NC SPIN Online

On the floor of the House
While many have speculated that this reporter would never make it to the legislature, we got there yesterday. O.K., I have to admit that access was gained because my spouse was House chaplain for the day. And it was probably the closest we will ever get to the podium in the House well.

We were impressed, as always, at the efficient way House Principal Clerk Denise Weeks and her staff operate. Weeks has been in this position for 16 years, going back to when Dan Blue was Speaker and has been on staff for 30 years. Coupled with the House Sergeant at Arms staff, the House operations run like a well oiled machine.

On a personal note we were genuinely flattered by the number of folks, especially staffers, telling us how much they enjoyed NC SPIN and especially this weekly missive. More than one staff member said they read our newsletter to find out what was really going on in the General Assembly and commented on how accurate we were. Thanks for the kind words.

The Senate caves…..again
There were flutters yesterday that a deal had been struck on the budget but few leaks as to what was decided. We learned more details last night.

Dan Clodfelter and the Senate ran up the flag for tax reform Tuesday but it was obvious nobody was saluting, so Senate leadership decided that striking a deal with the House was the lesser of the evils in the budget debate and agreed to essentially the same finance package they made a week before, but with one big change. Instead of a two percent income tax surcharge on all taxpayers, the deal imposes a three percent surcharge on taxpayers with incomes over $250,000.

So expect a one cent sales tax increase, the beer, wine and alcohol tax increase, the Internet tax, and a ten cent per pack cigarette tax increase.

Wasn`t it Senator David Hoyle, chair of the Senate Finance Committee, who said in June that he would “never, ever” vote for a finance plan that raised income taxes on upper income wage earners? Yet Hoyle was one of the legislators announcing that a deal had been struck. Talk about having to eat your words.

After the agreement was struck the Democratic caucuses for both the House and Senate were brought in on the deal. We hear there is still some serious heartburn from about 30 House Democrats over the cigarette tax increase, but the general consensus is that this is the best that could be done and would likely pass both houses.

Where is Governor Perdue on the plan? Insiders tell us that even though the new finance package gives the Governor a partial victory she is still urging lawmakers to either restore cuts to education or increase the taxes raised to her proposed $1.6 billion level. We`re told that lawmakers are not going to go beyond $1 billion in new taxes and are trying to find some ways to alleviate some of the cuts to education so as to make the Governor happier.

Now it becomes a matter of putting all this on paper and drafting a budget. The spending plan has been pretty much in place for several weeks and few details have been made public. But with the exception of some possible tweaking in education to accommodate Governor Perdue the budget should come together over the weekend and we could have a vote of both houses next week.

There is some urgency to a budget passage because public schools are going to be starting in the next few weeks throughout North Carolina and local education leaders need to know what they can count on regarding numbers of teachers as well as overall funding. In addition, many state agencies need decisions for funding for the coming year.

By the way, our understanding is that the $12 million in-state tuition provision for out-of-state athletes is still in the budget and has not been exorcised. Score at least one for the Senate.

We talk about the budget on this week`s NC SPIN and you can look for a detailed discussion next week when we have a more complete picture of the final details.

What is the fallout from this package? Republicans are almost as happy as they were a week ago. They have a lot of ammunition to aim at Democrats next year and even in the 2012 General election. Pro business advocates are saying this surcharge on upper income taxpayers is a big mistake and our state will pay for it because new businesses and industry will avoid North Carolina. Education leaders won`t be happy with their share of the pie. Mental Health advocates won`t either.

So much emphasis has been placed on the tax package that little attention has been placed on spending cuts. There will be major job cuts and open positions that go unfilled. You can be sure that State Employees won`t be happy. Both active and retired public employees won`t feel comfortable with the level of funding to the pension plans, and the State Health Plan still isn`t fixed….just has a Band-aid.

But even as most folks won`t be satisfied with this budget, neither are legislators. These are tough times and they had tough choices to make.

Special session possible
The tax reform debate may be over for this session but it is far from dead. Most all agree that our tax codes need revising. They are essentially 70 years old and were designed when North Carolina`s economy centered on agriculture and manufacturing. Further, they are riddled with exceptions, preferences and loopholes that are so complicated few can even understand them.

Many worry that without reform this year we will have to wait until 2011 before the legislature is willing to address the issue again. The 2010 short session will come in an election year and past experience dictates few major legislative items are tackled in election years.

There are a growing number who believe a special session of the legislature should be held later this year to address tax reform. Some believe a legislative study commission should be formed, but others say this issue has already been studied by many groups and that what is needed is a basic plan for how to reform tax codes. One longtime observer pointed out that legislative staffers could spend a few hours compiling the recommendations of previous study commissions and have a basic plan for reform ready in short order if so desired. There are two major questions, each with a series of further queries, that must be answered in revising our tax codes. The first is who is going to pay the taxes? Is it individuals or corporations? If individuals, do we want a progressive, regressive or neutral approach? The second major question is what is the preferred method for taxing our people? Is it sales and use taxes or income taxes? What exemptions and preferences are we willing to make?

