The North Carolina General Assembly adjourned the 2011 long session on June 18. The last few weeks of the long session, which began in late January, included marathon floor debates as the House and Senate considered and voted on hundreds of bills, including the first veto and veto override of a budget in North Carolina history. Gov. Perdue had until Thursday, June 30, 2011, to veto, sign or allow to become law the 212 bills that landed on her desk on June 20. In the end, Gov. Perdue vetoed a total of 15 bills this session.  

Partisan lines were drawn as Perdue took across the state her message that the Republican-controlled Legislature could have spared cuts to education by continuing a one-cent sales tax. The tax, which expired on June 30, 2011, was added by the Legislature two years ago. The Republican leadership argued that the state budget could sustain the cuts without harm to education and other programs, and that members were elected on campaign promises to cut taxes and cut state spending.

In an historic move, Perdue vetoed the budget. Then, with the help of five House Democrats, House and Senate Republicans overrode the veto. The new budget, which took effect on July 1, 2011, passed more than two weeks before the end of the State’s fiscal year. In recent memory, lawmakers have failed to pass a budget by the June 30 deadline, instead passing continuing resolutions to keep state government running until a budget was complete.  

Other legislation adopted with the support of the North Carolina business community included tort reform, regulatory reform, state tax law reform, workers’ compensation reform, medical malpractice reform and economic development incentives.  

Legislation

Budget S.L. 2011-145 (HB 200)

The $19.7 billion budget makes significant cuts to state government spending while allowing the temporary one-cent sales tax and income tax surcharge to expire. The budget provides tax relief for small businesses, thus allowing them to expand and create jobs, by enacting a tax exemption for small businesses.  

In addition, the budget fully funds all classroom teachers and teacher’s assistants with $7.46 billion total spending on public education and sets a course for the possible institution of a merit pay system for educators. Funding is allocated for hiring more than 1,100 teaching jobs in K-3. However, local school districts are required to find additional cuts, with reductions made at their discretion. A special provision takes away the Department of Environment and Natural Resources’ authority to independently set rules that are more stringent than minimum rules set by the federal government.  

The budget was enacted two weeks before the start of the fiscal year. This is the earliest a budget has been in place in more than 30 years.

Regulatory Reform

  • Joint Regulatory Reform Committee (SB 17) was established to study how to create a strong environment for job creation by lifting undue burdens imposed by outdated, unnecessary and vague rules. The committee was appointed and drafted SB 781. The Committee has continuing authority and is to issue its final report by May 1, 2012.  
  • Regulatory Reform Act of 2011 (SB 781) is a recommendation from the Joint Legislative Regulatory Reform Committee. This bill makes numerous changes to the Administrative Procedure Act (APA) relating to the rulemaking process, the contested case process, and judicial review of agency decisions. This bill would place limitations on state agencies rulemaking, including requirements for cost analysis and providing for review by the Office of Administrative Hearings. The bill prohibits the state from enacting any environmental regulations more stringent than federal regulations. SB 781 requires the Department of Environmental and Natural Resources (DENR) to have a fiscal note and an economic impact study, and to consider at least two alternative rules. Gov. Perdue vetoed SB 781 on 6/30/11. The Senate overrode the veto. The House may consider it in late July.  
  • Eliminate final agency decision authority (HB 623; S 653; S 482) was a theme in several bills introduced this year. These bills would have eliminated the current law which requires an Administrative Law Judge’s decision to be sent back to the agency whose decision has been appealed for a final chance to change or modify the agency decision. These bills would have made the Administrative Law Judge’s decision final, and the appeal would have gone directly to the judicial system. This concept was incorporated as part of two bills, SB 496, which dealt with decisions of the Department of Health and Human Resources, and SB 781, which dealt with decisions of other agencies. Both these bills were vetoed by the Governor, citing constitutional problems with the separation of powers provision of the North Carolina Constitution. Their ultimate fate rests in the action of the General Assembly which reconvened on July 13, 2011 for an override session.  
  • APA Rules: Limit Additional Costs S.L. 2011-13 (SB 22) prohibited the enactment by the State of any further rules or regulations that substantially increased the costs on all persons subject to the proposed Rule. Substantial is defined as an impact of at least $500,000 in a 12 month period. There are certain exceptions primarily dealing with the health and safety of the public, and a conflict with an existing law of higher authority. This has been enacted.

