It is the priority of the Wake County Board of Education to provide every student and employee in the school system with a safe and orderly learning and working environment.  To this end, the Board specifically prohibits harassing or bullying behavior at all levels: between students, between employees and students, between peers or coworkers, between supervisors and subordinates, or between non-employees/volunteers and employees and/or students. This policy is in addition to Board Policy 2320/3035/4035/6415 – Sexual Harassment.

Students are expected to comply with the behavior standards established by Board Policy and the Student Code of Conduct.  Employees are expected to comply with Board Policy and school system regulations.  Volunteers and visitors on school property also are expected to comply with Board Policy and established school rules and procedures.

The Board specifically prohibits reprisal or retaliation against any individual who makes a complaint or reports an incident of harassing or bullying behavior or who participates in an investigation or grievance proceeding initiated under this policy.  Reprisal or retaliation against any individual who reports an act of harassment or bullying may result in disciplinary action being taken, up to and including dismissal in the case of employees, or up to and including long-term suspension or expulsion in certain cases for students.

This policy shall be distributed annually in the Wake County Schools Student Handbook and the Wake  County Schools Employee Handbook.

A. Definition of Harassment and Bullying

1.  As used in this policy, harassing or bullying behavior is any repeated, systematic pattern of gestures or written, electronic, or verbal communications, or any physical act or any threatening communication on school property; at any school sponsored function; on a school bus; or as otherwise stated in Board Policy 6400- Student Code of Conduct, and that:

a.  Places a student or school employee in actual and reasonable fear of harm to his or her person or damage to his or her property; or

b. Creates or is certain to create a hostile environment by substantially interfering with or impairing a student’s educational performance, opportunities, or benefits.  A hostile environment means that the victim subjectively views the conduct as bullying or harassing behavior and the conduct is objectively severe or pervasive enough that a reasonable person would agree that it is bullying or harassing behavior.

2. Harassing or bullying behavior includes, but is not limited to, acts reasonably perceived as being motivated by any actual or perceived differentiating characteristic, such as race, color, religion, ancestry, national origin, gender, socioeconomic status, academic status, gender identity, physical appearance, sexual orientation, or mental, physical, developmental, or sensory disability, or by association with a person who has or is perceived to have one or more of these characteristics.


B.  Reporting Harassing and Bullying Behavior

1. Any student who believes that he or she has been harassed or bullied in violation of this policy should report such behavior immediately to a teacher, counselor or administrator at his/her school.

2. Any employee who believes that he or she has been harassed or bullied in violation of this policy should report such behavior to their immediate supervisor and/or the Assistant Superintendent of Human Resources or designee.

3. A school employee who has witnessed or has reliable information that a student or school employee has been subject to any act of harassing or bullying behavior shall report the incident as follows:

a.  To the principal in the case of a student; or

b. To the immediate supervisor of the alleged harasser or bully and/or the Assistant Superintendent of Human Resources. in the case of an employee

c. Failure to do so make such a report may subject the employee to disciplinary action.

4. Any person may report an act of harassment or bullying anonymously.  However, formal disciplinary action may not be taken solely on the basis of an anonymous report.


C.  Investigation of Harassment and Bullying Reports

1. All complaints of harassing or bullying behavior made by students shall be promptly and thoroughly investigated by the principal or designee.  The principal will determine if an investigation  by a referral to Human Resources is warranted.

2. All complaints of harassing or bullying made by employees shall be promptly reported to their immediate supervisor and/or the Assistant Superintendent of Human Resources. accompanied by a thorough The investigation shall be conducted by the Assistant Superintendent for Human Resources or designee.

3. If the individual required to investigate a complaint made under this policy is the alleged harasser or bully, the investigation shall be conducted by an appropriate school system administrator as designated by the Superintendent.  If the alleged perpetrator is the Superintendent, the Board attorney is the investigator.  In such cases, whoever receives a complaint of harassment or bullying shall immediately notify the Assistant Superintendent of Human Resources, who shall immediately notify the Board Chair.  The Board Chair shall direct the Board attorney to respond to the complaint and investigate.  If the alleged perpetrator is a member of the Board, the Board attorney is the investigator.  In such cases, whoever receives a complaint of harassment or bullying shall notify the Superintendent who shall direct the Board attorney to respond to the complaint and investigate.  Unless the Board Chair is the alleged perpetrator, the Superintendent shall also notify the Board Chair of the complaint.

4. If at any time during the investigation the school official investigating a student’s allegation of harassment or bullying receives information alleging the harassment or bullying was based on sex or gender, the school official shall notify the Title IX Coordinator.  In such cases, the procedures outlined in Board Policy 2320/3035/4035/6415 – Sexual Harassment shall be followed.  Further, in any case of alleged harassment or bullying, the school system shall notify any other appropriate person or entity if required by law or Board Policy 2333/3033/4033- Reporting Information to Principals and External Agencies.

D.  Disciplinary Action

1. The actions taken in response to evidence of harassing or bullying behavior should be reasonably calculated to end any harassment or bullying, eliminate a hostile environment if one has been created, and prevent harassment from occurring again.  In addition to taking disciplinary action as necessary, the principal or other school official shall take appropriate remedial action to address the conduct fully.

2. Violations of this policy shall be considered misconduct and will result in disciplinary action up to and including long- term suspension or expulsion in the case of students and disciplinary action up to and including dismissal in the case of employees.

3. This policy may not be construed to allow school officials to punish student expression or speech based on an undifferentiated fear or apprehension of disturbance or out of a desire to avoid the discomfort and unpleasantness that may accompany an unpopular viewpoint.

4. Nothing in this policy precludes the school system from taking disciplinary action against a student or employee where the evidence does not establish harassment but the conduct otherwise fails to satisfy the school system’s high expectations for appropriate conduct.


Legal References:  Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000d et seq.; Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq.; Title IX of the Education Amendments of 1972, 20 U.S.C. § 1681 et seq.; Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq.; G.S. 126-16; North Carolina School Violence Prevention Act.
Cross Reference: WCPSS Board Policy 2320/3035/4035/6415 – Sexual Harassment; WCPSS Board Policy 3033/2333/6415- Reporting Information to Principals and External Agencies; Board Policy 6400- Student Code of Conduct.
Adopted: May 3, 2004
Revised: April 18, 2006