The House was correct in saying that tax reform isn`t just broadening our tax codes to include services. There needs to be some genuine debate around who and what should be taxed.

President Obama comes to Raleigh
President Barack Obama came to Raleigh Wednesday to rally support for his health reform plan. A packed Broughton High School auditorium resembled a campaign rally as supporters cheered the charismatic Obama. During his remarks the president generated loud cheers when he assaulted insurance and pharmaceutical companies.

"If we do nothing, I can almost guarantee you your premiums will double over the next 10 years, because that`s what they did over the last 10 years….The truth is, we have a system today that works well for the insurance industry," Obama told the audience, "but it doesn`t always work well for you. So what we need, and what we will have when we pass these reforms, are health-insurance consumer protections to make sure that those who have insurance are treated fairly and insurance companies are held accountable."

He told the crowd that prescription drug costs are 77 percent higher in the U.S. than in other countries. Part of that is because costly research is done in the U.S. and part can be attributed to marketing costs, Obama said, but some of the cost differential is because the pharmaceutical companies can get away with it. It didn`t take long before Blue Cross CEO Bob Greczyn defended his and other insurance companies.

The simple truth in the health care debate is that we have a system that is broken. Major players including insurance companies, pharmaceutical companies, doctors, hospitals, and trial lawyers can run from reform but they cannot hide from the basic problems we have in health care. Insurance premiums have skyrocketed faster than costs of living or income. Too many are uninsured. Treatment is not uniform. And the list goes on.

The major players have known the current health system needs reform but they haven`t fixed it. If they truly do not want the government involved in health care they should FIX the problems and the furor would die. We have been amused at just how easy the media and critics have been on the insurance industry, pharmaceuticals, trial lawyers and others during this debate. Could it be because of the millions of dollars in lobbying and advertising these sectors are pouring into the hopper?

By the way, we reference the bickering over health care reform in this week`s My Spin, “In Support of Moderates.”

Sweepstakes rules being examined
While video poker advocates gained momentum from endorsements by the State Employees Association of North Carolina and the Legislative Black Caucus, we hear little is likely to happen this year. Following two recent court rulings that opened the doors to video poker and sweepstakes operators in North Carolina, proponents have urged our state to get out in front of the operators by passing legislation that both regulates and imposes taxes on new machines.

We are told behind-the-scenes discussions are already focusing on how to stop or at least regulate the so-called “sweepstakes” operations that are infiltrating our state. The way this works is that a person buys a pre-paid phone card which allows them chances to play sweepstakes games to win cash. Judge Paul Ridgeway ruled these games of chance are legal and there are at least two outlets for the cards within two miles of the state capital building.

Efforts to stop or control the sweepstakes games have repercussions in other areas. We are told that one roadblock for clamping down on sweepstakes games is that it will also affect the “Monopoly” and other such games used by McDonalds and other establishments.

We hear Governor Perdue is studying the issue and wants to wait until the short session to make formal recommendations to lawmakers. Brad Crone, lobbyist for the amusement industry in our state and NC SPIN panelist, says that the problem is not going to be letting video poker and other games back into North Carolina. They are already here. The question is whether or not we are going to regulate and tax them. Will North Carolina be proactive or reactive?

There is a lot of potential money on the table for operators, outlets, and possibly both local and state government. A commercial airing on this week`s NC SPIN estimates the state could generate $480 million a year in new tax revenues. Privately there is speculation that if the lottery were to take over video poker operations, that number could increase substantially.

Vehicle inspections to end?
We have reported before of a growing movement to end state inspections of vehicles in North Carolina. The Senate Commerce Committee debated a measure to end the program which imposes at least $12 per vehicle on every motorist in our state. A Legislative Program Evaluation Division report indicates there is no evidence that the inspections improve road safety. The Highway Patrol, AAA, DMV and repair shop owners oppose the idea.

Another legislator in trouble
The State Bar made formal what had been rumored for some time. Representative Nick Mackey (D-Mecklenburg) has been cited for failure to pay income taxes from 2003-2006, failed to report that he had fabricated hourly duty reports when he was investigated by a Charlotte police officer, and violated professional conduct rules when in private practice. Mackey, you might remember, was nominated to become Mecklenburg County Sheriff in a highly controversial process when the previous Sheriff resigned to take a federal position. The Democratic Party later refused to confirm the nomination and named another person to fill the post. Mackey decided to run for the House. He could be disbarred.

TIF case upheld>
Perhaps you missed the story that a federal appeals court has ruled against four North Carolina residents who sued to negate Tax Increment Financing in our state. The suit was filed following the passage of a Constitutional Amendment. The four plaintiffs in the case claim they were misled by the way the Amendment was worded and promoted. The Court upheld a lower court ruling that said the plaintiffs didn`t have standing and thus were not entitled to engage in the suit.

TIF financing, a form that creates a special tax district and does not require a vote of the citizens, was the method used by the city of Roanoke Rapids in incurring over $20 million in debt to build the Randy Parton Theatre.