Municipal Update

Karl KnappDirector of Research and Policy Analysis

Municipal Update

2012 Session Recap

2012 Election

League Activities and Upcoming Issues

Local Revenue Status

FY 12-13 Municipal Budget Actions

2012 Session Recap

2012 Session Recap

Annexation and Municipal Authority

State Budget

Contingency Fee Contract Limitation

Fracking

Jordan Lake Rules

Municipal Power Revenue

2012 Election

Governor-Elect McCrory

“We need a mayor’s attitude in the Governor’s office right now … I promise to work with you … I guarantee it, if I’m going to be successful as Governor, it’s going to be because of a team effort working with you, Republicans, Democrats, small towns, mid-sized towns, and large cities alike.”

2013-14 General Assembly

House Senate0%

20%

40%

60%

80%

100%

DemRep

Senate Member Experience

Current 20130%

20%

40%

60%

80%

100%

More than 1 Term 1 Term New

House Member Experience

Current 20130%

20%

40%

60%

80%

100%

More than 1 Term 1 Term New

Current Issues and League Activities

State Budget Retirement System Underground Utilities Transportation Forum League Goals

State Revenues On Target The “Fiscal Cliff” Looms

Through October, the State has a 0.4 percent budget surplus of $26 million, based on a $6.6 billion target.

Of the major taxes, sales taxes are the weakest with baseline growth at 1.5%.

The looming federal budget showdown could lead to cuts in federal spending on Medicaid and education.

Funds for programs that support cities and towns, such as CDBG, HOME, DOJ Grants, and the Clean Water Revolving Loan Fund, also could be reduced. 

Tax exemption for municipal bond interest has not yet been on the table.

Local Government Retirement System (LGERS) Contribution Rate

09-10 10-11 11-12 12-13 13-14 Est (2011) 13-14 Est (Current)0.0%

2.0%

4.0%

6.0%

8.0%

4.80%

6.35%

6.88% 6.74%

7.17% 7.07%

Changes Coming to Retirement System Accounting

Impending changes in GASB requirements for pension accounting will reduce the funded ratio of LGERS from almost 99.8% to 90.0% based on projections by the state actuary. The changes will take effect for FY 2013-14

Each local government will be required to show their portion of the unfunded liability on their books in FY 2014-15.

This change may bolster those who claim that the system is a ticking time bomb and spur further calls for changes to the retirement system.

Underground Utilities

An legislative working group is developing legislation to modernize NC's 811 (Call Before You Dig") laws.

The group will recommend that all cities be required to participate in the 811 system, with associated dues.

The League prevented a requirement that all sewer lines must be mapped.

Environmental Issues

Mining and Energy Commission has begun meeting and is still debating how much stakeholder involvement it will seek.

The Environmental Management Commission has assumed oversight of DENR’s process for deciding which bodies of water are impaired, which should help limit local costs.

A comprehensive water study next year could address water supply, use of reclaimed water, and ecological flows.

L&S v. Piedmont Triad Regional Water Authority could affect cost of establishing new reservoirs.

Transportation

A combination of slowing gas tax revenues, higher construction costs, and a growing backlog of maintenance needs has NCDOT looking for ways to stretch State dollars for transportation.

Legislators have indicated that changes in responsibility for road construction and maintenance may be part of the solution.

To that end, over 100 municipal officials representing more than 50 cities and towns met in November to consider the future role of cities in the funding of roads. 

Municipal Responsibility For North Carolina’s Roads Is Growing

2010 Highway and Road Mileage Report, NCDOT; Powell Bill Allocations 2000-2010, NCDOT

Municipal State0

1,000

2,000

3,000

4,000

18.2%

1.4%

NC Road Mile Growth 2000-2010

State Support For Municipal Roads Is Not Keeping Pace With Inflation

Powell Bill Allocations 2000-2010, NCDOT; Bureau of Labor Statistics

0 1 2 3 4 5 6 7 8 9 10 11 12$0

$400

$800

$1,200

$1,600

$2,000

Powell Bill Allocation Per Street Mile

Actual Inflation-Adjusted (PPI)

Municipalities Are Spending More Local Money To Keep Pace

Annual Financial Information Reports, NC Treasurer

01 02 03 04 05 06 07 08 09 10 11$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

$400,000,000

$450,000,000

$500,000,000

Powell Bill Municipal Revenues

Options For New Sources Of Local Transportation Financing

Local Option Transportation Taxes

Local-Option Sales Taxes for Transportation Local Option Fuel Taxes Local Option Sales Taxes on Fuel Property, income, and payroll taxes earmarked for

transportation.

Vehicle Miles Traveled (VMT)

High Occupancy/Toll Lane Projects

Transportation Utility Fees (TUFs)

Borrowing – State Infrastructure Banks

League Goals Process

March – May Legislative Action Committees (LACs) and the Regulatory Action

Committee (RAC) met to identify impediments to municipal success, receive information about possible legislative solutions, and identify goals to implement those solutions.

June – August The League solicited member input about possible advocacy

goals.

September – October The LACs met to consider the proposals submitted by members

and those identified during the spring. The LACs proposed a total of 74 proposed legislative goals for consideration by the Board of Directors and the RAC proposed 14 regulatory goals.

League Goals Process

November The Board of Directors reduced the LAC list to 5o advocacy

goals and 7 regulatory goals for submission to the membership for consideration.

December –January League members review the proposed goals and city councils

may adopt resolutions to submit additional goals for consideration.

