facility construction. The compromise has removed that provision.
LEED Elimination– The Senate version of the budget had a prohibition on a new state construction projects using planning funds to seek LEED certification. The compromise budget has removed this prohibition.
Redundant Capital Oversight – The Senate version of the budget had created another level of bureaucracy in plan approval for state building construction known as the Responsible Capital Planning Commission. The compromise budget has removed this commission.
Light Rail Funding– A new policy provision will prohibit the state from contributing more than $500,000 in funding for light rail transit projects. This could effectively kill a light rail project proposed for Durham and Orange Counties.
Directly Appropriated Projects:
- Dorton Arena Roof Replacement – $2.3 Mil
- USS North Carolina Hull Repair & Cofferdam – $3.5 Mil
- Water Resources Development – $5 Mil
- Armory & Facility Development Projects – $868,000
- School of Science & Math Building Repairs + Tech – $4 Mil
- NCSU Engineering Building Advance Planning – $1 Mil
- Study of Low Wealth County School Construction Needs – $100,000
- Jones County Collocated Middle & High School – $11 Mil
- Downtown Revitalization Grants Divided Equally Between These Cities – $1.25 Mil
- Burlington
- Dunn
- Hendersonville
- Kings Mountain
- Lincolnton
- Morganton
- Reidsville
- Rocky Mount
- Shelby
- Wilson
- Pembroke
- Rutherfordton
- Smithfield
Future Debt Service for Construction– We are still trying to determine what these numbers mean but it appears that the Legislature is using it’s debt capacity for other budget priorities. Traditionally the General Assembly holds a debt service line item at 4% of the annual budget. This is primarily to fund state construction projects. Since 2000 when the state last passed a major bond, $3.1 billion for UNC and Community College construction, that debt service has been mostly retired by now, meaning that there’s a significant amount of available debt service for new construction. In fact, the state is operating at about 1.3% in debt service. The compromise budget is showing an elimination of over $43 million in debt service in 2016-2017 effectively lowering the state’s debt service capacity well below the 4% level. This seems to send a message that once the NC Connect Bonds are negotiated and passed, the General Assembly has very little intention of revisiting capital construction anytime soon.