Shannon Cuthrell co-authored this piece.
If you aren’t reading the headlines every day, then it’s hard to keep up with the North Carolina General Assembly. Topics top of mind for legislators one day don’t leave committee the next. And in most cases this year, the Governor’s agenda is entirely different than both the Senate and the House.
But while we all prepped for a long weekend of celebration, the 170 members of our state legislature did indeed pass a budget and end the legislative session. And while most of the attention went to education funding, gerrymandering and some more obscure bills like lifting plastic grocery bag bans, there are some line items in the $23 billion budget that entrepreneurs might like to know about.
And so we spent time this week sifting through the headlines and bills to distill the following summary for the state’s startup community. We’re curious what impact entrepreneurs think these various measures might have. Shoot us an email at laura@exitevent.com if you’d like to weigh in.
And because we’re not political writers, see a roundup of media coverage on the legislative session at the bottom.
#FreeTheMimosa
In a state as contentious as North Carolina, you have to celebrate even small wins—like the ability to drink a mimosa at 10 a.m. on a Sunday. But the bigger impact of the so-called Brunch Bill is on the state’s growing number of distilleries. The legislature upped limits put in place just 18 months ago on the number of bottles craft distillers can sell direct to consumers from their facilities.
Customers can now purchase five bottles of liquor from a distillery each year, up from one. Considering the growth of distilleries opening after the 2015 law passed, a larger boom could be on the horizon.
Talent pipeline preservation
Several smaller measures are promising for North Carolina companies looking for young talent. On one end of the spectrum, the state budget allocates full tuition to any North Carolina Science and Math students who commit to attend college in the state and maintains the prestigious Governor’s School, an annual summer program for the best and brightest high school students in the state.
Another new program called ApprenticeshipNC helps high school students who aren’t planning to attend college get trained for in-demand careers that don’t require a degree—transferring an existing NC Department of Commerce program to the community college system to ensure it’s relevant for industry.
The state’s Teaching Fellows program is back, providing up to $8,250 in loans to UNC system students pursuing teaching careers in STEM fields. Loans are then forgiven as long as fellows serve at least one year in a low-performing state public school or two years in any public school.
And finally, your kids’ teachers might stay around longer. Public school teachers get an average 3.3 percent raise, and there’s a $25.3 million bonus program for science and math teachers whose students are high performers. The UNC system gets additional funding to recruit and retain the best researchers and faculty.
Some sources point out that North Carolina is still lagging far behind pre-recession teacher pay and education funding stats. Others are just grateful we’re ascending the state ranks for measures like teacher pay.
Incentives….mostly if you’re hiring hundreds or investing millions
Most of the economic incentives approved in this year’s budget will be geared toward really large “transformative” projects.
Specifically, the budget provides grants to companies hiring 5,000 people or more people and spending $4 billion or more on new operations in North Carolina. There’s also a sales tax refund for any building materials or equipment purchased for their project.
A series of statutes also benefit operators of large fulfillment centers. If they invest over $100 million or employ 400 or more people over a five year period, there’s a new sales and use tax exemption for equipment used in the distribution process.
If you’re a small business, however, you can still go to the Carolina Small Business Development Fund to get a loan. The legislature re-upped the fund’s $2.5 million grant for providing loans to small businesses and entrepreneurs.
And if you’re located in a rural community that qualifies for downtown revitalization grants, you could get in on some cool redevelopment projects. $8.5 million will go toward those, and another $5 million specifically to a mill revitalization on the Haw River in Saxapahaw.
Production companies still have access to funds for movie-making in the state. The budget provides $15 million in entertainment and film grants, a figure drastically less than the $60 million Governor Cooper hoped to approve, and half what Governor McCrory allocated each of the last two years.
Significant tax cuts, and a tiny break for machinery owners
The corporate income tax is already lower from two years ago, when the General Assembly dropped it from 5% to 4% and then 3% if a General Fund revenue target was met. That happened this year. But the new budget reduces the rate to 2.5% for taxable years beginning on or after January 1, 2019.
Meanwhile, the individual income tax rate will drop from 5.499 percent to 5.25 percent at that time.
One small tax cut benefits companies that require machinery. The new budget repeals a mill machinery tax of 1 percent or a maximum $80 per item purchased. It starts July 1, 2018.
More food innovation and promotion coming
There are a couple initiatives that will be attractive to food makers in the state. The budget allocates $5.1 million to create the Food Processing Innovation Center on the North Carolina Research Campus in Kannapolis. Opening in 2018, it’ll be located in an old textile mill and include space for research and development as well as production, distribution and sale of food products.
More broadly, the state will put $1.5 million toward marketing the state’s food agricultural products domestically and internationally. It’s not clear what organization will oversee those efforts.
NC Biotech Center preserved, but other research funding cut
The North Carolina Biotechnology Center did not receive any cuts; total allocations remain at around $13.6 million.
However, some crucial cuts were made that could hit the startup community. The budget eliminates any new funding for the One North Carolina Small Business Fund, meaning the state will no longer match Small Business Innovation Research (SBIR/STTR) grant dollars to those offered by the federal government.
Look out for tech RFPs
There’s $19 million allocated to modernize the Department of Public Instruction business systems. And in funds for Health and Human Services, nearly $4 million is reserved for coordination between the department and state CIO to ensure there’s additional use of electronic health records, that health information is kept private and the health information exchange is up to date.