Summary of Joint Committee of Senate and House Finance Meeting on Tax Reform

November 17, 2009

Presiding Chair: Representative Gibson

Principles of Sound Tax Policy: How does the North Carolina Sales Tax Measure Up? Roby Sawyers, CPA, PhD Department of Accounting, College of Management, NCSU presented a review of the ten guiding tax principles that are widely recognized and accepted, and used in developing tax programs. While these principles may be used when deciding on individual taxes, many of the principles are better applied broadly to the tax system as a whole. Equity and Fairness as it relates to taxes are often discussed in terms of whether a tax system is (flat) progressive or regressive. Flat taxes like sales taxes may be considered fair in that those with higher incomes pay more than taxpayers with lower incomes. Progressive taxes such as the individual income tax may be considered fair in that taxpayers with higher incomes pay the tax at higher rates than lower income taxpayers. Expanding the sales tax to services will impact the progressivity of the sales tax as some services (legal and professional) are more likely to be consumed by wealthy taxpayers, while others (certain repair services) are more likely to be consumed by lower income taxpayers (making the taxes more regressive). Consideration must be given to what the surrounding states are doing as well since people living in the border counties could cross state lines to avoid paying taxes on services. In addition, similar transactions should be subject to the same tax (i.e., purchasing a pair of shoes via the internet should be taxed the same as purchasing shoes at the shoe store). The second principle applies to Certainty as it relates to tax rules.  The rules should be clearly specific as to when the tax is to be paid, how it is to be paid and how the amount is to be determined. The example given applied to sales tax on food and soft drinks (candy is food and is taxed, while food in general is not taxed). The remaining principles discussed included; 3) Convenience of Payment, 4) Economy in Collection, 5) Simplicity, 6) Neutrality, 7) Economic Growth and Efficiency, 8 ) Transparency and Visibility, 9) Minimum tax gap and concluded with 10) Sufficient and Predictable Government Revenues. The tax system should provide the government with a sufficient and predictable source of revenue without having to resort to continuing rate increases. A mix of taxes provides a more stable tax base because different types of taxes are affected differently by the economy.  North Carolina relies more on the individual income tax and less on the sales tax than most states. Income tax in NC accounts for 48.3 percent of revenue, while sales tax accounts for 23.1 percent.  This prompted the discussion to broadening the sales tax base by expanding the list of services that could be taxed, again.  Members asked about the states that were taxing 140 services or more and requested additional information from staff on the affects of these taxes in those states, their volatility, personal consumption, and impact on bond rating. The average number of services taxed by other states is 56, which is more than 25 services higher than the 30 taxed in NC. Another question raised was the fact that sales tax is not deductible from federal taxes to be paid, but income tax paid in NC is deductible on federal returns. The theme of these presentations seems to be to continue to advise members they need more stability in their tax structure and relying too heavily on income taxes, which have gone down due to high unemployment is not a good plan. They also have heard numerous times that NC taxes very few services compared to other states. Roby also pointed out that in 1979 services accounted for only 47.4 percent of consumption, but in 2007 they account for 59.7 percent of consumption. The sales tax revenues are also declining due to the fact that it relies heavily on the purchase of tangible/durable goods, which decreases when unemployment is high though these same people still consume services.

Properties of the North Carolina Sales Tax Karl Smith, PhD, Assistant Professor of Public Economics and Government, School of Government, UNC-Chapel Hill presented an overview of sales tax on tangible goods.  The sales tax is supposed to be a tax on consumption. The best features of a consumption tax: taxes what citizens take out, smoother than income, grows with the economy and tracks ability to pay.  Several charts were provided showing the volatility of the sales tax, the changes in consumer behavior and economic growth. Every time you increase the sales tax it erodes the base and results in less revenue in sales tax than earlier increases in the tax. Wealthy consumers consume more services and so taxing services should impact those with greater resources compared to those with lower incomes. The people with the lowest income pay the highest percentage of their income on sales tax because for the most part it relies on goods. The savings rate has been declining since 1980 and with less credit available to consumers, sales tax collections go down. The general recommendation would be to tax all goods and services and to keep the income tax stable. One member asked for recommendation on the income tax rate if they increased the services being taxed to gain revenue through sales tax. A rate of below 6 percent was discussed with no definitive number. Members also had concerns regarding the migration of an aging population to states with no state income tax. To answer the question: “How does the current sales tax add up?” It is less representative of true consumption, there is more distortion in the private market, it does not keep up with economic growth, it is more volatile, and more regressive.

North Carolina Sales Tax Refunds Non Profit Refunds, Rodney Bizzell, Fiscal Research Division, NCGA reviewed the history of NC sales tax relative to non-profits. There are over 10,000 non-profits and they range in size from Duke to soup kitchens. In 1933 NC implemented the sales tax and they proceeded over the years to implement exemptions and repeal them or they sunset based on the law. Public schools had state sales tax refund but lost it and they now only have local sales tax refund. Hospitals account for the largest refund annually, with more than $225 million. Government entities are also entitled to sales tax refund, and the municipalities account for the largest portion, with more than $65 million.

Incentive Related Refunds, Canaan Huie, House Tax Counsel, NCGA NC has passed laws through the years to give special refunds to different entities. Some of the refunds are permanent and others are not. Some are full and others are partial some have reporting requirements and others do not. Examples of some of the special refunds are for interstate carriers, utility companies, passenger carriers, major recycling facilities, lower tier machinery, non-profit insurance companies, certain industrial facilities, motorsports, railroad intermodal facilities, analytical services. Information was provided for some of the cost of these refunds in terms of revenue loss to the State. Several members asked if they could get the total lost revenue for all the special refunds provided to the various groups.

Sales Tax Revenues Trends in collections:  A historical perspective in terms of stability and volatility, Barry Boardman, Economist, Fiscal Research Division, NCGA reviewed the state tax structure over the past 38 years. Personal income tax collections have gone from 32.7 percent of taxes to 56.4 percent. Sales tax was 31 percent and has only declined to 27.9 percent. The interesting thing about this presentation is the numbers are different than those presented by the first presenter Roby Sawyer. The conclusions reached were also different from the earlier outside presenters. According to Fiscal Researcher, Barry Boardman, the State’s reliance on sales tax has been stable over the last 40 years. Sales tax grows slower than personal income. Sales tax is more stable than income taxes (which is probably true). Based on the per capita income, the income tax base has narrowed.

Relationship between State and Local Sales Tax Historical Overview of local sales tax authorizations, base, and rates, Heather Fennell, Research Division, NCGA In addition to the 2 percent sales tax on food other local taxes collected include: property tax, privilege license taxes, rental car gross receipts, animal tax, motor vehicle license tax and state-shared taxes. The State general rate is 5.75 percent. The one percent increase enacted this year will expire in 2011.  The local rate varies with 91 counties enacting a 2 percent rate, Alexander, Catawba, Cumberland, Haywood, Martin, Pitt, Sampson and Surry Counties at 2.25 percent, and Mecklenburg at 2.5 percent. Several charts were shown to indicate from 1967 to 2001 the distribution breakdown of the funds collected. Other local taxes mentions were: transit tax, occupancy tax and meals tax. In 2007, the Medicaid swap was enacted, which moved a portion of the local sales tax to the state to offset the cost of the state assuming total responsibility to for Medicaid. The state Sales and use tax is now 4.75 percent and local is generally 2 percent or higher.