Tort Reform

  • Tort Reform for Citizens and Businesses S.L. 2011-283 (HB 542) requires juries to be given accurate information about the medical bills actually paid by the plaintiff or his insurer for medical care received. The bill also establishes requirements for expert witness testimony and will align North Carolina with other states and federal courts using these requirements.

In an effort to reduce litigation, the legislation modifies the allowance of attorneys’ fees in smaller recovery cases. The courts, in their discretion, can now award attorneys’ fees when:  

  • the plaintiff recovers $20,000 or less,  
  • there was unwarranted refusal to negotiate or pay the claim by the defendant prior to trial, and
  • the damages recovered at trial are more than the highest offer.  

Plaintiffs’ attorneys can now receive fees in more cases due to a doubling of the threshold for when the statute applies, but the legislation places a cap on these fees in the amount of $10,000. The legislation also codifies the North Carolina common law trespasser statute to make clear that land owners are not liable for harm to trespassers on their property except in limited situations.

  • Medical Liability Reforms (SB 33) expanded legal protection for health-care providers treating an emergency medical condition, and bifurcates the liability and damage phases of a medical malpractice lawsuit when the damage claim exceeds $150,000. The legislation would have capped noneconomic damages (excluding loss of future earnings) at $500,000. Gov. Perdue vetoed SB 33 on 6/24/11. The Senate overrode the veto. The House may consider it in late July.  
  • Protect and Put NC Back to Work S.L. 2011-287 (HB 709) made important reforms to the North Carolina workers’ compensation system. The consensus bill was approved by the House and Senate, and signed by the Governor after weeks of negotiation between employer and employee groups and attorneys. The bill will help businesses predict costs, while taking care of injured workers’ medical needs and getting them back to work as soon as possible. It also ensures that those who are permanently disabled receive the benefits they need. The bill caps temporary payments for a totally disabled worker at 10 years.

Other Legislation

  • Employers & Local Gov’t Must Use E-Verify S.L. 2011- 263 (HB 36): Under new rules established in E-Verify, public and private sector businesses will now have to check the immigration status of new employees by using the federal government’s E-Verify system. Counties and municipalities will begin verifying in October of 2011. EVerify will be used in other businesses as follows:
    • October 1, 2012 - Employers that employ 500 or more  
    • January 1, 2013 - Employers that employ 100 or more but less than 500  
    • October 1, 2013 - Employers that employ 25 or more but less than 100  

The law exempts companies that employ 25 or fewer people. In addition to requiring the use of E-Verify, the legislation allows for people to anonymously report suspicions of companies that are employing illegal workers.  