$20 million is allocated for the creation of software to track child services case management, and another $20 million over two years dedicated to privacy and fraud protection to meet federal standards. There’s a good deal of language and budget around data analytics, security and computer systems training, all of which could be opportunities for the right software/tech providers.
Clean energy setbacks
Widespread lack of support from lawmakers sets back development for wind farms that had previously received approval.
An 18-month moratorium on the issuance of wind energy permits could be put in effect so the General Assembly can assess whether military operations in the state would be impacted by new wind farm facilities. Governor Cooper has until July 30 to sign or veto the bill.
The moratorium also halts the advancement and approval of solar farm projects. During the allotted time, the North Carolina Utilities Commission will review statewide energy needs before taking requests for new projects.
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Not this time around…
The auto dealer industry stays intact so far as Tesla awaits a decision on its latest attempt to open additional dealerships in North Carolina. House Bill 617 was tweaked by the Senate last month to allow auto manufacturers to open their own dealerships if they sell only electric vehicles or don’t have traditional dealer arrangements. They’re limited to selling used trade-in vehicles and they can operate no more than six dealerships in the state. Some are calling it a compromise. The bill awaits a decision.
The wholesale beer industry stays intact as mid-sized craft brewery advocates of the Raise the Cap bill lost their bid to handle their own distribution up to 200,000 barrels, up from 25,000 today.
Still no limits on cities desiring sanctuary status. Senate Bill 145, introduced in April, has not yet passed. It would harden the punishment for cities for offering sanctuary to undocumented immigrants and give law enforcement departments more authority in enforcing immigration laws.
A massive school building effort could hit ballots next year if this bill gets House and Senate approval. The bond referendum would allocate $1.9 billion for school renovations and constructions across the state. It’s scheduled to appear on 2018 ballots.
Fantasy sports is still gambling in North Carolina. The House Regulatory Reform Committee struck down bipartisan legislation that would legalize fantasy sports gaming, redefining the term to exist outside of its previous gambling label and disallowing prosecution of players.
A GOP-initiated redistricting plan stalled this summer when the party cancelled a special session called by Governor Cooper to tackle gerrymandering. Lawmakers plan to address the topic again in a later session this year, introducing a court-ordered redraw of legislative district lines across the state. Gerrymandering can impact startups directly if they’re in a district too far weighted toward one political party—it might be hard to have your voice heard if you’re not on the leading side.
Buy your medical marijuana in 29 other states. A bill to legalize the drug for medical use died quickly. It was openly supported by several district candidates and elected officials, as well as the CEO of a major hospital system in Western North Carolina.
Still no go for light rail. Three more annual budgets left to get funding in place for the $2.5 billion Durham-Chapel Hill light rail project, set to begin in 2020. This year’s budget keeps in place a $500,000 cap on state commitments to the project.
Some taxes remain at existing rates. Provisions in the House budget bill were denied for three tax adjustments: an increase in deduction caps for mortgage interest and property taxes, a sales tax refund for R&D supplies and a reduction in the state’s franchise tax rate.
Overview stories:
NC Policy Watch: The gloomy, blustery and vindictive session drawing to a close
NC Policy Watch argues some 2017 budget cuts are motivated by partisan spite. Critiques include ending retirement healthcare benefits for employees hired after 2021, smaller raises for NC employees, ending state-funded legal services for low-income families, cuts to the NC Department of Justice that will lead to 100+ attorney layoffs.
WRAL: Legislative session filled with hits, misses
WRAL details the many proposals and items that passed in this recent session, as well as those struck down by the GOP. The overview also highlights some legislation that was left undecided pending further review by the General Assembly.
The News & Observer: Political wins and losses for Gov. Roy Cooper in the new North Carolina budget
Some actions Governor Cooper promised during his candidacy last year have received mixed results since he entered office. The News & Observer reviews items that have yet to capture GOP support, namely increasing teacher pay to the figures Cooper promised, granting income tax credits for film projects brought to the state, and reimbursing child care expenses on families’ tax returns. Despite the temporary set backs, Cooper presses on to eventually gather enough bipartisan support to secure these efforts.
Politifact: Coop-O-Meter: Tracking the promises of Gov. Roy Cooper
The North Carolina bureau of Politifact, a sort of accountability authority to keep politicians in check, rates progress for Governor Cooper’s campaign promises. “Not yet rated” accounts for the majority of the ratio, but his report card reveals* 19 percent of his promises are in the works, 8.3 percent are stalled and 2.8 percent have resulted in compromises with the Republican-dominated legislature.
* As of July 7 (Politifact report cards are updated regularly to reflect new changes)
The New York Times: Is North Carolina the Future of American Politics?
As The New York Times puts it, North Carolina’s stark partisan divide is a miniature, yet accurate reflection of the current political climate. Elected official representation is skewed, with a Democratic Governor versus a Republican House and Senate. In many ways, how policy decisions and compromises pan out in our state might just dictate what’s to come for the national standard. In the meantime, all eyes are on North Carolina before the 2020 presidential race.
Forbes: Forget Kansas – North Carolina Is The National Model For Conservative Tax Reform
In Forbes, the director of state affairs at Americans for Tax Reform, argues North Carolina’s conservative tax reform and fiscal policies as successes that should receive more acclaim from federal institutions. The writer adds state’s new budget complements its history of pro-growth movements in reducing corporate and income tax rates.