Related Taxes Other taxes administered like sales tax and similar to sales tax, Ryan Blackledge, Bill Drafting Division, NCGA discussed sales tax substitutes which include certain machinery and equipment, highway use tax, motor fuels tax, events and amusement taxes, privilege license taxes and disposal taxes. The mill machinery tax is one percent of sales price (max. $80) on mill machinery or parts) for use in manufacturing industry or plant and in 2006-07 produced revenue amounting to $36.56 million. This tax was expanded to become an economic development tool by adding a major recycling facility, R&D company in physical, engineering, or life sciences, software publishing company, industrial machinery refurbishing company, and a data center. The tax on manufacturing fuel applies to fuel used by manufacturing plants at a rate of 0.3 percent and expires July 1, 2010.  The highway use tax was intended to provide the major source of revenue for the new Highway Trust Fund and produced revenue in 2008-09 amounting to $441 million. The motor fuels tax rate is currently at $0.29.9 per gallon and produced revenue of $1.53 billion in 2008-09.  The events and amusement tax was placed on dances, athletic events, shows, exhibitions and motion picture shows and produced revenues of $14.4 million last year. However, the event and amusements list contains twelve activities or events which are exempt (i.e., elementary and secondary school athletic contests, dances, other amusements, North Carolina Symphony Society, Inc. etc.). The privilege license tax is paid to state or local government for the “privilege” of doing business including: installment paper dealers ($27 M), loan agencies, banks ($8.5 M), newspapers and professionals. There are different rates associated for these taxes. Study committees have criticized this system due to its inconsistencies, outdated language, arbitrary distinctions and compliance issues. The disposal tax provides additional disposal funds for activities that create greater disposal costs (i.e., scrap tires, white goods, dry cleaning solvent and solid waste disposal etc.). The other related taxes are in four groups: sales tax substitutes, events and amusement taxes, privilege license taxes and disposal taxes.

Next Meeting December 1, 2009 Agenda Items to Include: Presentation from outside expert on expanding the sales tax base. Staff will present case studies. Department of Revenue will present on how the sales tax is administered.

Joint Legislative Commission on Governmental Operations

Tuesday, November 18, 2009

Co-Chairs: Joe Hackney, Speaker of the House of Representative

Marc Basnight, President Pro Tempore of the Senate

Speaker Hackney –Presiding


National Conference of State Legislatures Report on Fiscal Condition of States

Corina Eckl, Group Director, NCSL Fiscal Affairs Program presented on the other states dire fiscal situation. To date, states have reported a total estimated budget gap of $386.8 billion (FY 2008-through FY 2012). There were 31 states that already know they will have a budget gap for 2010 and 17 states will declare a deficit for 2011 of 10 percent and above. Florida reports that annual revenues today compared to 2001 and are not expected to return to peak levels until 2013. Colorado reports that annual revenues today are similar to amounts collected in 2005, while the general funds revenues in Kansas are coming in at 2006 levels. During the 2001 recession the 2003-2004 years were the most challenging, financially. Therefore the prediction is that 2011-2012 will still have similar budget challenges for all states, as the federal ARRA funds are no longer available to the states to help fill the budget gap. Several U.S. maps were provided showing the percentages of the various actions developed by states to address their upcoming budget shortfalls. Twenty-two states indicated they raised taxes to meet budget shortfalls (NC increased them 21.6 percent). Results from the NCSL survey indicate the projected budget shortfall to be $145.3 billion in 2010, $65.1 in 2011 and $46.9 billion in 2012.  The States are facing a “cliff” once the ARRA funding ends in 2010. They will continue to face budgetary problems at least 12 months after the US recession ends and they are actually bracing for prolonged fiscal problems across the country.


General Fund Revenue Outlook: FY 2009-2010 Dr. Barry Boardman, Economist Fiscal Research Division followed with more bleak forecasts regarding a budget shortfall for NC.  The State’s collections are $95 million below the $5.9 billion targets for the first four months of the fiscal year. The baseline sales tax growth is down 11.7 percent vs. a 2.7 percent decline last year, withholdings continue to erode and are 3.5 percent below last year and employment continues to lag. In addition, sales tax collections continue to perform very poorly, the 1-cent increase (added in this year) adds pressure to getting the sales tax to rebound even with the budget forecast that included a 4 percent decline. Personal Income Tax withholdings are also down 3.5 percent and the changing economy will continue to impact the more volatile taxes in the second part of the fiscal year. In order to meet the forecast, employment losses must decline and business hiring must pick up, wages and salary incomes will need to show improvements by last quarter and consumer spending will have to rebound by early 2010.  The extension and expansion of the home buyer’s tax credit appears to be improving the housing market. While most economists agree the recession has ended, they caution that a very slow recovery is underway. For North Carolina the intensity of the recession appears to be easing but a full recovery is probably several years away.


Budget Management Activities for FY 2009-10 (G.S.143C-6.2) Charles Perusse, Director, Office of State Budget and Management discussed the Governor’s actions on August 14, 2009 only 10 days from the General Assembly adjourning to require funds be held by various areas in state government. These include DPI, Community Colleges, Universities, Justice and Public Safety, General Government/NER and Debt Services. When asked if the Governor had declared an emergency the members were told no, that she simply modified an earlier order to the state agencies on holding back funds. If she had declared an emergency it would have given her extensive authority to change the new budget just approved by the General Assembly. There appeared to be a great deal of concern with members of the House on what authority the Governor had to supercede the legislature’s budget and cut various agencies and not others and by differing percentages. Representative Stam referenced the Constitution as did Mr. Perusse on who was held harmless (Public schools) and who was not (DPI). Mr. Perusse struggled to answer the series of questions including those by Speaker Hackney and finally Senator Nesbitt referenced the General Statue 143C section 6-2(a) and the language that as he read it appeared to provide her with all the authority she needed to make cuts of any percentage to the state budget. It was an interesting and sometimes testy exchange with members and the Governor’s person in charge of the Office of State Budget and Management, Mr. Perusse. Rep. Rapp asked what the Governor’s plan is to address the $95 million shortfall if it continues through the year or gets worse. Mr. Perusse told the members they plan to review the second quarter numbers in January, since there are other key collections at the end of the calendar year and determine what they believe the extent of the shortfall will be by June 30, 2010. They hope it doesn’t get any deeper and that the $468.7 million they have held back from the state agencies will cover the deficit that accrues. They also have $150 Million in the Rainy Day Fund, if needed. Stay Tuned for January.




Welcome and Introductions

Senator Foriest, Co-Chair Presiding

Representative Yongue, Co-Chair

Middle Grade Transition to High School Dr. Gene Bottoms, Senior Vice President, SREB addressed the goals for middle grade achievement as stated in a report by SREB. Middle schools must prepare students to meet readiness standards for high school in reading and math, need to close achievement gaps, meet national averages for number of students at NAEP Proficient level, and ensure students enroll in Algebra I, or be ready for it, by the end of eighth grade. The ninth grade is the most difficult transition grade and is the highest failure grade in high school. Several changes were made in school and classroom practices in 2006–2008 which included an accelerated math curriculum, greater emphasis on reading and writing for learning in all classes, more hands-on science activities and projects to more students, learning habits and skills important to high school, studying with other students and using technology to complete assignments, and the importance for strong school leadership (i.e., effectively trained principals, support for educational programs, classroom observations). Seven actions for improving middle grades included: making adolescent reading a priority, accelerate curriculum for struggling students, better prepare students for Algebra I by grade eight or nine, teacher inquiry-based science, support professional development of teachers and school principals, build student aspirations for college and advance training and careers, and develop and adopt a vision for the middle grades.  It was also emphasized that principals need to understand literacy in middle school by reviewing state standards, requiring all districts and schools to complete a data-driven literacy plan, require schools to provide early identification and intervention for struggling readers, provide literacy training for teachers and principals, continue to support literacy coaches in schools, and review certification standards to ensure that teachers preparation programs in content-specific reading and writing strategies for middle grades certification. Several states were mentioned for their outstanding programs in improving student achievement in the middle grades. Those included Texas and Maryland. Even South Carolina was mentioned in its efforts. One of the key issues was having principals knowledgeable in curriculum so they can provide leadership for education of the students by assisting teachers in classroom instruction. Members questions included teacher retraining, funding, the use of science labs vs. computer labs and business partnerships.

