This’ll just take a second….

This is a bit off the beaten path, but I am hoping you won’t mind my bringing a few noteworthy points to your attention before you delve into the 4 new posts below…

Firstly, if you have not yet noticed, the url of this site is slightly different.

Instead of the rather lengthy….

Our New Web Address is:

******So, make sure you BOOK MARK our new URL now******

But no need worry…. The old address will still work just fine.  No one’s

Moved Your Cheese...”

More importantly, as we approach the new – and what will certainly be an extremely long – Long Legislative Session, our goal – the purpose of – has not changed .  We hope to provide a timely, accurate, no frills/no spin connection to whats going on in the world of North Carolina Education Policy.

But there’s a critical component missing. Input, feedback, and direction from our readers.  Any alternative would incomplete, one-sided, and stagnant; and well, that’s not how we roll.

We’re gonna keep blogging.  The previews and the summaries will keep coming.  But before we really get rolling again…

We’d love to hear your thoughts.

Is this blog as useful to you as it could be?

What would you like to see more (or less) of?

Are there specific topics you would like to see highlighted?

Please, take a few minutes and give us a piece of your mind

We look forward to your comments and suggestions.

Thank you and KEEP READING.

Remember to Vote November 2nd,

Joel Maynard


Summary of Joint Meeting of Senate and House Finance Committees

December 1, 2009

Opening Remarks by Finance Chairs-Senator Hoyle-Chaired the meeting.

Expanding Sales Taxation of Services: Options and Issues

Michael Mazerov, Center on Budget and Policy Priorities, Senior Fellow, Center’s State Fiscal Project noted that North Carolina is not alone in taxing few services. Twenty-four of 45 states enacted sales taxes during the 1930’s-1940’s, to offset plunging property taxes during the Depression. States did not include services because services were a much smaller share of the economy, and the tax on services was viewed as a tax on labor and jobs. Most states could improve their sales taxes and their tax systems in general with some expansion of the tax base to include services. Some of the reasons states should expand their taxation of services is to improve horizontal equity (equal tax treatment of similarly situated people), to raise additional revenue, to mitigate long-term erosion of sales tax, to reduce sales tax revenue volatility, to eliminate administrative problems and to improve economic efficiency. There are also drawbacks to expanding the sales tax on services, which may include bringing many new retailers into the system. These new retailers would have to be registered, educated and returns processed and audited. Also, this would increase the possibility of substantial noncompliance by individual sellers of some services (i.e., “off-the-books” by individuals, such as child care, house cleaning, home repair). However, the benefit of taxing services outweighs the drawbacks, since sales tax, primarily based on durable goods, will fall farther and farther behind the growing cost of providing public services. Taxing services will have a significant short-term revenue-raising potential. The services that could be taxed by states include business to business, services to households or both. The recommendation is that taxing services on businesses should be avoided as this often leads to pyramiding (multiple taxing of one item) with possible negative economic, political and distributional effects. A list of household services that could be taxed includes lawn and garden, financial and insurance, personal property rentals, medical and admissions, recreation and travel. North Carolina taxes 30 services out of a possible 168 and is well below the national average. The two approaches for expanding sales tax on services include Comprehensive (all services unless specifically exempt) and Incremental (enumeration of services) and examples of the pros and cons for each were presented. Members were interested in knowing if any comparisons had been done for those states that have used the comprehensive approach during this last recession and how these states were impacted financially.

