Welcome to the Nexsen Pruet Weekly Legislative Update! The Nexsen Pruet Public Policy team provides attorneys and clients with a newsletter summarizing the week's activities and conveying the inner workings of the legislative process and state government in Raleigh. Please feel free to pass this along to your clients or other interested parties, email kcollins@nexsenpruet.com to be added to the list. 

This Week 

Lawmakers had a relatively quiet week in terms of legislation. House appropriators reviewed the Governor’s budget proposals, and handful of bills moved as anticipated. House and Senate leadership agreed to a budget figure and Appropriations Chairs began meeting Thursday afternoon. However, all of that was overshadowed by a letter sent to the governor’s office by the Federal government. 

The United States Department of Justice issued a warning Wednesday that surprised legislative leaders regarding House Bill 2. In a letter to Governor McCrory (R), DOJ noted that House Bill 2 violates Title VII of the Civil Rights Act, and threatened to withhold $1.4 Billion in federal funding if the law is not changed. Title VII prohibits discrimination based on sex, and the letter gave McCrory until Monday to respond and announce that the State will not comply with the law. The letter was also sent to the North Carolina Department of Public Safety and the UNC System. 

Obama administration says HB2 violates federal civil rights laws – WRAL 

House Speaker Tim Moore (R-Cleveland) and Senate Pro-Tem Phil Berger (R-Rockingham) have both criticized the DOJ action as gross federal overreach and question the validity of the interpretation. The NCGA will not take any action by the deadline as both chambers have no-vote sessions scheduled for Monday. Charlotte Mayor Jennifer Roberts (D), was in Raleigh on Thursday to meet with Berger and Moore regarding House Bill 2. No details from the meeting have been made public other than talks were “productive”. Gov. McCrory’s office has said that they will respond to the DOJ by the deadline, but no further detail was given. 

Academics: DOJ Claims of H.B. 2 Discrimination A Legal Stretch – Carolina Journal 

McCrory to respond to feds on HB2 after lawmakers refuse to act – WRAL 

NC won’t meet Obama administration’s Monday deadline on House Bill 2, House speaker says – N&O 

Expert: DOJ action might strike only part of HB2 – Citizen-Times 

Insurance Commissioner Wayne Goodwin (D) says he may fine Blue Cross Blue Shield of NC after technology failures resulted in prolonged issues with payments and coverage for customers. The problems began four months ago, and a frustrated Goodwin has statutory authority to levy a fine of $100-$1,000 per day, per violation, which could accumulate into the millions. 

NC insurance commissioner: Blue Cross likely to be fined ‘millions’ for IT woes – N&O 

Legislation in the News: 

Lawmakers want to replace ferry tolls with dedicated funds – Outer Banks Voice 

North Carolina legislature confirms next SBI director – WXII 

Despite mortgage concerns, House approves tax law update – WRAL  

Budget

The House Appropriations Subcommittees continued to review their respective sections of the Governor’s budget throughout the week. House Appropriations Chairman Rep. Dollar (R-Wake) has a goal of sending the House version over to the Senate in the next two weeks, meaning the House will be very busy next week should they stay on target. Leadership in both chambers announced Wednesday that they had agreed on a spending figure of $22.225 Billion, which is a 2.26% spending increase to the budget for the 2015-16 fiscal year. Inability to agree on a spending target was a major factor in the length of last year’s session. This early détente is a signal that lawmakers are eager to keep this session short. The figure is $109 Million less than Governor’s proposed budget. 

Legislative leaders set budget target that spends less than McCrory wanted – N&O 

Salaries, bonuses subject of budget debate – Rocky Mount Telegram 

Advocates seek more state funding for Alzheimer's care – WRAL

Tax Changes

As expected, the House Finance Committee met Tuesday to hear Senate Bill 729, Various Changes to the Revenue Laws which was swiftly introduced and passed in the Senate last week. Among clarifying provisions and technical changes, the bill would also: 

  • Makes the definition of deductible interest expense paid between parent and subsidiary corporations consistent for in-State and out-of-State companies 
  • Reduces the qualified interest expense deduction for interest paid to a related corporation to 15% (from 30%) of a corporate taxpayer's adjusted taxable income and allows an unlimited qualified interest expense deduction if the corporate taxpayer can trace the interest expense to a unrelated lender 
  • Changes the term "conditional service contract" to "conditional contract" so that the transactions in the statutory section will not be confused with a service contract 
  • Provides that the sales tax exemption for items purchased by a contractor apply to items purchased for the holder of a conditional farmer exemption certificate as well as the holder of a qualifying farmer exemption certificate 
  • Clarifies that a park model RV is a recreational vehicle and is subject to the highway use tax 
  • Clarifies that the exemption for aviation gasoline and jet fuel applies to commercial aircraft in interstate or foreign commerce 
  • Conforms the bonding requirements for entities that must pay excise tax on cigarettes and tobacco products \
  • Exempts interest income from bond obligations from corporate and individual income tax and exempts a tax on motor fuel purchased by a hospital authority 

​The bill passed the House without any changes and will be sent to the Governor.

Retirement Requirements

House Bill 1019, bipartisan legislation filed by Rep. G. Martin (D-Wake) and Rep. Torbett (R-Gaston), establishes duties a Principal Clerk of the House of Representatives must realize to be eligible for retirement. Longtime and beloved House Principal Clerk, Denise Weeks had intended to retire on May 1st, but was convinced by leaders in both parties to "stay on a little longer". The bill pays homage to Mrs. Weeks, recognizing her many accolades as requirements for retirement eligibility, with one exception. The last duty on the list requires 50 years of service as House Principal Clerk, preventing her from retiring for another 27 years. The bill has been sent to the Rules Committee, and will likely see action closer to the end of session when lawmakers will honor Mrs. Weeks properly for her many years of services.

In Other News

The North Carolina Supreme Court today upheld a lower court ruling which invalidated retention elections for Supreme Court Justices in a 3-3 split decision. The case was in response to a 2015 law that allowed sitting Justices on the North Carolina Supreme Court to run for reelection in retention elections instead of a traditional competitive election against an opponent. Plaintiffs argued that a Constitutional Amendment is required for such a change. The lower court agreed. The only seat on the Supreme Court that will be on the ballot in the 2016 election is currently held by conservative Justice Bob Edmunds. Justice Edmunds recused himself from the case which led to the anticipated tie vote. 

Divided Supreme Court means no retention elections in NC for now – WRAL A Superior Court Judge denied the McCrory administration’s request to dismiss a case brought by various news organizations, accusing the State of failing to comply with public records requests. The administration has said it will appeal the decision. 

News groups win round in NC public records fight – N&O 

On Thursday, House Majority Leader Rep. Hager (R-Rutherford) received a cake at his office from former television talk show host Montel Williams. The two have had a back-and-forth on Twitter regarding House Bill 2 and the cake was an act of “diplomacy” that stemmed from the conversation. 

Montel Williams sends an HB2 cake to House majority leader – N&O