Charter Schools Jack Moyer, Director, Office of Charter Schools, Department of Public Instruction presented an overview of the charter schools governance, application, and the review process. A charter school is a non-profit with a Board of Directors and the Board is the key to the success of the school providing the leadership to open a school. Charter schools apply two years in advance of being approved to open their school. Several handouts were provided giving detailed information on the performance of each charter school in the state.  Also, a list was provided showing the number of schools that have had their charters revoked or voluntarily relinquished their charters.

Paul LeSieur, Director, School Business Administration, Department of Public Instruction provided an explanation of the state, local, and federal funding for charter schools and the process for distribution of funds. Charter schools are funded according to local county per pupil allotment and these funds are distributed in a variety of ways (monthly, quarterly etc.).  Wake County’s per pupil allotment is paid on a monthly basis and records are kept that include those students who withdraw from the charter school and who return to WCPSS throughout the school year. DPI provides allocations to charter schools at the beginning of the school year and then at the end of the 1st month if the student population increases or decreases funding is adjusted for the remainder of the year. DPI allocates funds three times with the final allotment in March. Members asked about if students return to an LEA do the funds follow the child and the answer was unless it is a special education students (within 60 days of school opening) the funds do not follow the child when they return to a public school.

Bill Harrison, Chair, State Board of Education presented an overview of the responsibilities of the Leadership for Innovation Committee (LFI) that oversees the charter school section at DPI and charter schools. During the February time frame each year, the Office of Charter Schools receives applications for new charter schools.  The LFI Committee will review these applications and select those applicants that are eligible for the interview process. After the interview process, the Committee will then rank the applicants and make recommendations to the full State Board of Education for any charter school openings (capped at 100) for the upcoming year. The full Board will then vote to grant charters for the new schools. The LFI Committee also has the responsibility to recommend that a school’s charter be revoked, if they are determined to be low performing or out-of-compliance with the charter school statutes. Next, Dr. Harrison discussed the Charter School Ad Hoc Committee. This Committee was organized in 2009 to review the application process, identify any problems, suggest changes, review the non-renewal process and suggest changes, discuss ways to increase diversity in charter school student population, define the role of the Office of Charter Schools and revisit the Blue Ribbon Commission’s on Charter School’s recommendations. Questions were directed to all three presenters. Members were interested in how well the charter schools were performing and requested a chart be provided grouping schools according to performance. Also, the question was again asked if the 100-school cap would have any adverse affect for North Carolina in the awarding of federal incentive funds (Race to the Top). This information should be released sometime this week, however, apparently the guidelines are still being revised and there has been no indication one way or the other. There were several questions regarding funding and the allotment and distribution processes. Also, there was concern regarding those charter schools that were continuously rated as low performing.

Common Core Standards Angela Quick, Deputy Chief Academic Officer, Academic Services & Instructional Support, Department of Public Instruction presented information regarding the common core standards and assessments. North Carolina has signed on to a consortium of states (at current, 48 of 50) that are working jointly towards developing and adopting a common set of K-12 standards. The common core in Math and English Language Arts are to be completed by June 2010. A draft is scheduled to be present at the December State Board of Education meeting. Our Essential Standards are being built on a similar conceptual framework as the common core standards under development (nationally). Primarily, the standards should be fewer in number, higher in accountability and clearer. How do our assessment compare with international assessments? Currently, there are three major international assessments: Programme for International Study Assessment (PISA), Trends for International Math and Science (TIMSS) and Progress in International Reading Literacy Study (PIRLS). PISA testing cycle is every three years for 15 year olds in Math, science and reading.  It has little alignment with NAEP and the cost for state participation for 2009 is $250,000 to $500,000. TIMSS has a test cycle every four years for students in grades 4 and 8 in the subjects of Math and Science. It has the best alignment with NAEP with the cost for state participation of approximately $600,000 for full participation including both grades, or $350,000 for a full sample in one grade. PIRLS has a five-year test cycle for student in grade 4 in reading. The next test cycle is scheduled for 2011 and the cost for participation is yet to be determined. Members were concerned about only focusing on Math and English and the need to address Science etc. They discussed the funding problems. The members also addressed the need to have NC tests for students that will enable us to compare our students with those across the world.

November 10, 2009:

Representative Yongue-Co-Chair Presiding

Dual Enrollment for High School Students Van Wilson, Associate Vice-President for Student Services, Community Colleges System Office presented information using a chart to compare Huskins, Dual Enrollment and Learn and Earn Online. These are several programs where high school students can take courses from schools of higher education. He reviewed the funding for programs and noted that in this year’s budget $14.6 million was cut for high school students taking courses at Community Colleges. Community Colleges decided to eliminate funding for high school students to general education courses, such as math and science to manage the cut. A report is due in January 2010 on the funding structure for high school students taking higher education courses to Governmental Operations. The General Assembly is looking for recommendations to make changes on how to proceed to fund high school students taking higher education courses. There is a mixture of programs to serve high school students and it has become confusing to administer all the programs everything from Early College to Middle College to Learn and Earn and Dual enrollment. One member asked when the state funding was cut for high school students to take courses, and what was the impact on the number of students who enrolled at Community Colleges. Jennifer Haygood advised the Committee that there were 2,770 fewer FTE (full time equivalents). Kenon Briggs asked the committee to consider legislation to clarify and narrow the extensive number of programs. He suggested two options: Cooperative High School Program/Early College and other High School instruction programs. He indicated the need to simplify the funding streams and requirements to make things more easily understood. Parents, students, principals, LEAs and Community Colleges struggle with the different rules and regulations for each of the programs presently in the law. Simplification is going to be needed and recommendations will be forth coming to the committee to consider for their short session.

