GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

H	2 

HOUSE BILL 3*
Committee Substitute Favorable 2/28/95

Short Title:  Taxpayer Protection Act.	(Public)

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Sponsors:

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Referred to:  

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January 26, 1995

A BILL TO BE ENTITLED
AN ACT TO PROVIDE GOVERNMENTAL ACCOUNTABILITY AND PROTECTION TO THE TAXPAYERS BY LIMITING INCREASES IN THE GENERAL FUND BUDGET, REFORMING THE BUDGET PROCESS, ESTABLISHING AN EMERGENCY RESERVE TRUST FUND, AND PROHIBITING UNFUNDED STATE MANDATES.
The General Assembly of North Carolina enacts:
Section 1.  Article 1 of Chapter 143 of the General Statutes is amended by adding the following new sections:
"§ 143-2.1.  Determination of the General Fund expenditure limit.
(a)	Definitions. – The following definitions apply in this section:
(1)	Fiscal growth factor. – The average of the sum of inflation and population change for each of the preceding three calendar years.  If either inflation or the population change for the preceding three calendar years is negative, then that change shall be counted as zero.
(2)	Inflation. – The percentage change in the federal Consumer Price Index for All Urban Consumers for a calendar year.
(3)	Population change. – The percentage change in State population for a calendar year as reported by the Office of State Planning.
(b)	Limit. – The General Fund expenditure limit for each fiscal year shall be the previous fiscal year's General Fund expenditure limit increased by a percentage rate that equals the fiscal growth factor.
(c)	Base Fiscal Year. – The total certified General Fund budget for the fiscal year beginning July 1, 1995, plus the fiscal growth factor shall be used to determine the General Fund expenditure limit for the fiscal year beginning July 1, 1996, which will then be used to determine the General Fund expenditure limit for succeeding fiscal years.
(d)	Decreases. – If, on or after December 31, 1994, the cost of any State program or function is shifted from the General Fund to another source of funding, including, but not limited to, counties or other units of local government, or if moneys are transferred from the General Fund to another fund or account, the General Fund expenditure limit shall be reduced by a like amount.
(e)	Increases. – To the extent that any percent increase in appropriations for a fiscal year resulting from compliance with an existing or new mandate imposed by any court or by federal law exceeds the fiscal growth factor, the General Fund expenditure limit for that fiscal year shall be increased by the dollar amount represented by the excess percentage.  If the mandate is a one-time expenditure, such as payment of an award in a case, and therefore does not affect the General Fund operating budget,  the General Fund expenditure limit shall be decreased for the subsequent fiscal year by the amount of the one-time increase.
If the General Assembly makes appropriations for a fiscal year in excess of the expenditure limit for that year, in accordance with G.S. 143-2.5, the expenditure limit for that year is increased by the amount of the appropriations that exceeds the limit.  The General Fund expenditure limit shall be decreased for the subsequent fiscal year by the amount of the increase.
(f)	Fiscal Reports. – On or before March 15 of each year, the Fiscal Research Division and the Office of State Budget and Management shall issue a determination of the General Fund expenditure limit for the fiscal year beginning July 1 of that year and a projection of the General Fund expenditure limit for the next fiscal year.  If the Fiscal Research Division and the Office of State Budget and Management do not agree on the General Fund expenditure limit, the lower determination and projection shall be used.
"§ 143-2.2.  Increase in General Fund expenditures limited.
(a)	Governor Bound by General Fund Expenditure Limit. – In preparing the budget for a fiscal year, the Governor shall not propose expenditures from the General Fund for the ensuing fiscal period in excess of the projected General Fund expenditure limit established under G.S. 143-2.1.
(b)	General Assembly Bound by General Fund Expenditure Limit. – In enacting the budget for the fiscal year, the General Assembly shall not make appropriations from the General Fund in excess of the General Fund expenditure limit established under G.S. 143-2.1.
(c)	No State Moneys to Be Paid in Excess of General Fund Expenditure Limit. – No money shall be drawn from the State treasury if the withdrawal will result in a State expenditure for any fiscal year in excess of the General Fund expenditure limit established under G.S. 143-2.1.  The Governor, the State Treasurer, and the State Controller shall not issue or redeem any draft, check, warrant, or voucher that will result in a State expenditure for any fiscal year in excess of the General Fund expenditure limit established under G.S. 143-2.1.
(d)	Revenue in Excess of General Fund Expenditure Limit Credited to Emergency Reserve Trust Fund. – All General Fund tax and nontax revenue collected in excess of the General Fund expenditure limit shall be credited to the Emergency Reserve Trust Fund at the end of each fiscal year.
"§ 143-2.3.  Use of General Fund credit balance.
The State Controller shall reserve one-fourth of any credit balance remaining in the General Fund at the end of each fiscal year to the Emergency Reserve Trust Fund.  The State Controller shall reserve the lesser of (i)	one-fourth of any credit balance remaining in the General Fund or (ii) one and one-half percent (1.5%) of the replacement value of all State buildings supported from the General Fund at the end of each fiscal year to the Repairs and Renovations Reserve Account as provided in G.S. 143-15.3A.  The General Assembly may appropriate that part of the anticipated General Fund credit balance not expected to be reserved to the Emergency Reserve Trust Fund or reserved to the Repairs and Renovations Reserve Account only for capital improvements or other nonrecurring expenditures within the General Fund expenditure limit.  The State Controller shall determine the General Fund credit balance on a cash basis.
"§ 143-2.4.  Emergency Reserve Trust Fund.