January 20 Executive Committee and LAC chairs review additional goals

and may approve some or all for consideration at the Advocacy Goals Conference.

January 24 Advocacy Goals Conference to debate and adopt 25 legislative

and 5 regulatory goals.

A full list of the proposed goals can be found with the Goals Conference materials on the League website at:

www.nclm.org/legislative-advocacy

Proposed League Goals - Transportation

Support legislation to reform the state and local transportation funding system by providing flexible local revenue options and additional authority for municipalities.

Seek legislation to increase the existing municipal vehicle fee for public transportation from $5 to a maximum of $20, and allow it to also be used for pedestrian and bicycle projects.

Proposed League Goals – Tax Reform

Seek legislation to modernize the local tax system by: 1) Giving municipalities the authority to levy a sales tax that

applies within their corporate limits and is solely a municipal revenue;

2) Expanding the sales tax base to include more services, provided that any accompanying change in the local sales tax rate includes a perpetual hold harmless provision for individual cities and towns;

3) Reducing the complexity and inequity of the privilege license tax while maintaining the tax as a locally controlled source of revenue that supports services to businesses and consumers;

4) Allowing all municipalities to adopt occupancy taxes that are available to fund municipal service and infrastructure costs in order to support travel and tourism;

5) Providing all municipalities with additional local option tax revenue sources;

6) Requiring a one-year delay in implementation when a county changes its method of distributing sales tax revenue.

Proposed League Goals – Other Revenues

Seek legislation to allow all municipalities to adopt impact fees to pay for growth-related infrastructure and services.

Seek legislation to tighten the property tax exemption for non-profit hospitals and link it to provision of well-defined community benefits.

Support legislation to ensure that assessed property values more accurately reflect market values between property revaluations.

Seek legislation to authorize municipalities to direct the Division of Motor Vehicles to block the registration of motor vehicles to which an unpaid municipal parking citation is attached.

Proposed League Goals – Hold Harmless

Seek the temporary extension of the transitional hold harmless payments to cities and towns for a period of time that will allow the local option sales tax revenue to grow to the point where the loss of the promised payment can be absorbed by the local government.

Proposed League Goals – Internet Sweepstakes

Support legislation, if internet sweepstakes operations are legalized, that would expressly protect the land use decision-making and tax-levying authority of municipalities over said operations.

Proposed League Goals – Retirement

Support legislation which defends the fiscal integrity of the Local Government Employees' Retirement System and its defined benefit structure, promotes reasonable pension reforms that are prospective in nature, and meets the needs of local employees, employers, and retirees.

Local Sales Tax Status

Article 39 DistributionPercent Change Year over Year

2008 2009 2010 2011 2012-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Change from same month the year before Last six months over year before

NC 12-Month Taxable Sales Difference from FY 07-08 Level

6-088-08

10-0812-08

2-094-09

6-098-09

10-0912-09

2-104-10

6-108-10

10-1012-10

2-114-11

6-118-11

10-1112-11

2-124-12

6-128-12

-$10,000,000,000.0

-$8,000,000,000.0

-$6,000,000,000.0

-$4,000,000,000.0

-$2,000,000,000.0

$0.0

$2,000,000,000.0

Construction-Related Other (excluding food for home)

NC Single Family Housing Starts and Prices

January 2000 = 100

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 120

20

40

60

80

100

120

140

160

Prices Single Family Starts

NC Leading IndexPhiladelphia Federal Reserve Bank

0 1 2 3 4 5 6 7 8 9 10 11 12-6.00

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

2012-13 Municipal Budget Actions

More Municipalities Seeing Improved Revenue Outlook

FY 06-07 FY 07-08 FY 08-09 FY 09-10 FY 10-11 FY 11-12 FY 12-130%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Projected revenues better able to support your spending requirements than previous yearTax Rate Increase

Municipal Budget Balancing Strategies 2011-12 and 2012-13

Reduced Proposed Spending/Programs

Reduced the growth rate of General Fund spending

No Pay Raises for Employees

Cut spending in specific programs/departments below previous FY budget

Reduced actual capital spending below previous FY levels

Increased existing fees and charges for services

Appropriated more fund balance than in previous FY

Imposed a hiring freeze for part or all of current FY

Implemented new fees and charges for services

Reduced employee benefit levels or increased employee cost-sharing

Reduced the number of municipal employee positions

Contracted out additional services

Reduced Service Levels

Brought back in-house services previously contracted out

Imposed/raised impact or development fees

Shifted/shared services responsibilities with another local government

Raised Tax Rate*

0% 10% 20% 30% 40% 50% 60% 70%

FY 11-12FY 12-13

Programs in which spending was educed below FY 11-12 level

Municipalities Reducing Spending

General Government

Other Public Works

Police

Recreation

Other

Sanitation

Water/Sewer

Fire

0% 10% 20% 30% 40% 50% 60% 70%

n=192

Percentage of Municipalities Reducing Employee Positions

Below FY 11-12 Levels

1-2,499 2,500-9,999 10,000-24,999 25,000-49,999 50,000+0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY 11-12FY 12-13

Percentage of Municipalities Offering No Pay Increases

1-2,499 2,500-9,999 10,000-24,999 25,00-49,999 50,000+0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY 10-11FY 11-12FY 12-13

Percentage of Municipalities Reducing Capital Spending Below Prior Year Level

1-2,499 2,500-9,999 10,000-24,999 25,000-49,999 50,000+0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY 11-12FY 12-13

Questions?

kknapp@nclm.org