UNC Tech Transfer Dr. Steve Leath, Vice President for Research, UNC reviewed the research work of the constituent universities in NC. Almost $1.2 billion has been funded to the UNC schools of higher education this year and they are projecting $1.5 billion in 2010. The UNC system has begun using electronic research tools to manage all the grants and research going on at the UNC universities across the state. There was discussion about the various research centers, including the one in Kannapolis.  Dr. Leath talked about the patents and inventions, the companies that were started, and the success of the products and services developed at the research facilities. They are trying to find ways to streamline their research efforts and are working with IBM on a major technology development initiative to innovate and commercialize technologies in collaboration with industry. They are planning to focus their work in the following areas: support innovative individuals, to excel in strategic research areas, and  model efficient technology development processes.  The greatest numbers of patents have been developed in the area of drugs and chemistry. They are working to expand their efforts to work with industry as they seek awards and conduct research. There were many examples of collaboration in accessing grants. Several members asked questions about the extent to which undergraduates were participating in research grants. Is it mostly senior professors who are doing the research or are the younger staff members getting involved? How can we adequately reward inventors and research staff to ensure continued creativity and development? What is being done to communicate and tell the citizens of NC how taxpayer dollars are being used to develop the many products and services? The area of communication with the taxpayers on all this valuable research and patents was one thing members seemed to agree needed to be done.


Next meetings are scheduled for December 8 and 9.

Summary of November State Board of Education Agenda: November 4-5, 2009

All of the State Board of Education Committees met on Wednesday, November 4: Globally Competitive Students, the 21st Century Professionals Committee, the Leadership for Innovation Committee, and the Business/Finance and Advocacy Committee. In addition, on Wednesday the Charter School ad hoc Committee met immediately after the Closed Session. On Thursday, November 5, the State Board of Education met at 9:00 AM. Access to the Executive Summaries and back up documents are on the SBE website at:

HYPERLINK “http://www.dpi.state.nc.us/stateboard/meetings/2009/11” http://www.dpi.state.nc.us/stateboard/meetings/2009/11.

Wednesday, November 4, 2009

Globally Competitive Students (10:00 AM)


GCS 1 Changes to Policy Delineating End-of-Grade and End-of Course Retests and Review Procedures DPI presented the option to the SBE to eliminate the third administration (Retest 2) of the end-of-grade and end-of-course test effective with 2009-2010. Retest 2 is no longer required by the State and scores are not included in ABCs or AYP. Following Retest 1, schools may use the results from both the Regular administration and Retest 1 along with other available information to make promotion decisions. After Retest 1 the standard error of measurement (SEM) may be used at the discretion of the LEAs. The policy change must be made in November so the change can be effective for the fall block testing at the high schools.

Committee Meeting: After lengthy discussion members agreed there were two separate issues to be decided with this item, the testing window and the elimination of Retest 2.  Some committee members were supportive of the elimination of the Retest 2, but others were not. Board member Howell asked Bill McNeal to stand and address the committee on the issue. He told Board members there are 15 LEAs, who by their policies require the 2nd retest and he urged the Board not to eliminate the 2nd retest option. Give LEAs flexibility and if they want to provide the 2nd retest they should be allowed to do so. They had some problems with the policy change with respect to the testing window and they agreed not to make any changes to that issue. They went back and forth on the policy changes. They asked about the cost of the 2nd retest, they talked about the success rate for the 1st retest (Dr. Fabrizio indicated 10 percent pass rate increase last year). They decided even if they were to eliminate the 2nd retest they would not implement it until 2010-2011 to give LEAs a chance to plan accordingly. They talked about how it is unfair for students who take a Spring semester course and fail opposed to those who take a Fall semester course and have until June 30 to pass the test, taking it up to three times. Mr. McNeal requested the Board meet with superintendents to hear their issues and the Board said they had heard from their LEAs.  Ms. Willoughby said the retesting policy is a bandaid and as soon as they finish their new standards and assessments it will not be an issue for discussion. This item may be back again next month for more discussion.

GCS 2 Discussion of North Carolina’s Proposed New Accountability Model The Board heard a presentation on the EVAAS system. Components of the proposed model include student performance, value-added performance for teachers, schools and districts, long-term growth, graduation rate, Future Ready Core, and postsecondary readiness. Dr. Bill Sanders and Dr. June Rivers will present the EVAAS system to the GCS Committee. A worksheet enumerates several issues for consideration: Exploration and planning for other widely used assessment, like ACT, SAT, WorkKeys or Accuplacer. The Committee has discussed the desire to use a national test(s) as a measure of post-secondary readiness. Included in this worksheet is a series of questions: 1) Will we continue to have and use the gateways? 2) Do we need a model than can make a single “up or down” decision for an LEA? 3) How should we balance the components in the model? 4) Are there other components in the model that should be added? 5) What set of additional incentives could be put in place to support school improvement and student achievement? 6) Extra points for increasing number of Level IV students? A copy of the worksheet is available upon request from my office.

Committee Meeting: Dr. Sanders and Dr. Rivers provided a detailed power point presentation that included various reports and examples of the data collection and information available through the EVAAS system for every student enrolled in North Carolina public and charter schools. They talked about how to predict the success of students in high school math and reading based on test scores in middle school and or elementary school. Board members seemed very impressed with the information and Dr. Sanders talked about the huge increase in use of EVAAS by the various LEAs. They are working to provide training so more systems can access the data. He did note the data is not intended to be used to determine whether the student has a good or bad teacher. A review of a sample district level report from EVAAS was presented showing student academic progress and projected academic achievement for every student in that particular district. Dr. Rivers addressed the Committee’s concerns regarding the confidentiality of the information collected and the distribution of the information. The impression from the meeting was Board members were excited by the information this system could provide and its value. There was no further discussion by staff about the accountability model.

New Business

K-2 Diagnostics The SBE is piloting a developmentally appropriate diagnostic assessment for students in elementary grades during the 2009-2010 school year. The assessments will 1) enable teachers to determine student learning needs and individualize instruction and 2) ensure that students are adequately prepared for the next level of coursework as set out by the Standard Course of Study. There will be 20 schools chosen for the Reading pilot and 13 schools will be selected for the Math pilot. Kickoff meetings will be held in November with implementation beginning in December. The purpose of the project will be to provide ongoing assessments to help guide instruction, to use Personal Digital Assistant (PDAs) to record information from the assessments, to monitor the progress of all students, and to provide interventions for students in a timely manner. Evaluation of the project will be used to determine how the use of technology increases the fidelity of the assessment, is progress monitoring being used and how, and are teachers using the information and the data collected in their daily instruction.

Committee Meeting: Dr. Garland presented an overview of the development of the pilot and the selection process. A list of the selected schools was distributed and a brief summary was provided on the selection requirements. LEAs were asked to submit a request to be a pilot. There are 21 schools in 16 districts participating in the reading pilot for diagnostic assessments and there are 13 schools in 11 LEAs participating in the Math pilot for assessments. DPI attempted to ensure there were schools in every region (district) in the State. They will be using PDAs to record information on assessments. They plan to have a report to the Governor by December of 2010, but may request an additional six months so they can have a full year using the assessments. Information was provided on training sessions and implementation of the assessments. This information was provided to Committee members as an update of the activities occurring in their Regions.

21st Century Professionals Committee (12:30 PM)

Action and Discussion Agenda


TCP 1 Addition of Elementary (K-6) Content Area Concentrations as License Areas APPROVED the proposal to add content area concentrations (an add-on license) to the elementary license area as presented. Individuals with an elementary license would be eligible to have the elementary concentration areas added to their license based on the completion of 18 hours of content-based graduate coursework designed for the elementary teacher in the core content areas of mathematics/or science. Based on defined master’s degree requirements at the universities, some or all of these courses may be applied towards existing degree programs.

