2018-2019 House Budget

The state House passed its 2018-2019 budget bill in the early morning of June 2, providing support for several county priorities, including funds to support legislation to raise the age of juvenile jurisdiction. It does, however, maintain the existing level of lottery funding for statewide school capital at $100 million without an increase. The House and Senate have entered into negotiations to work out differences in the versions, and we expect to see a compromise bill within a week.

The House budget includes increased funding for behavioral health programs, a school calendar flexibility pilot program, and a greater appropriation to the Clean Water Management Trust Fund. It also includes an additional $150 million to address Hurricane Matthew recovery needs. Below is a summary of specific budget items of interest to counties.



Finance


The House budget makes a number of changes to state revenue laws. While the overall state dollar impact in the Senate plan is much greater, the House bill actually has more provisions that influence local government revenues. At the state level, the House increases the standard deduction as well as the cap on the income tax deduction for mortgage interest and real property taxes. It also repeals the 1% tax on mill machinery (with an $80 cap), reduces the franchise tax, and redirects some of the proceeds of the highway use tax.

Three other provisions impact local governments:
  • Fulfillment Centers – The bill creates a sales tax exemption for distribution equipment used in fulfillment centers, subject to certain job and investment thresholds. To qualify, the facility must invest at least $100 million in real and tangible personal property within the first five years, and employ at least 400 people.
  • Research and Development – The bill provides a state and local sales tax refund for small businesses engaged in research and development, with special provisions to assist more rural businesses. To qualify a business must employ no more than 200 people, have annual gross receipts of less than $5 million, and spend at least $10,000 or 3% of its receipts on in-house research expenses. The refund is capped at $20,000 per business.
  • Disabled Veteran Property Taxes – Language from H2 increases the disabled veteran property tax homestead exclusion from the current $45,000 to $100,000 and reimburses local governments for the cost of this change, and creates a new unlimited property tax exclusion for the primary residence of an unmarried surviving spouse of an “emergency personnel officer killed in the line of duty.” The effective date is July 1, 2018. Legislative staff estimates the local government costs at $2.7 million in FY 2018 and $6.7 million in FY 2022


Health and Human Services


  • Provides targeted increases for behavioral health and community health programs including:  
    • $21 million for inpatient crisis beds at seven specific hospital facilities across the state
    • $2 million for new child facility-based crisis centers
    • $15 million recurring for community health center grants
    • $250,000 for an opioid quick response team in New Hanover County
  • Eliminates pre-K waitlist adding 7,000 more spots using $36.2 million in additional state appropriations and TANF grant funds over the next two years
  • Requires the Dept. of Health and Human Services to develop a plan to establish Medicaid reimbursement for EMT behavioral health crisis transportation
  • Continues funding community paramedicine pilot projects in three counties with $350,000
  • Reduces state funding to LME/MCOs by $99.6 million in total over both years, $52.2 million of which is recurring; decreases reductions by up to $30 million each fiscal year if the Medicaid budget has a sufficient surplus; identifies specific reinvestments of the recurring reductions into various behavioral health programs including $5 million for three-way beds
  • Increases state-county special assistance rate by $34 per resident per month, which would require a matching increase at the county level as well
  • Provides more than $18 million over two years to implement the Child Welfare Program Improvement Plan as a result of the recent Child and Family Services Review
  • Appropriates $20 million non-recurring for NCFAST operation and development, including child services and child welfare case management system projects
  • Transfers $7.5 million from TANF block grants to SSBG each year for county DSS to use for children services; total funding from SSBG for county departments is about $33 million each year

Education


  • Maintains $100 million in lottery proceeds to the Public School Building Capital Fund
  • Allocates no additional funding from lottery proceeds for school capital; uses $50 million from lottery proceeds to fund a portion of standard transportation allotment for FY 2018 only
  • Requires biannual report on class sizes in kindergarten through third grade from each school system, including school capacity limitations
  • Creates a legislative task force on education finance reform to study and develop a new funding model for public schools based on a weighted student formula
  • Directs the State Board of Education to develop a school calendar flexibility pilot program for 20 counties for three school years, with a reporting requirement to the UNC School of Government followed by a report to the legislative education oversight committee each year

Justice and Public Safety


  • Includes funding to implement H280 Juvenile Justice Reinvestment Act 
  • Classifies the State Highway Patrol as a Public Safety Access Point for the purposes of applying for a 911 grant from the PSAP Grant and Statewide 911 Projects Account
  • Provides $250,000 to the City of Wilmington to establish a pilot program for Quick Response Teams to address the needs of opiate and heroin overdose victims
  • Appropriates $4.1 million non-recurring for the construction of new VIPER towers across the state; provides $605,089 in FY 2017 and $678,077 in FY 2018 for additional VIPER tower operating funds
  • Provides $250,000 to the Administrative Office of the Courts to study rural judicial districts
  • Appropriates $2.7 million for 37 new assistant district attorneys across the state

Environment


  • Appropriates $3 million recurring and $850,000 in one-time funds to the Clean Water Management Trust Fund
  • Preserves the Div. of Environmental Assistance and Customer Service in the Dept. of Environmental Quality
  • Appropriates $7 million non-recurring in additional funds for the Parks and Recreation Trust Fund

Transportation


  • Allocates funds to MPOs & RPOs for a portion of the local match required for federal State Planning and Research Program funds
  • Increases MPO and RPO input into regional and division tier rankings
  • Creates a Blue Ribbon Commission on Transportation Infrastructure Funding to study options for financing infrastructure
  • Authorizes the Dept. of Transportation to reimburse local governments for funding preliminary engineering of infrastructure projects under certain circumstances
  • Removes limitations on state contributions to light rail funding
  • Provides $30 million for immediate need construction projects, mostly divided between the 14 highway divisions

Agriculture


  • Provides $500,000 recurring for the marketing of North Carolina Agricultural products internationally 
  • Appropriates $1.1 million to the Agricultural Development and Farmland Trust Preservation Trust fund, targeting $25,000 to the new Beehive Grant Program

Disaster Relief


  • Allocates $150 million in additional funds to the state’s Emergency Response and Disaster Relief Fund to be used for disaster relief in relation to the 2016 Disaster Recovery Act


Economic Development


  • Creates a Site Building and Development Fund in the Dept. of Commerce
    • Provides a non-recurring $12.5 million for loans to local governments for acquisition and development of business facilities
    • Scaled interest rate of 0% for Tier 1 counties, 1% for Tier 2, and 2% for Tier 3
  • Creates an NC Ready Sites Fund in the Dept. of Commerce to assist local governments for improvements to infrastructure serving public industrial sites, and transfers $5 million from Rural Grants into the fund 
  • Allocates $15 million in FY 2018 and $30 million in FY 2019 for film grants

Miscellaneous


  • Directs a legislative study of the revenue and expenditures of public enterprise systems in consultation with NCACC and other groups
  • Requires executive branch officials to report on the local government web site transparency efforts required by the 2015 budget act