Recent elections in other states brought about significant changes that could serve as an indicator for things to come in government and politics in North Carolina. Republican victories in states such as Virginia, New Jersey and Massachusetts have incumbents in North Carolina wondering if the issues that led to incumbent party losses in those states - jobs and the economy - will underscore much of the activity driving the 2010 General Assembly session and upcoming elections. As a service to our clients, the Williams Mullen Government Relations Team has provided a preview of the upcoming state elections and some of the major issues for our clients to watch in 2010:

State Election Dynamics

National issues and election trends are expected to impact North Carolina’s state elections later this year as all 50 state Senate seats and 120 state House seats are up for election. The candidate filing period ended on Friday, Feb. 26, 2010, and the primary will take place on May 4, 2010.

State Senate Races

As the case has been for more than the last 100 years, Democrats control the state Senate. The margin is currently 30-20. North Carolina’s 50 state Senate seats are being sought by 135 candidates: 55 Democrats, 77 Republicans and three Libertarians. As a sign of the national times, at least one Republican candidate has filed in every Senate race. Accordingly, there are 12 Democratic primaries and 20 Republican primaries in state Senate races.

State House Races

Democrats control the House by a 68-52 margin. Two-hundred-and-sixty-five candidates have filed to compete for the state’s 120 House seats. These hopefuls include 115 Democrats, 146 Republicans, and four Libertarians. Republican candidates have filed for all but 10 House seats, while the Democratic Party has left 30 House seats uncontested. In the state House races, there will be 22 Democratic primaries and 27 Republican primaries.

Retiring Incumbents

In a surprise announcement toward the end of last year, one of North Carolina’s most influential members of the Senate, Majority Leader Tony Rand, stepped down from his state Senate seat. Shortly thereafter, a slew of incumbent Democrats announced that they were not going to seek re-election in 2010. The retiring senators include the Senate’s longest-serving state legislator, Sen. R.C. Soles; one of the most influential pro-business Democrats, Sen. David Hoyle; along with other influential members such as Sens. Albertson, Dorsett and Boseman. These losses to the state Senate and the state Democratic Party represent the changing tide of age, influence and power that these 2010 elections will bring to the state legislature.

State Budget

The state budget continues to be a major issue with North Carolina facing an immediate shortfall of close to $1 billion in the upcoming fiscal year with predictions that the shortfall could increase by an additional $2 to $3 billion in Fiscal Year 2011-12. Revenues as recent as January were significantly short of forecast and the continuing weakness in the economy is expected to affect revenue collections the remainder of FY 2010.

Pressure on the state legislature will continue to mount as the pace of economic recovery remains unknown. The Senate and House Finance Committees have been meeting in joint sessions over the last few months to consider whether to expand North Carolina’s tax base. This study comes after the enactment of recent proposals to handle the increasing deficit that included a 1-cent increase in the state sales tax rate. However, the state continues to struggle as spending on Medicaid and the community college system have already exceeded budgeted levels due to marked increases in program applicants seeking health care assistance and post-secondary education.

Further, in FY 2011-2012, temporary taxes are scheduled to expire, federal American Recovery & Reinvestment Act (stimulus) dollars will be gone, and early indicators suggest revenue growth will not constitute enough to close the budget gap. The 2010 legislative session will prove challenging for legislators as they try to work with Gov. Perdue to relieve budgetary strain and maintain core government services.

Potential Privatization of Alcoholic Beverage Control Stores

One of the hot issues sure to ignite extensive debate is the possibility of privatizing Alcoholic Beverage Control (ABC) stores for a new state revenue stream. North Carolina is one of only 18 states that does not permit the private retail sale of alcoholic beverages. The state is the only one of those 18 where local ABC boards are largely independent from state government in selling spirits.

Gov. Perdue has sought more information on the costs and benefits of privatizing alcohol sales before taking further action or a position on the proposal. The governor worked with the state Alcoholic Beverage Control Commission to retain an out-of-state consultant to conduct a financial appraisal of North Carolina’s liquor system. Valuation Research Corporation of Chicago will submit its assessment by the end of April.

Proponents contend that privatization will deliver considerable revenue from licensing and income and property taxes, as well as the savings incurred if the private sector assumes operating costs. Opponents argue the staterun system is working well now, generating roughly $260 million for state and local governments in 2009 alone while also maintaining low consumption rates.

The legislature would be required to approve any changes to the state’s ABC system and many believe this review is just the beginning of what should be a thorough analysis of how North Carolina regulates, distributes and sells alcohol.

Jobs and Economic Development: Executive Order 50

In an effort to protect North Carolina businesses and jobs, Gov. Perdue recently issued Executive Order 50, which is designed to provide North Carolina businesses with a competitive advantage when bidding on state contracts for the purchase of goods. The Order gives North Carolina-based businesses the opportunity to match prices of out-of-state bidders to secure state contracts. If a qualified North Carolina business is not the lowest bidder, but comes within five percent or $10,000 of the lowest bid of an out-of-state company, that business will be able to match the lowest bidder’s price and thereby be awarded the contract. The Order authorized the Secretary of Administration to develop the price-matching procedures for North Carolina bidders on state contracts for the purchase of goods. The new procedures were implemented March 1, 2010.