Archive for June, 2015

N.C. LEGISLATORS PREPARE FOR LONG SUMMER

Unless there is a big surprise, it is likely that weeks of debates, compromises, and maybe a game of chicken, are ahead before the state has a spending and revenue plan for 2015-16. The concept sent to the House by the Senate this week was dramatically different from the vision from the House…and the governor.

Philosophical differences from within the Republican caucus making the process more complex. The conservative Civitas Institute largely funded by GOP patron Art Pope has weighed into the mix. Civitas is attacking the House plan as too expensive and prefers the Senate document. Gov. Pat McCrory is supporting the House plan which includes many of his priorities.

WHERE WE ARE NOW

Both the House and Senate loudly rejoiced at the $400 million budget surplus. The House viewed the surplus as a way to make up ground for cuts that were necessary in the recent recession. But the Senate said more of the surplus should go to the rainy day fund, as well as be used as an opportunity to lower corporate taxes.

REVNUE—WHO WINS, WHO LOSES

The House budget imposes a number of new fees, most notably in the Division of Motor Vehicles. There would be higher charges for renewing driver’s licenses and inspections. Some court fees are hiked. The gasoline sales tax would be increased after an adjustment period of one year.

No major adjustments are made to income or sales taxes.

Not so with the Senate plan. In three years, local governments would lose 80 percent of their sales tax revenue. Counties would retain 20 percent of sales collections with the 80 percent going back to the state for redistribution on a per capita basis. This would provide a windfall for rural counties without a major retail center. The Senate would require this new money be spent on education. Counties that have a major retail presence would lose millions of dollars. A late provision in the Senate budget would give those counties losing money the option to adopt up to a half cent more in sales taxes which they could keep. However public referendums would be required in quarter-cent increments.

Additionally, the Senate plan would expand sales taxes to veterinary services, pet care, car repairs, and other services. Mill machinery taxes would go up from $80 to $500 per machine. Large non-profits, including hospitals, would pay more sales taxes. Personal deductions—medical, charity, church, etc. – would be capped at $20,000 for couples filing jointly.

EDUCATION HIGHLIGHTS:

While both chambers have left funds for the Manufacturing Solutions Center and the Textile Technology Center intact, we are now entering the dangerous territory. Budget negotiations involve tradeoffs and cuts. We have long laborious weeks ahead.

TEXTILES EXPANSION

Carolina Nonwovens, a subsidiary of National Spinning Co. in Washington NC, has announced expansion of its operations in Maiden NC. The plant in Catawba County makes nonwoven fabrics of various thicknesses used to replace foam in outdoor cushions and bedding, noise-dampening insulation in automobiles and numerous other industrial applications.

Carolina Nonwovens said it will invest $12.2 million in capital improvements and add 35 persons to its workforce. The company qualifies for incentives from the One North Carolina Fund and also will receive local incentives.

STATE BUDGET HEADED TO CONFERENCE

The North Carolina Senate voted along partisan lines to approve its version of a $24 billion biennial budget which differs significantly from the plan initiated by the House. A long, hot summer seems to be ahead for the General Assembly.

Senators want North Carolina to put more teachers in the classrooms with fewer students in grades 1-3 and kindergarten. But there would be fewer teacher assistants. Teachers would get salary increases, as would most state employees, some getting “market-based” pay hikes. Community colleges got a $5 million boost, most for salary hikes for instructors. Other Senate priorities include $800 million to boost the Rainy Day Fund to $1.2 billion and an end to transfers to the General Fund from the highway trust fund.

The Senate revenue proposal for the budget will also be a challenge to House conferees. By 2018 counties will surrender 80 percent of their sales taxes to the state and for distribution to other counties on a per capita basis. The money from redistribution can only be used for public education and community colleges. The Senate then would authorize those counties losing revenue to increase the local sales tax in quarter-cent increments. A separate election must be held for each quarter-cent.

Other highlights: the single-sales formula for manufacturers to calculate corporate taxes would be phased in over three years; personal income tax deductions would be capped at $20,000, including medical expenses, church pledges, contributions to non-profits, and arts organizations. Hospitals would lose sales tax exemptions and the sales tax would be extended to many services including home repairs, yard maintenance, advertising and veterinarians. More fees would be assessed to motor vehicle owners in both the House and Senate versions.

WHEN?

Few legislators predict a budget will be adopted by July 1, the start of the fiscal year. There will be a lot of trading over line items as House and Senate conferees face off. Nothing will be “safe.”

August 1 is a forecast from veteran lawmakers who have seen this play before.

A TALE OF TWO LEGISLATURES

In recent days it seems as if North Carolina has two legislatures in session. One is consumed with social legislation: gay marriage and magistrates, a strong anti-abortion law, immigration. The other is tackling differing philosophies dealing with revenues and expenditures in a state budget. The Senate has designated the budget writing to top leaders. Appropriations subcommittees will have little, if any, input. With the Senate already sending out word that it wants a plan significantly different from that crafted in the House, the budget faces a long road ahead. (Appropriations for the Manufacturing Solutions Center and the Textile Technology Center are included in the House version.)

THE PASSWORD IS ‘TRANSPORTATION’

Gov. Pat McCrory wants a multi-billion dollar bond referendum to upgrade the state’s infrastructure. The House and Senate have been cool to the idea, instead working on a budget that weans the General Fund from highway tax revenue. The House budget proposal includes over $300 million in new fees and taxes to make the Department of Transportation self-supporting with revenue to underwrite highway projects across the state. Some legislators are wondering if the governor will veto a budget that does not include a bonds package.

A conflict between the governor and the GOP-dominated General Assembly could create a tough climate for the 2016 elections.

SINGLE FACTOR CORPORATE TAX

The House budget did not include a provision that would have manufacturers calculate their corporate taxes on sales alone. Currently, calculations are based on payroll, value of assets AND sales. Expect the Senate to insist on the single-sales tax provision. Recently a House member who is working with his local community to retain a national corporate headquarters was told the single-sales factor is going to be a major factor. South Carolina has attracted a number of North Carolina corporations with the single-sales calculations

Senate President Pro Tem Phil Berger is an advocate for the change along with others senators including Sen. Andy Wells, a Hickory businessman. If the Senate follows through with the change, it is expected the House will follow.

AS THE WORLD TURNS

“The Lord helps those who help themselves.” How many times have we heard this? But this wisdom is tied to the manufacturing renaissance for hosiery, textiles, and related industries. A survey of companies that are reporting a slow, steady growth in sales insist a lot of hard work and tactical thinking are involved. Our centers are prepared to help mills with some heavy lifting in development of new products and documentation of results. The world market is changing and U.S. mills can capitalize on the trends. If…

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