Taxation of Services:  A Case Study of Other States

Presented by Cindy Avrette, Research Division, and Sandra Johnson, Fiscal Research Division, Prepared by the Finance Team began with a slide presentation that  included information requested by the members from previous meetings. The Federation of Tax Administrators (FTA) has listed over 100 services, divided into 16 categories, with business services, personal services and utilities ranking among the highest. In North Carolina 63 percent of the general revenue is acquired from taxation on utilities. Several slides were presented showing comparisons of selected states charting the state sales tax rate, the combined rate, number of FTA services taxed, and if there was any impact to the rate. Comparisons were also provided for those states that taxed over 100 services, states that taxed between 60-100 and states that have taken recent action such as Maryland, Michigan, and Maine regarding tax reform.  North Carolina and Virginia were among the states receiving a large portion of their revenues from Corporate and Individual taxes.  In conclusion, many states tax more services than North Carolina. Repairs, installation, warranties, amusements and automotive cleaning and maintenance were among those services currently not taxed in our state that are being taxed by other states. States that tax more services tend to have more sales tax stability. It was also noted that North Carolina’s combined tax rate was high for a state that also taxes income, since some of the states with comparable sales tax do not have an income tax or it is smaller in generating revenue than ours.

Senator Phil Berger and Representative Paul Stam requested an opportunity to present a document outlining work they (House and Senate Republican members) had been doing on the tax reform issue. They stated they supported the concept of broadening the tax base, while lowering the rate, but they wanted assurances that tax reform won’t be used to raise additional taxes and that it would create job growth. They suggested two possibilities to prevent tax reform from turning into tax hikes; an amendment to the state constitution limiting the state sales tax to 3 percent and local sales taxes at the same rate, or a requirement that tax hikes can only be passed separately from the budget or other legislation with a two-thirds vote. There were several other conditions outlined in the document provided by the Republican Leadership including proportional representation for the two parties on budget conference committees, zero-based budgeting and a requirement that “off-budget” agency revenue be appropriated by the legislature. Also included was the condition that the Governor’s proposed budget be based on previous year’s tax collections, rather than projected revenues. Also discussed by the members were the amount of lost revenue due to Internet sales ($7-$12 billion by 2011) and the hope for Congressional intervention/legislation to address this issue.

Sales Tax Administration

Eric Wayne, Director, Sales Tax Division, Department of Revenue reviewed the Department of Revenue’s processes and procedure related to sales tax collections. In considering a tax rate increase or taxable base expansion several issues were presented that would have significant impact on the Sales and Use Tax Division of the North Carolina Department of Revenue. The list included taxpayer education, employee education, technology system changes, form redesign, worksheet, affidavits, Streamline Sales Tax Project, budgetary concerns and departmental resources. Mr. Wayne provided information for each category and the affect any changes would have on the 180,000 taxpayers. He requested members consider the time element, cost implications, and personnel for the Department of Revenue, when adopting new legislation regarding tax reform.

Next Meeting: January 14, 2010

Press Release from the Governor’s Office: Lottery Funds

State of North Carolina

Office of the Governor

20301 Mail Service Center • Raleigh, NC 27699-0301

August 28, 2009

Contact: David Kochman

Office: (919) 733-5612

Perdue Fully Restores School Lottery Funds

RALEIGH – Gov. Bev Perdue today announced she is fully restoring funds to the lottery capital fund for public schools.

“When the national recession created a shortfall of billions of dollars, I had to turn over every stone to pay North Carolina’s bills — to pay teachers, to keep schools and other core services running,” Perdue said. “With our bills paid and the books for last fiscal year cleared out, I’m restoring the school construction lottery funds in full, which means North Carolina’s public schools will receive another $37.6 million next week.”

In February, Perdue withheld $37.6 million during the 2008-09 fiscal year from the Public School Building Capital Fund to ensure the state had sufficient resources to manage cash flow and payroll obligations. That money is being restored using funds left over from the 2008-09 fiscal year.

See the attached document for a list of funds going to each county.