  • Forced Combination S.L. 2011-390 (HB 619) comprehensively revises the statutes governing the Department of Revenue’s authority to require affiliated companies to file combined corporate income tax returns and make other discretionary adjustments to transactions between affiliates. The bill provides guidance as to when and how the Department may require affiliated companies to file combined returns, including a provision that the Department may not make adjustments that limit a corporation’s options for reporting royalty payments under the royalty reporting statute. The bill addresses one of the most contentious North Carolina tax issues of the past decade.  
  • Amend Various Gun Laws/Castle Doctrine S.L. 2011- 268 (HB 650) widely expands legally armed citizens’ rights to protect themselves at home, in their vehicles and at work. The legislation also allows concealed carry permit holders to carry their firearm inside a state park and gives district attorneys, assistant DAs and their investigators permission to carry concealed weapons (except in the courtrooms). Legislators will now be able to keep their guns in their vehicles while parked in the Legislative Building as long as the guns are stored properly. It allows business owners to continue to prohibit guns and weapons on their premises with proper notice.  
  • Increase tax on sale of entertainment tickets. Although no bill was introduced, legislative leadership floated a proposal to “modernize” the approach to taxing of entertainment tickets. Currently tickets are subject to a 3% privilege tax on their initial sale, and the proposal was to change this tax to a sales tax, which at the time was 7.75% tax on the initial sale of the tickets. This proposal did not advance.  
  • Amend Environmental Laws 2011 S.L. 2011-394 (HB 119) is a wide ranging bill making many changes to the current environmental laws, in an attempt to make North Carolina more business friendly, while maintaining a balance in protecting the environment. The bill affects far ranging issues such as Underground Storage Tanks, Nutrient Off-set payments, delaying implementation of Jordan Lake Rule Requirements, and adopting the Federal Food Code.  
  • Amend Solid Waste Financial Assurance Requirements S.L. 2011-262 (HB 209) authorizes the use of a corporate financial test as an allowable mechanism to establish the financial assurance necessary for closure, postclosure maintenance and monitoring and any corrective action that might be required at a solid waste facility. It decreased the minimum amount of financial assurance that is required to cover costs for potential assessment and corrective action at a facility. It authorizes the use of a Trust Fund Pay-In-Period as an allowable mechanism to establish the financial assurance necessary for potential assessment and corrective action at a facility.  
  • The Commercial Real Estate Broker Lien Act (HB 174) created the ability of commercial real estate brokers to establish a lien against commercial real estate for their commission. There are some restrictions as to when the lien may apply, including requirements that the instrument be in writing and that the services have been performed. The lien attaches to the property when it is filed in a timely manner with the Clerk of Superior Court. The lien is to be enforced by a suit, and if discharged, the legislation sets out the procedure for discharge. A lender in a commercial transaction is not to be made a party to any suit to enforce the lien unless the lender has willfully caused the nonpayment of the commission giving rise to the lien. This bill was enacted and is effective October 1, 2011, and applies to written agreements signed by an owner of commercial real estate on or after that date.  
  • No Automatic Renewal of Credit Card Contracts (HB 450) provided that any provision in a contract to provide credit card or other payment system processing for merchants that provides for the automatic renewal of the contract is void. The bill sponsor agreed to have the bill turned into a study bill, and the provisions were placed in the Study Act of 2011. (At this point this bill was hijacked, and unrelated subject matter was inserted, which did pass.) Although the Study Act did not pass, it is highly likely that this issue will be addressed by some legislative study in the interim.

149th Legislative Session of the North Carolina General Assembly

HOUSE OF REPRESENTATIVES

  • 120 Members
    • 67 Republicans  
    • 52 Democrats  
    • 1 Unaffiliated  
  • 29 New Members
    • 22 Republicans  
    • 6 Democrats  
    • 1 Unaffiliated

SENATE

  • 50 Members
    • 31 Republicans  
    • 19 Democrats  
  • 16 New Members
    • 13 Republicans  
    • 3 Democrats  

HOUSE LEADERSHIP

  • Speaker Thom Tillis - Republican  
  • Speaker Pro Tempore Dale Folwell - Republican  
  • Majority Leader - Rep. Paul Stam  
  • Minority Leader - Rep. Joe Hackney

SENATE LEADERSHIP

  • President of the Senate - Lt. Governor Walter Dalton  
  • President Pro Tempore - Sen. Phil Berger  
  • Majority Leader - Sen. Harry Brown  
  • Democratic Leader - Sen. Martin L. Nesbitt, Jr.  
  • The long session convened on January 26, 2011 and adjourned on June 18, 2011
    • 1721 bills were filed in the 2011 session: House 936 / Senate 785  
    • Number of bills that became law: 396  
    • Number of bills that were vetoed: 15  
  • The General Assembly reconvened on July 13, 2011 for a session to consider drawing new legislative and Congressional districts, overriding any vetoes, appointments bills, election laws and adoption of conference reports from committees appointed by the June 18 adjournment.  
  • The General Assembly will reconvene in August or September for a short session to consider constitutional amendments.  
  • The short session will begin in May 2012