The North Carolina General Assembly finally finished its 2013 session last Friday with AIA North Carolina having had one of its busiest legislative sessions in recent memory.

With almost 60% of the Legislature having two years or less experience, the job of educating new lawmakers about our industry, one that contributes almost 20% of our state's GDP, has been daunting. It has required much greater coordination and cooperation with our allied partners in engineering and contracting than any other time before. Yet, the gains for all have been significant.

 

AIA NC has been tracking over 230 pieces of legislation that, to some degree, has an effect on the design and construction industry. A little over 30 of those we considered a high priority. To have a look at these items click on the link below.

 

AIA NC Bill List 

 

Five issues became standouts as the session shaped up and AIA spent considerable time on these issues:

 

HB 857 - Design Build/ Public Private Partnerships 

 

The bill does 4 major things:

1)   Authorizes the use of qualification based selection design-build by public entities

2)   Authorizes the use of bridging design-build by public entities

3)   Authorizes and defines public private partnerships for public entities capital construction projects

4)   Eliminates the designer qualification based selection exemption public entities have been abusing for years. In exchange the threshold for sole source contracts will be changed from $30,000 to $50,000.

 

Additionally the bill calls for a study of the pre-qualification methods and requirements for hiring general contractors; authorizes the use of prototypes designs for public K-12 schools and requires public entities using design-build to report to the State Construction Office the reasons for using this delivery method.

 

Status: The bill passed both houses of the General Assembly and has been sent to the Governor for his signature.

 

AIANC would like to thank Representative Dean Arp for his determined leadership with this piece of legislation. In the end there were at least 14 different organizational stakeholders involved in this bill, all with different perspectives on project delivery and construction finance. As a freshman legislator Rep. Arp truly set himself apart in this year's session as one of the majority's go-to leaders in fostering collaborative and inclusive lawmaking.

 

HB 201 - 2012 Energy Code Roll Back

 

This bill would have rolled back the 2012 state energy code to the 2009 edition. A very large coalition of groups including AIA, energy advocates and private companies who have stimulated North Carolina's economy and job market through the economization of energy efficiency lobbied hard to get the bill stalled for this year.

 

Status: The bill made it through the House and Senate policy committee. Once it reached the Senate floor it was re-referred to the Senate Rules Committee where it sits today. Leadership in the Senate has indicated an unwillingness to let the bill move on for a full Senate vote. The bill does remain alive for action during the 2014 legislative session.

 

HB 628 - Timber Industry/LEED

 

This bill began as a means to try and leverage USGBC into negotiating with the timber industry to change its use of only FSC certified wood for LEED credit. In effect, the bill would have disallowed the use of LEED on any state projects if you used FSC wood. Through intense negotiations with the timber industry, the bill was amended to allow for LEED but designers must take into account whether the rating system "(i) provides certification credits for, (ii) provides a preference to be given to, (iii) does not disadvantage, and (iv) promotes building materials or furnishings, including masonry, concrete, steel, textiles, or wood that are manufactured or produced within the State."

 

In addition, amendments offered at the last minute placed restrictions on meeting the 30% energy reduction requirements under SB 668 if the state project cannot prove a ten-year payback for achieving that 30% reduction.

 

Status: Signed by the Governor on July 3.

 

HB 998 - Tax Modernization

 

The big issue of this legislative session was supposed to be a complete re-write of our state's tax code. Legislative leaders traversed the state during the interim selling a plan that would eliminate the personal and corporate income tax and in its place broaden taxes on services and products. We were told directly to expect architectural services to be on the list on newly taxed services. As the session wore on it became increasingly clear that both chambers didn't share the zeal for such a complete overhaul and in the end, HB 998 became more of a tinkering with the existing percentages and less about a complete overhaul. Here are some of the highlights that may affect you and/or your business:

 

INDIVIDUAL INCOME TAX:

  • Eliminate the current three-bracket rates of 6, 7 and 7.75 percent with one bracket with a 5.8 percent rate in 2014 and 5.75 percent in 2015.
  • Eliminate personal exemptions, but increase standard deduction - currently ranging from $3,000 to $6,000 depending of filing status - from $7,500 to $15,000.
  • Eliminate $4,000 deduction on government retirement income and $2,000 private retirement income.
  • Allow the greater of the standard deduction or itemized deductions equal to mortgage interest and property taxes capped at $20,000, plus all charitable contributions allowed by federal tax law.
  • Raise child tax credit from $100 per child to $125 for tax filers with adjusted gross income below $40,000. The $100 credit would still be eliminated for people with high incomes.
  • Eliminate in 2014 a $50,000 deduction on certain business-related income approved in 2011.

