Agenda - 09-20-2007-2c - Laserfiche WebLink

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The North Carolina League of Municipalities Page2ofl6 After adjournment of the General Assembly session, however, the Governor has 30 days from the date of adjournment to veto ratified legislation, sign it into law, or allow it to become law without his signature. Note that most local bills are not presented to the Governor for approval and become law upon ratification by the General Assembly. 2007 Budget Overview After many weeks of negotiation, the General Assembly passed the state budget on July 30, and Governor Easley 'signed it into law on July 31. HB I473 - 2007Appropriations Act (SL 2007 323) approves a $20.7 billion budget for the FY 2007-09 biennium. The big news in the budget, of course, was the Medicaid relief package and "sales tax swap" that was used to accomplish it. With passage of the state budget, the General Assembly adopted aphased-in take over of the county share of Medicaid expenses. As the state assumes county Medicaid expenses, it will, in turn, take over a portion of the local option sales tax revenues. The last one-half cent local option sales tax-Article 44-is the affected tax. The state will take over one- half of this tax (that is, one:quarter cent) effective October 1, 2008 and take over the remaining one- quarter cent effective October 1, 2009. Municipalities currently receive a share of the proceeds from the Article 44 sales tax and will be reimbursed for the loss of those revenues. The method of replacement includes a growth factor. The first one-quarter cent lost will be replaced by a payment equal to one-half of what each municipality receives from the Article 401ocal sales tax. The Article 40 tax is a one-half cent tax distributed back to the county level on a per capita basis, so the first hold harmless, which begins October 1, 2008, is equal to half of this one-half cent - in other words, aquarter-cent, just like what is being taken away. Since there is growth in the Article 40 tax proceeds, there will be growth in the hold harmless payments. Effective October 1, 2009, municipalities will receive a second hold harmless payment equal to one- quarter of the one-cent Article 39 local sales tax. This is a tax distributed back to the county area on point of delivery, just like the tax being taken over by the state. Again, the hold harmless payment is tied to the amount received from an existing revenue source so any growth will be included. The money for the hold harmless payments to cities comes from the counties' share of sales tax revenues. The NC Department of Revenue will make both hold ham~less payments directly to cities, and there is no expiration date on this hold harmless. In a related measure, the state budget changed the Article 42 local option sales tax from per capita to point of delivery distribution, which will affect the total amount of tax proceeds returned to each county area for distribution among the county and the municipalities in that county. [This change does not affect the method that counties choose to distribute tax proceeds among the county and its municipalities -either per capita or ad valorem.] All of these changes were adopted in the final days of the session, and we are still working with the staff of the General Assembly on detailed information about implementation. Section 14.4 of HB 7I4 - 2007 Budget Tec[mica[ Corrections Act (SL 2007-345) parkially corrects an error in the budget bill concerning the calculation of the municipal hold harmless amount for the impact of the change in distribution of the Article 42 local sales tax from a per capita basis to point of delivery. ~ We are working with General Assembly staff on a further technical correction for the short session that will fully hold cities and towns harmless. The General Assembly also gave counties authority to levy either a new one-quarter cent sales tax or a 0.4 percent land transfer tax, subject to voter approval. Discussions mentioned using the new tax to pay for school construction, but use of the proceeds is not restricted. The General Assembly did not require counties to share proceeds of the new tax with municipalities, despite significant and growing municipal infrastructure needs, including roads, stormwater, water and sewer and others. Although we are disappointed that our efforts to obtain a municipal share of the new revenue sources were not successful, we express our appreciation to House Speaker Joe Hackney, Reps. Bill Owens, Paul Luebke, Lucy Allen, Beverly Earle and Deborah Ross, and Sen. Dan Clodfelter for trying to help us secure a designated share for municipalities. We also appreciate Sen. Tony Rand and the other Senate and House leaders for protecting our growth in the sales tax hold harmless. Other items of interest in the budget bill are mentioned under subject categories below. http://www.nclm.orglLegaUBulletin/2007/08-24-07.htm 8/28/2007