Committee Meeting: A brief review of the item was presented. No further discussion was necessary. Mr. Howell recused himself from the vote as an employee of NC State.

Action on First Reading

TCP 3 Recommendations for the Advisory Board on Requests for Exceptions from Teacher Licensing Requirements (LATE ITEM) APPROVED the requests as presented. A panel chaired by a member of the State Board reviews the requests by individuals who have not met licensing requirements due to extenuating circumstances. They may request an exception from the requirement or an extension of time. Closed Session Item.


TCP 2 State Evaluation Committee Teacher Education Program Approval Recommendations The State Board discussed the SEC’s recommendation’s related to the Brevard College Teacher Education Program based on the Spring 2009 follow-up visit.  The revised programs are based on the standards for teachers adopted by the Board in June 2007 and the redesigned program approval process agreed upon by the Board in January 2008.

Committee Meeting: Brevard College is now in compliance and this item will be presented for Action in December.

New Business

-Update on Special Education Licensure Issue Dr. Garland provided information to the Committee regarding the notification by the USED that some North Carolina exceptional children’s teachers were not in compliance with the NCLB’s highly qualified requirements for middle and high school teachers.  Several options were discussed as a solution to the licensure issue to bring these teachers into compliance. Changes in the delivery of core content and changes in scheduling along with the option for EC teachers to co-teach with content teachers were among the suggested options.

Leadership for Innovation Committee

Action on First Reading

LFI 01 Final Decision in Contested Case: Provisions Community Development Corporation DBA Provisions Academy v. State Board of Education Voted to uphold the ALJ ruling on the expiration of Provisions Academy’s charter. Provisions Academy filed a petition for a contested case to challenge the expiration of Provisions Academy’s Charter. The Administrative Law Judge upheld the State Board’s Decision. Closed Session Item.

New Business

NCVPS/LEO Director’s Update In a video presentation, Governor Perdue gave a brief historical background of NCVPS and spoke in support of the program. Dr. Setser spoke briefly about the new Virtual Learning Consultant website and the recent workshop held for the staff in Alexander County on blended learning and online courses. Dr. Setser indicated that end-of-grade and end-of-course data would be provided in a presentation in January.

Business/Finance and Advocacy Committee Meeting


TCS 1 Establish Front-end Funding for Governor’s School The State Board discussed the need for front-end funding of the Governor’s School for the 2010 Summer Program. The Governor’s School’s appropriations for FY 2009-2010 covers program costs for the summer of 2009 programs. Due to budget reductions there was no unexpended/carryover balance to cover start-up preparations costs for the summer of 2010. To ensure there is funding for the 2010 summer programs a proposal for a one-time non-recurring reduction to the Academically/Intellectually Gifted Student allotment is requested in the amount of approximately $80,500. The proposal is to reduce the AIG student allotment for all 115 LEAs by $700 each to create the start-up pool. LEA allotments range from $28,171 in Tyrrell County to $6,629,538 in Wake. Every LEA will be reduced by the same amount regardless of the total funding or number of AG student’s being served.

Committee Meeting: Mr. Price presented the proposal to use the AIG funds to fund the Governor’s Schools summer program start up costs.  Committee members strongly objected to using AIG funds to cover the cost of this program and suggested they find another source for the funding. In the proposal, the AIG allotment for each district would be reduced by $700, creating a hardship for the smaller districts who receive the least amount of funding. They discussed changing the cuts to the districts. They talked about the importance of the Governor’s School. They asked how many LEAs send students. Each LEA is guaranteed 2 slots, but not all LEAs have students attending. Some members said AIG students were using the program and others disagreed. They argued back and forth for quite some time. Superintendent Advisor Jack Hoke suggested LEAs be given a chance to remit $700 from somewhere in their funding and if they don’t DPI would take the funds from AIG. One member suggested they take it from Superintendents’ salary. One member suggested getting grant funds. The Committee ended its discussion and asked Philip Price to come back in December with a final recommendation. They also mentioned if he could find the funds elsewhere he should let them know next month. The topic of student tuition was also discussed. Recent legislation stated that $500 per pupil tuition is to be charged and recommendations for policy changes regarding this issue will be provided next month.  Board members talked about how students could pay these funds and it was noted that some LEAs will pay for their students who are accepted to attend.  DPI is planning to have the LEAs charge the students who are accepted the $500 and then those funds will be collected and distributed to DPI by one check. This would be handled by the LEAs since have the ability to collect funds.

TCS 2 North Carolina Virtual Public School (NCVPS) Funding Formula The State Board reviewed possible options for a funding formula. The NC legislature, in the 2009 budget act, required the SBE to report a formula for NCVPS by December 15, 2009. Originally the legislature had adopted a provision requiring an NCVPS formula be effective with the 2009-2010 school year and at no cost to students. In addition, DPI was to communicate guidelines regarding enrollment of nonpublic school students in these courses.  A formula was never adopted in 2008/2009 and thus the new provision (2009 budget) stating the continued funding of the State Board was dependent on the adoption of the new formula by December 15, 2009.  Three options are presented for discussion: 1) Develop a formula where NCVPS is treated like an LEA with its own ADM (LEAs could capture a 25 percent savings by delivering a course via NCVPS), 2) Charge a fee per course allow LEAs flexibility to convert teacher positions to dollars to cover the cost of courses, and 3) Develop a formula based on the formula used to support Florida’s Virtual School. This is similar to ADM formula outlined in #1. The “per pupil” funding is based upon one FTE equals 6 credits of courses per year. The dollar value of the FTE varies from district to district within the state. Funding is based on projected course participation.

Committee Meeting: Mr. Price presented three options for a funding formula for NCVPS. A recommendation is to be submitted to the General Assembly by December 15. The Committee suggested that only one option be recommended. The members were focused in on the ADM option and the FTE option. After a lengthy discussion about the formula the Committee discontinued its discussion without any direction to staff. Staff will return in December with a formula for the Board to vote on and be sent to the legislature by the December deadline. The funding formula would be effective July 1, 2010.  To fully fund the program for the 46,000 students in 2010-2011 would cost approximately $17 million. The General Assembly appropriated $5.6 million in continuation funding for 2010-2011, which leaves about a balance of $11.4 to be funded based on projected needs. It is also possible the legislature may cut some of the continuation funding or they may provide some additional funding as they did this year ($11.8 Million 2009-2010) to cover the cost of delivering the program. LEAs are going to have problems with funding this program especially through ADM so the best formula may be Option 3 (FTE). The item will be back in front of the Board in early December for final recommendation. Stay Tuned.

New Business

Communications Update Ms. Jeter briefly outlined the activities of the Department. The highlight for October was the posting of the School Report Cards on the web. Staff presented an overview of the information included in the report cards and provided a short tour of the website. Ms. Taft noted that news of the report cards was not widely publicized in the media. Ms. Jeter indicated that additional efforts would be made to remedy this situation.