CORPORATE INCOME TAX:

  • Reduce current rate of 6.9 percent to 6 percent in 2014 and 5 percent in 2015. It could fall to 4 percent in 2016 and 3 percent in 2017 if revenue growth targets are met.

SALES TAX:

Effective Jan. 1, 2014:

  • Expand to include service contracts.
  • Tax manufactured homes (2 percent or $300 maximum) and modular homes (2.5 percent) at full 4.75 percent state sales tax rate.
  • Repeal exemptions for nutritional supplements sold by chiropractors and certain newspaper sales.

Effective July 1, 2014:

  • Repeal current 3 percent franchise tax on electricity sales, replacing it with 6.75 percent combined state and local sales tax rate.
  • Make piped natural gas subject to combined rate of 7 percent, end excise tax.
  • Repeal sales tax holiday weekend in August and Energy Star appliance sales tax holiday weekend in November.
  • Cap sales tax refunds for individual nonprofit hospitals, universities and other charities to $45 million annually.

OTHER TAXES:

  • Extend tax credits for research and development, professional motorsports teams and aviation fuel for the teams and passenger air carriers until 2016.
  • Other tax credits would expire as scheduled over time. The film production tax credit, for example, would expire in 2015.
  • Repeal estate tax.

REVENUE:

  • The plan is projected to result in $86.6 million less in state revenues during the 2013-14 fiscal year and $437.8 million less in 2014-15 compared to revenue levels if no tax changes were made. The amount extends to more than $600 million annually through mid-2018.
  • Local governments combined would receive $14.6 million in additional revenue in 2013-14 and $36.2 million in 2014-15.

WHAT'S NOT CHANGED:

  • Social Security income won't be taxed differently.
  • Other services transactions, such as lawn services, automobile repairs, alterations and many business transactions will continue to be exempt from the sales tax.

(Analysis Supplied by the Associated Press 7/15/13).

Status: Signed by the Governor on July 23.

 

SB 402 - State Budget / Budget Report

 

Because the deal on the new tax plan took so long to work out, the budget, which by law must be completed by July 1, has been delayed by more than 2 weeks. Because the new tax plan creates a $430 million hole in the state budget, legislative leaders have been negotiating budget provisions along with the tax plan. The implications for the design and construction community are no better than the last four years of recessionary budgeting. The final conference report of the bill which was adopted last week looks like this:

 

Big picture changes from 2011-12 budget include:

  • Reduction in Public Education of $242.5 mil
  • Increase in Health & Human Services funding of $369 mil. The big number here is Medicaid increases.
  • Reduction in Justice & Public Safety of $41.5 mil
  • Increase in Natural & Economic Resources of $5mil
  • Increase in General Government of $.5 mil
  • Increases in State Reserve Accounts of $215.4 mil
  • Increase in Capital Improvements of $17,000. (not a typo, yes thousand)

As for Design & Construction related issues:

  • Authorizes $100 mil per year in repair & renovation for state facilities, 46% to UNC, balance to other state agencies. However, it's tied to the budget's debt financing rather than a structural reoccurring amount in the budget. No new square footage is allowed for any R&R projects.
  • Looks to require a 2% reduction in most agency operating expenses giving management flexibility to make the cuts.
  • Moves the entire State Energy Office from the Dept of Commerce to the Dept of Environment & Natural Resources. No loss of FTEs or money though.
  • Only accounts for a direct appropriation of $12 mil in building construction in FY 13/14 and $8.25 mil in FY 14/15 tied to 2 small projects.
  • Authorizes $37.4 mil in construction projects from receipt based projects.
  • $2 mil in planning funds to App St for new Health Sciences Bldg; $2 mil to UNC Asheville for land purchase. Both for FY 13/14. Nothing in FY 14/15.
  • Abolishes the Sustainable Communities Task Force and its funding of $100K.
  • Takes Clean Water and Natural Heritage Trust Funds and roll them into a new Water and Land Conservation Authority. Looks to be an additional $12 mil and $14 mil in funding for the biennium.
  • Consolidates all water and wastewater programs into one new Water Infrastructure Authority with what appears to be an additional $4 mil and $5.5 mil in funds for the biennium.
  • Abolishes the Rural Economic Development Center that had some responsibility for local infrastructure needs and consolidates some of what the Center was doing into the Dept of Commerce into a new division of Rural Economic Development. Center funds of $16.6 mil is eliminated and new funds to Dept of Commerce for the new Division appears to be $10.3 mil. Possible loss of $6.3 mil in this area.

Status: Signed by the Governor on Friday, July 26.

 

Posted
AuthorDavid Crawford