The state budget that Governor McCrory signed into law last week is as notable for what it does NOT include as for what it does.
After weeks of speculation over provisions dealing with sales tax redistribution, economic development incentives and regulatory reform, the final product that finally emerged from a House-Senate conference committee is a surprisingly balanced spending plan with a number of big wins for Charlotte’s business and real estate communities. Here are some of the highlights:
Sales Tax Redistribution: After business leaders and elected officials in North Carolina’s urban and coastal counties cried foul at a Senate proposal to redistribute to rural communities a significantly larger percentage of locally collected sales taxes, House leaders stood firm and ensured the provision didn’t make it into the final budget. The original language, which would have cost Mecklenburg County more than $50 million a year in lost sales tax revenue, was later amended to a proposal that still would have cut the county’s tax digest by as much as $12 million annually. The language in the adopted budget leaves the sales tax formula where it is, with 75 percent of revenue remaining in the county where it’s collected.
Sales Tax Base Expansion: The budget contains new sales taxes on automotive repair, as well as on labor on repair, maintenance and installation services with respect to tangible personal property (although there is a specific exclusion for “tangible personal property installed or applied by a real property contractor pursuant to a real property contract). But earlier proposals to tax veterinary, pet boarding and general advertising services have been eliminated. To help those counties that were the focus of the Senate redistribution proposal, ALL these new taxes from Mecklenburg, Wake and other metro counties will go into an $85 million fund for school construction and economic development projects in rural communities. So while Mecklenburg’s existing sales tax base won’t be diluted, local taxpayers will pay more to support their fellow North Carolinians in less-prosperous regions of the state.
Job Development and Infrastructure Grants (JDIG) received over $63 million in funding, and proposed caps for urban counties like Mecklenburg and Wake have been removed.
Beginning in 2017, the Personal Income Tax rate will decrease to 5.499 percent.
No change to the current Mortgage Interest and Property Tax deductions.
Restoration of both the residential and income producing Historic Preservation Tax Credits. The program’s sunset is now 2020.
The Housing Trust Fund retains its annual funding allocation of approximately $10 million.
The Workforce Housing Loan Program (formerly known as the Low-Income Tax Credit Program) receives $12.5 million in funding in 2015-6 and $15 million in 2016-7.
For this fiscal year (FY15-16), the budget provides $1M in recurring funding for the Economic Development Partnership NC tourism promotion over the current funding level. In the next fiscal year (FY16-17), there is an additional $2M recurring funding for tourism promotion over the current funding level.
$3 million for the OneNC Small Business Fund.
$2.5 million for Rural Economic Development Grants.
$30 million for the Film grant program.
A couple of notable policy items NOT included in the budget:
The Senate proposal to eliminate the NC Sedimentation Control Commission and transfer its duties to the Environmental Management Commission — although the budget DOES contain significant reductions in the fines applicable to sedimentation violations, as supported by the North Carolina Home Builders Association (NCHBA);
The proposed phase out/elimination of the DENR Division of Mitigation Services, which accepts fees from governmental and nongovernmental entities in lieu of mitigation for stream, wetland, riparian buffer, and nutrient impacts in the various river basins across the state.
One notable program regrettably eliminated from the budget was the Non-commercial Underground Storage Tank Fund. The North Carolina Association of REALTORS® (NCAR) advocated for retention of the program, which was established to reimburse property owners for costs incurred during the cleanup of soil and groundwater contamination resulting from the release of petroleum from an underground storage tank.
The backlog of claims identified and in the system with the Department of Environment and Natural Resources (DENR) through October 1 of this year will be paid. After that, the fund will no longer be available. The standard under which tank removal and remediation will be changed. NCAR is concerned that the elimination of this fund will have a disastrous impact on the real estate market, with profound negative effects on the marketability and insurability of properties where a release has occurred. NCAR is also concerned about financing and title issues which could halt sales.
REBIC is grateful to House and Senate leaders for supporting a budget compromise that includes a sensible sales tax policy, critical economic development tools, and funding for much-needed grant programs that promote affordable housing and job creation.
Sources: NCAR and NCHBA