(a)	Fund Established. – The Emergency Reserve Trust Fund is established as an expendable trust fund in the State treasury.  Interest and other investment income earned by the Emergency Reserve Trust Fund accrues to the General Fund.  The Emergency Reserve Trust Fund shall include the funds reserved by the State Controller in accordance with G.S. 143-2.3.  The Emergency Reserve Trust Fund shall also include revenue in excess of the General Fund expenditure limit credited in accordance with G.S. 143-2.2.
(b)	Transfers From Emergency Reserve Trust Fund Permissible to Pay Appropriations When Budgeted Funds Are Insufficient. – If the Director of the Budget determines that pursuant to the provisions of Article III, Section 5(3) of the Constitution of North Carolina, receipts during a fiscal year when added to the surplus remaining in the State treasury at the beginning of the fiscal year will not be sufficient to meet budgeted expenditures, the Director may, in the Director's discretion, transfer funds from the Emergency Reserve Trust Fund to pay the appropriations for the fiscal year to the extent funds are available.  If the Director of the Budget decides not to transfer the funds from the Emergency Reserve Trust Fund as provided in this section, the Director shall proceed as provided in G.S. 143-25 or Article III, Section 5(3) of the Constitution of North Carolina to administer the budget so as to prevent any overdraft or deficit.
(c)	Two-Thirds Vote Required to Appropriate Funds From the Emergency Reserve Trust Fund. – The General Assembly may make appropriations out of the Emergency Reserve Trust Fund only by the affirmative vote of two-thirds of the members of each house.
(d)	Excess Funds to Be Returned to Taxpayers. – If the total of funds in the Emergency Reserve Trust Fund at the end of the fiscal year exceeds an amount equal to five percent (5%) of the total General Fund appropriation for the prior fiscal year, the excess over five percent (5%) shall be reserved to provide tax relief as determined by the General Assembly.
"§ 143-2.5.  Two-thirds vote of General Assembly required to exceed General Fund expenditure limit.
The General Assembly may, by an affirmative vote of two-thirds of the members of each house, make General Fund appropriations for nonrecurring expenses in excess of the General Fund expenditure limit for a period not to exceed 12 months beginning on the effective date of the appropriations.
"§ 143-2.6.  Intent to prohibit unfunded State mandates.
It is the intent of the General Assembly to enact legislation prohibiting unfunded State mandates to counties and other units of local government.  The General Assembly recognizes the burden an unfunded State mandate places on a unit of local government and also recognizes the complexity of the issue of unfunded mandates.  The General Assembly therefore intends to enact the legislation after a careful and comprehensive study of the issue."
Sec. 2.  (a)	The Legislative Research Commission is authorized to study the issue of State mandates to local governments to determine what items are unfunded mandates and what items are not unfunded mandates.  The study shall review past legislation that has required local governments to assume financial responsibility for items and the appropriate role of State and local governments in providing services.  The study shall consider the following:
(1)	Due process mandates that require notice of proposed local government actions directed by the State.
(2)	Entitlement mandates that provide that certain classes of citizens are entitled to receive a specific benefit.
(3)	Personnel mandates that relate to fringe benefits, retirement benefits, and other terms or conditions of local government employment.
(4)	Record-keeping mandates that relate to accounting standards, financial statements, or other local governmental operations.
(5)	Regulatory mandates that require that local governments comply with State environmental, health, and other governmental regulations.
(6)	Service level mandates that require that local services meet certain minimum standards.
(7)	Tax base mandates that grant exemptions from the local tax base.
(b)	In reviewing existing State mandates to local governments, the study shall identify those that have required local government funding to implement and determine what local revenue sources and what amounts have been used to fund these mandates. The Commission shall then determine which mandates should be financed by the State and which mandates may properly be funded by the local governments.  In reviewing State mandates to local government, the Commission's inquiry shall relate to the following:
(1)	Whether the mandate prescribes an activity that the local government ought to be doing whether mandated to do so or not.
(2)	If the activity is a reasonable one for local government, whether the prescribed level of the activity is excessive and whether differing economies of scale affect the reasonableness of the activity.
(3)	Whether the State should pay for some or all of the cost of the activity.
(4)	Whether the benefits of a State mandate accrue only to local citizens or to residents of a broader area.
(5)	Whether the benefits of a State mandate exceed the costs of complying with it or impose an unreasonable burden on some local governments.
(c)	The Commission may call upon the Governor, the Council of State, the North Carolina Association of County Commissioners, and the North Carolina League of Municipalities to cooperate with it in the study of State mandates.
(d)	The Commission may make an interim report of its recommendations to the 1996 Regular Session of the 1995 General Assembly and shall make a final report of its recommendations to the 1997 General Assembly.
Sec. 3.  G.S. 143-15.3A(a) reads as rewritten:
"(a)	There is established a Repairs and Renovations Reserve Account as a restricted reserve in the General Fund. The State Controller shall reserve to the Repairs and Renovations Reserve Account "at the end of each fiscal year the amount required by G.S. 143-2.3."
Sec. 4.  G.S. 143-15.2 and G.S. 143-15.3 are repealed.  The funds in the Savings Reserve Account are transferred to the Emergency Reserve Trust Fund established by G.S. 143-2.4 as enacted by Section 1 of this act.
Sec. 5.  G.S. 143-15.4 is amended by adding a new subsection to read:
"( d)	Effect On Expenditure Limit. – If the limit set by this section is higher than the General Fund expenditure limit set by G.S. 143-2.1, the General Fund expenditure limit set in that section, rather than the limit set by this section, applies."
Sec. 6.  This act is effective upon ratification.