# # #


Total Lottery Distribution

Alamance County


Alexander County


Alleghany County


Anson County


Ashe County


Avery County


Beaufort County


Bertie County


Bladen County


Brunswick County


Buncombe County


Asheville City


Burke County


Cabarrus County


Kannapolis City


Kannapolis City


Caldwell County


Camden County


Carteret County


Caswell County


Catawba County


Hickory City


Newton-Conover City


Chatham County


Cherokee County


Chowan County


Clay County


Cleveland County


Columbus County


Whiteville City


Craven County


Cumberland County


Currituck County


Dare County


Davidson County


Lexington City


Thomasville City


Davie County


Duplin County


Durham Public


Edgecombe County


Forsyth County


Franklin County


Gaston County


Gates County


Graham County


Granville County


Greene County


Guilford County


Halifax County


Roanoke Rapids City


Weldon City


Harnett County


Haywood County


Henderson County


Hertford County


Hoke County


Hyde County


Iredell County


Mooresville City


Jackson County


Johnston County


Jones County


Lee County


Lenoir County


Lincoln County


Macon County


Madison County


Martin County


McDowell County


Mecklenburg County


Mitchell County


Montgomery County


Moore County


Nash-Rocky Mount


New Hanover County


Northampton County


Onslow County


Orange County


Chapel Hill-Carrboro


Pamlico County


Pasquotank County


Pender County


Perquimans County


Person County


Pitt County


Polk County


Randolph County


Asheboro City


Richmond County


Robeson County


Rockingham County




Rutherford County


Sampson County


Clinton City


Scotland County


Stanly County


Stokes County


Surry County


Elkin City


Mount Airy City


Swain County


Transylvania County


Tyrrell County


Union County


Vance County


Wake County


Warren County


Washington County


Watauga County


Wayne County


Wilkes County


Wilson County


Yadkin County


Yancey County





HB 1588


Individual Income Tax –Effective for taxable years beginning on after January 1, 2009

Revenue Impact $256.7 million

Income tax rate increase to 8.25 percent for couples earning more than $200,000 and up to $500,000.

Income tax rate increase to 8.5 percent for couples earning more than $500,000.

Single Income Tax Return for Unitary Business- Effective beginning on or after January 1, 2010

Revenue Impact $18 million

Bill requires unitary businesses to file a single income tax return that includes the state net income of the unitary business group.

Franchise Tax on LLCs- Effective beginning on or after January 1, 2010

Revenue Impact $59 million

The bill would make the franchise tax applicable to all business entities.

Throwback Rule- Effective beginning on or after January 1, 2010

Revenue Impact $5.9 million

Amends the State’s corporate income tax so that sales of property shipped by a corporation from North Carolina to the federal government or to a purchaser located in a state that cannot tax the corporation would be included in calculating the corporation’s North Carolina income for tax purposes.

Change Bank Interest Deduction- Effective beginning on or after January 1, 2010

Revenue Impact $2.6 million

The bill reverses a corporate income tax interpretation allowing corporations engaged in banking business to deduct interest expenses incurred in producing tax-exempt interest income.

Sales Tax-Warranties, Installations and Repairs; Local and Interstate Courier Services; Digital Products and Click-Throughs- Effective October 1, 2009

Revenue Impact (Digital/Click-Throughs $13.2 million) (Amusements/Movies $23.6 million) (Warranties, Installations, Repairs $176.2 million) and (Local and Interstate Courier Services $25 million)

This legislation would also impose state and local sales and use tax on service contracts and on repairs, maintenance and installation services for tangible personal property effective October 1, 2009 and would permanently impose sales and use tax on local and interstate courier services (DHL, FedEx, UPS etc).

Movies and other amusements in lieu of the privilege tax (exemptions include: events at elementary or secondary school, entertainment activity produced for benefit of religious, charitable, benevolent or educational purposes, youth athletic contest with an admissions price under $10.00 (participants under age 20), choral or theatrical performance, recreational or entertainment activity for teenagers and farm-related entertainment.) Also, includes digital products and remote sellers with gross receipts of at least $10,000.

Increase General Sales and Use Tax Rate- Effective August 1, 2009 and October 1, 2009

Revenue Impact 1/4 – cent sales tax $195 million Tax Rate 7 percent = 4.75 percent state and 2.25 local. Reduce local sales tax to 2 percent and increase State Sales Tax to 5 percent on October 1, 2009 pursuant to the legislation on Medicaid with the State taking responsibility for local Medicaid funding.

The general rate of State Sales Tax does not apply to construction materials purchased to fulfill a lump-sum or unit-price contract entered into or awarded before the effective date of the increase or entered into or awarded pursuant to a bid made before the effective date of the increase when the construction materials would otherwise be subject to the increased rate of tax.