Bond Update –QZAB bonds available to 64/69 LEAs worth $272 million. Buncombe was the only district having any luck selling bonds from the above group of LEAs who applied. DPI has re-established the Bond Advisory Counsel for 2010 to provide some further assistance.  Academy Bonds are available to 12 LEAs and worth $34 million, however there are still no bond buyers. These construction bond funds will remain available for 2010-2011 with the hope that LEAs may find some bond purchasers.

NCVPS Non-Public School Students The policy addressing this issue will be presented for Action on First Reading in December. The current policy will be modified recommending that non-public school students be classified as visiting students, charged tuition ($350 per course), if accepted and agreed to attend NCVPS, and be required to buy the necessary supplies and textbooks for the courses. LEAs would collect funds and pay DPI. Students attending Learn and Earn Schools would deal directly with the Community Colleges.  Dr. Setser also suggested that the policy may address students from military families. Florida, Georgia and Texas already have established policies to include military families. Other future discussions will include out-of-state students taking NCVPS courses. NC has already started to receive some requests, and the possibility of trading seats with other states would be beneficial in increasing course access with no additional costs to NC.

Contract Update

Contracts over $25,000 – 7 Proposals

Contracts under $25,000 – 12 Proposals


Thursday, November 5, 2009

State Board of Education Meeting, (9:00 AM) Dr. Bill Harrison, Chairman

Call to Order

Pledge of Allegiance

Approval of Minutes

Report on Findings from the Student Debt Tour State Treasurer Janet Cowell Financial Literacy reviewed her report on the student debt tour. She provided 6 observations, including most students have not had financial education in high school or college. She also shared 6 recommendations. High schools should enhance financial literacy programs for students 16-19. Colleges and universities should provide debt and credit card programs when student are freshman. College campuses should restrict credit card company access to students, etc… A copy of the Treasurers report is available upon request from this office.

Key Initiatives Reports and Discussion

ACRE Update: The Goal is to institute an accountability model that: improves student achievement, closes the achievement gap, and increases the graduation rate. The power point presentation included the discussion on how to choose indicators, how to use them, and to what level to apply them. The proposed indicators were student performance, Post-Secondary readiness, and Gateways. Topics for December meetings will include: weighting of indicators and applications of rewards/sanctions at different levels, with continued discussion of Gateways, Constructed Responses, Value-Added, Long-Term Growth and setting ambitious and feasible targets.

District and School Transformation Update– Dr. Pat Ashley Comprehensive Needs
Assessments (CAN) that will be occurring in the LEAs. In 2009-2010 there are an additional 55 schools being added to the program to provide Comprehensive Needs Assessments. Wake County does not have any schools on this list. There are 17 high schools, 9 middle schools and 20 elementary schools. There are many more schools who would benefit from the CAN, but funds are limited. Board members asked the cost which was estimated at $30,000 each and wanted to know if Dr. Ashley were paid by other districts the cost could they provide the CAN. She responded absolutely with the additional funds they could help other schools.

Performance Navigator- Adam Levinson– Manage accountability–review objectives and targets – Adam reviewed the new performance navigator which is intended to provide the SBE and DPI with links to goals and priorities for each division and to be able to track the information.

Consent Agenda

GCS 3 Report on LEA Status for Title III Improvement APPROVED by Consent the annual report. As part of NCLB, LEAs receiving Title III funds must meet a series of Annual Measurable Assessment Objectives (AMAOs). The three objectives: 1) AMAO 1 (Progress) the percent of students who demonstrate progress in at least one of the subtests on the English Language proficiency test 2) AMAO 2 (Proficiency) An annual increase in the percentage of students identified as limited English proficiency who attain English language proficiency on English language test. 3) AMAO 3 (AYP for LEP subgroup) The LEP subgroup must annually meet AYP in academic proficiency in reading and mathematics. LEAs that do not meet their AMAO targets in the same set two years in a row are required to develop a detailed improvement plan as required by NCLB. Title III Improvement for 2009-2010 (Based on 2008-2009 data) is part of the report. Wake (AYP Reading HS) is listed along with Charlotte, Durham and Forsyth as an LEA missing at least on AMAO for FIVE consecutive years.

Board Meeting: No discussion.

Superintendent’s Report

-Dr. June Atkinson’s Reported on graduation achievement awards presented to the ten LEAs in the State with the highest graduation rates. Dare County had the highest with 90.2 percent and Orange was one of the lowest with 81.4 percent. She also recognized the 2008 and 2009 Presidents awards. There were two teachers from Wake County who were given plaques and recognized.

Chairman’s Remarks

Dr. Harrison

-Report on the NC Center for the Advancement of Teaching-Linda Suggs Chairman of the NCCAT board and Mary McDuffie executive director presented information on NCCAT. NCCAT was moved under the direct supervision of the SBE during the last budget (away from the University System). NCCAT noted their programs and no cost to LEAs for teachers who attend. Their work with teachers at both their Cullowhee and Ocracoke site was discussed.  They did receive a 15 percent cut in the budget and are reducing some of their costs and courses to manage the cut. Mary reviewed the retention of teachers who attend their seminars and participation, how teachers are admitted to the seminars, how many are not accepted, the number of years teaching, national board support, beginning teacher support and renewal seminars. Mary also discussed their budget and where they get their funds and an overview of 2008-2009 participation.

-Update on China Initiatives Millie Ravenel presented on travels to China and her work with the Memorandum of Understanding signed with Jiangsu Province by Senator Lee when he was Board Chair. She talked about China partnerships with 24 schools and an additional 15 schools to be added in 2010. Eleven LEA administrators, as well as State Board members and others, are going back to China in December to visit.

Charter School ad hoc Committee Meeting: A meeting was held on Wednesday afternoon to review several new polices to be brought to the State Board in December at the LFI committee. The first policy involves the Accountability Procedures for Charter Schools. The second policy is Termination for Charter Schools Designated as Priority or Low Performing. The third policy and the most controversial involves the Charter School Application Review Process. The issue with this policy is it contains a section about contacting SBE members and how this is not allowed and a violation of this section could include removal of an applicant from consideration. There will also be no attempts by non-applicants (political figures, lobbyists etc.) from influencing the process. There is a question whether or not this section will eliminate the option for LEAs or school boards to communicate on charter applications to the SBE. There will be some minor changes to the policies and they will come to the State Board in December for consideration. A copy of the draft policies is available upon request from my office. The policy changes will not be ready until prior to the December meeting.