Alcoholic Beverage Taxes- Effective August 1, 2009

Revenue Impact $8 million

Increases the excise tax on liquor from 25 percent to 26.5 percent.

Federal Stimulus Bill and the Education Budget

from the NC Fiscal Research Division

February 24, 2009

The entire presentation is available HERE or by going to the on the Fiscal Research Website:

Fiscal Stabilization Fund Overview

·      Up to $1.4 billion available over 2-year period

Use Fiscal Stabilization money to partially restore cuts in State funding to public schools and higher education or reduce state funding for education.  Funding will be released as early as March and April. Governor submits an application from the state to acquire funds. Still unknown is who will determine how the funds will be used.

                                                                                               2009                                2010

Fiscal Stabilization Education (81%)                         $1,161,931,564               $0

Fiscal Stabilization Other (19%)                                  $258,522,671                 $0                       

Eligibility Requirements

·      Maintenance of Effort: (State must fund education at 2006 levels ($6,721,053,466-2005-2006 public schools), (amount undetermined, could use 2006-2007 funding allotments as the base).

·      Teacher Effectiveness: Address inequities between distribution of teachers between high-poverty and low-poverty schools.

·      P-16 data system: Establish a longitudinal data system.

·      Standards and Assessment plan: Comply with ESEA provisions related to assessments for CWD and LEP students.

·      Require Expenditures of Funds: Restore public schools and higher education budgets to FY 2008-09 levels, can be used for operations or capital.


·      Worst Case: State could cut budget to 2005-2006 levels equals an $869 million cut to public schools or 10.9 percent. Total funding $7,125,045,932

·      Best Case: State support stays at 2008-2009 levels, use stabilization to expand funding meaning an increase to public schools of 7.3 percent or an additional $581 million. Total funding $8,574,634,621.

·      Middle of the Road: State support falls 8 percent, fiscal stabilization partially restores cuts (net cut of 3 percent for public schools for 2009-2010)  Possible Funding Post-Stimulus for State Public Schools based on this scenario- $7,750,727,592.

Categorical Funding                2009                    2010

Title I                                          $128,728,180         $128,728,180

·      Funds would supplement State and local funding for low-achieving and high poverty children with 38 percent of stimulus money allotted for targeted grants, 38 percent for concentrated grants and 23 percent for school improvement. Must provide Maintenance of Effort, State and Local expenditures for education cannot be less the 90 percent of prior year expenditures.

IDEA                                     2009                               2010           

                                               $157,205,020               $157,205,020           

IDEA Preschool            $6,035,571                  $6,035,571

·      To be eligible all LEAs  must submit application to State and get approval prior to receiving funds. The formula is based on 75 percent of the December 1998 allocation and 15 percent based on Title I headcount.  Must provide Maintenance of Effort, State and local expenditures for special education and related services cannot be less than prior year expenditures.

Educational Technology       2009               2010     

                                                          $8,179,529            $8,179,529

·      All LEAs receiving Title I funds are eligible. The distribution formula is 50 percent allocated based on the LEAs proportional share of Title I funds and 50 percent competitive or for 2009-2010 states can make the distribution 100% competitive.

Competitive Funds (are available to all States) Total 6.1 Billion

State Incentive Fund                                        $5 Billion

Innovative Fund                                                $650 Million

Teacher Incentive Fund                                  $2 Million

Statewide Data Systems                                  $250 million

School Construction Bonds:

QZAB’s-$1.4 Billion increase of $1 Billion

School Construction Bonds-$275.5 Billion-NC availability-$551 million over the next two years. Distribution of 40 percent to seven LEAs (Wake, Charlotte, Robeson, Durham, Guilford, Forsyth, and Cumberland). Sixty percent to SEAs.




Revenue Outlook: February 3, 2009 Update



2009-2010 North Carolina State Budget and Revenue Outlook

from the NC Division of Fiscal Research

Estimated Allocations for NC LEAs Under the 2009 Draft Stimulus Bill

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