Summary of Joint Finance Committee Meeting: November 3, 2009

Senate Finance Co-chairs: Senators Clodfelter, Hoyle and Jenkins

House Finance Co-chairs: Luebke, Gibson, Wainwright, and Weiss

Opening Remarks by Finance Chairs

Overview of the State of Sales Taxation from a Historical and Contemporaneous Perspective

Bill Fox, Professor, Department of Economics; Director, Center for Business & Economic Research, University of Tennessee

North Carolina sales tax revenue has declined by six percent since 2007 and is on a downward trend. Thirty-five states have imposed a local sales tax, which generates approximately $300 billion.  From the total taxes collected in North Carolina, twenty-three percent represents sales tax and thirty-eight percent is collected from income tax. Changes in consumption patterns, legislated exemptions, and cross border shopping (including internet) contribute to a narrowing of the sales tax base. The tax base is changing and the purchase of services has increased since 1979 from 47 percent to 60 percent. North Carolina taxes approximately 30 services out of a possible 165. In order to broaden the base and lower the rates there should be a tax on all household purchases, all purchases regardless of how obtained, all purchases regardless of the income used, all purchases regardless of the vendor and with eliminate the tax on business-to-business purchases. All consumer goods should be taxed heavily in addition to interstate transactions. The single largest service currently exempt is health care. Increased revenues from the various states now taxing services were given as examples. Where is sales tax headed? Pressure to for rate increases, base changes (business purchases, services, consumer goods, interstate transactions) and federal efforts to tax sales. Committee member’s questions involved; what long-term benefits, if any, were in the public interest from the exemptions received from nonprofits. If you choose to provide exemptions, do the exemptions require subsides and how do you go about implementing reform.

Overview of North Carolina Sales Tax Historical

Cindy Avrette, Research Division NCGA

In 1933 the General Assembly enacted a temporary 3 percent retail sales tax known as the Emergency Revenue Act of 1933. This act was passed to levy “additional and extraordinary” taxes to meet a supreme emergency in the shrinkage of the ordinary revenues of the State and as a further relief from property taxes to provide another form of revenue for the support of the public schools of the State in substitution for the taxes levied on property for this purpose. Sales tax became permanent in 1939 and the sales and use tax article was enacted, exempting horses, mules and coffins. Beginning in 1941 an exemption on food was enacted, in 1945 prescription drugs and 1945 fuel sold to farmers. In 1951 the Sales Tax Study eliminated all exemptions with few exceptions and extended the sales tax to all forms of amusements and entertainment, lodging accommodations, automobile service and repairs, and repairs to plumbing, electrical, heating and air conditioning equipment. The 1950’s also saw a one percent, $80 cap, on vehicles, planes and a tax on funeral expenses. The 1960’s-1980’s saw the food exemption repealed, WS tax repealed and a tax on railway cars and boats added.  The 1980’s also added two ½ cents local sales tax authorizations, exemptions on food purchased with food stamps and repeal of the merchant’s discount. The 2000’s saw a third ½ cent local sales tax authorization, Medicaid swap and a tax on digital products. The sales tax revenue in 1933-34 was $6,011,700 with revenues in 2008-2009 amounting to $4,677,961,056.

Preferential Rates

Trina Griffin, Research Division, NCGA

The following are subject to the preferential rates: manufactured homes, modular homes, aircraft and boats and electricity used by commercial laundries/dry cleaners, manufacturers and farmers and other business and residences. Under current law revenue collected from manufactured homes amounts to $15.9 million, modular homes $4.6 million, airplanes and boats $13.2 million.  Electricity purchased for commercial laundry produce $0.5 million in revenue, manufacturers and farmers $22 million and commercial businesses and residences $105 million. In 2005 legislation was enacted a combined general rate (5.75 percent + sum of rates of local sales tax authorized for every county 2.25 percent. This was increased from 7 percent to 8 percent on September 1, 2009. Spirituous liquor, telecommunications and video programming are subject to the general rate.

Streamlined Sales Tax Project

Sabra Faires, Senate Tax Counsel, NCGA

The Streamlined Sales Tax Agreement is a voluntary written agreement developed by states and adopted in November, 2002. Forty-one states and the District of Columbia have approved the Agreement with 23 states implementing the Agreement by changing their laws to conform to the requirements of the Agreement.  North Carolina became a member in October 2005. The goals of the Agreement is to simplify and modernize sales and use tax laws to reduce complexity for all retailers, promote equity between retailers and remote sellers and relieve consumers of the obligation to report sales and use tax on purchases from remote sellers.

North Carolina Sales Tax Exemptions Medical and Food Related Exemptions

Sandra Johnson Fiscal Research Division, NCGA

There are three major sales and use tax exemptions, food, prescription drugs and durable medical equipment.  In 1933 food for human consumption was exempt from the sales and use tax, in 1961 this exemption was repealed. In 1998, the State sales and use tax rate was eliminated, but in 2003 legislation determined prepared food is taxable by the State. Prepared food is subject to State and local sales tax if it is sold in a heated state, it consists of two or more foods, foods mixed or combined by retailer or it is sold with eating utensils. Taxes collected in 2008-2009 on prepared foods amounted to $1.4 billion. Twenty six states exempt taxes on food, five states have no sales tax and several states levy a tax at a reduced rate. Prescription drugs and durable medical equipment recorded a similar up and down history as the history described in the food industry taxes. In 1999 the sales and use tax was repealed for prescription drugs sold to hospitals and all durable medical equipment became tax exempt in the same year. To date, 43 states exempt prescription drugs from the sales and use tax.

Agricultural, Industrial, and Business Related Exemptions

Martha Walston, Fiscal Research Division, NCGA

Agricultural and industrial related exemption fall into five categories: items sold to or produced by farmers, manufacturing items, packaging items, items sold to commercial laundries and computer software. Staff provided examples of items exempt under each category.  Farmers main items include facilities, equipment and supplies for housing, raising, or feeding animals, and substance used on animals or plants. Manufactured items largest item is central office equipment, switchboard, telephone service. Packaging items major item is containers used a packaging by the owner of the container. Laundry is primarily fuels and electricity. Computer software is customer software and software needed to run an enterprise server, datacenter, cable service, telecommunications, internet access etc…

Incentive Related Exemptions

Canaan Huie, House Tax Counsel, NCGA

Incentive related exemptions include major recycling facilities, interstate air couriers, interstate air passenger carriers, interstate air businesses, data centers and railroad intermodal facilities. Questions were raised regarding the actual cost of these incentives to the State, year after year. Staff indicated the Department of Revenue considers this information confidential and does not release these figures. The question then becomes over a period of time do these incentives still benefit the public.

Remaining Exemptions

Dan Ettefagh, Bill Drafting Division, NCGA

These exemptions include prohibitions (constitutional or federal law, sales on Cherokee Indian Reservation or disaster relief debit card purchases), alternative tax-based exemptions (piped natural gas, motor vehicles subject to the highway tax or motor fuel subject to motor fuels tax), exemptions on products used outside of the State, entity-based (i.e., purchases of mobile classrooms by boards of education) and transaction-based exemptions (i.e., articles repossessed by vendors), media exemptions, streamlined-and final sale-based exemptions and other miscellaneous reasons (i.e., public school books, sales by blind merchants, water delivered by mains/pipes, etc.).

North Carolina Sales Tax Refunds-To be discussed at the next meeting.

Nonprofit Refunds, Rodney Bizzell, Fiscal Research Division, NCGA

Incentive Related Refunds, Canaan Huie, House Tax Counsel, NCGA

Next Meeting Date: November 17, 2009

Atkinson’s Budget Report to the JLEOC

Report to the Joint Legislative Education Oversight Committee on October 13th, 2009:

The Impact and Consequences of the Recession on NC Public Schools

(click the link provided above for the pdf version of the superintendents report)

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