GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

H	3 

HOUSE BILL 3*
Committee Substitute Favorable 2/28/95
Senate Finance Committee Substitute Adopted 7/13/95

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 PROTECT THE TAXPAYERS OF NORTH CAROLINA BY LIMITING INCREASES IN THE GENERAL FUND BUDGET, PROHIBITING UNFUNDED STATE MANDATES, AND ESTABLISHING OTHER TAXPAYER RIGHTS.
The General Assembly of North Carolina enacts:
Section 1.  Chapter 105 of the General Statutes is amended by adding a new section immediately before Article 1 to read:
"§ 105-1.1.  Declaration of taxpayer rights.
By means of the United States Constitution and the North Carolina Constitution, the people have bestowed upon the General Assembly the power to obtain a regular and adequate supply of revenue to serve the public good.  In exercising this power, the General Assembly pledges to be ever mindful that the Assembly is the embodiment of the people and guarantees to the people the following rights:
(1)	To have a balanced State budget, in accordance with Article III, Section 5 of the North Carolina Constitution.
(2)	To be protected from uncontrolled growth in State government by limiting increases in State spending and in the number of State employees, in accordance with G.S. 143-2.1 and G.S. 143-10.2.
(3)	To have the fiscal affairs of the State managed in the same prudent, responsible way in which the people of the State manage their fiscal affairs, in accordance with G.S. 143-2.1 through G.S. 143-2.4.
(4)	To have a constitutional limit on the State income tax rate, in accordance with Article V, Section 2 of the North Carolina Constitution.
(5)	To have the power to determine by vote whether the State or a unit of local government can issue bonds payable by tax revenue and, in order to ensure a good credit rating when bonds are issued, to have repayment of the bonds be the first funding priority of the State or local unit, in accordance with Article V, Sections 3, 4, and 6 of the North Carolina Constitution.
(6)	To be told the truth in taxation, in accordance with G.S. 120-36.7, 159-50, 160A-20, and 105-286.
(7)	To know the costs of proposed legislation and proposed administrative rules, in accordance with G.S. 120-36.7, 143-3.5, 150B-21.4, 96-4, 97-80, 105-262, and 143-138.
(8)	To be treated fairly and promptly in any questions regarding tax liability, in accordance with G.S. 105-241.1, 105-241.2, 105-258.1, and 105-267.
(9)	To have the people's investment in State buildings and other State facilities protected through adequate funding for maintenance and repairs, in accordance with G.S. 143-2.3.
(10)	To be informed on how revenue is used, pursuant to G.S. 20-66(j), 105-248, 105-321.1, 143-10.3, 143-10.4, and 143-10.5."
Sec. 2.  Article 1 of Chapter 143 of the General Statutes is amended by adding the following sections to read:
"§ 143-2.1.  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. – General Fund appropriations for a fiscal year shall not exceed the General Fund expenditure limit for that fiscal year.  The General Fund expenditure limit for a fiscal year is the previous fiscal year's General Fund expenditure limit, decreased or increased in accordance with subsections (c) and (d) of this section, and then increased by a percentage rate that equals the fiscal growth factor.  The General Fund expenditure limit for the 1995-96 fiscal year is the total certified General Fund budget for the fiscal year beginning July 1, 1995.
(c)	Decreases. – If, on or after June 30, 1996, the cost of any State program or function is shifted from the General Fund to another source of funding, such as counties or other units of local government, or if moneys are transferred from the General Fund to another fund or account outside the General Fund, the General Fund expenditure limit shall be reduced by a like amount.
(d)	Increases. – The General Fund expenditure limit for a fiscal year shall be increased by the following:
(1)	The amount of General Fund appropriations that were funded by federal revenue in the previous fiscal year but are to be funded by State revenue in the current fiscal year because of a reduction in the federal funds.
(2)	The amount required to comply with an existing or new mandate imposed by any court or by federal law.
(3)	The amount required for incarceration of persons in the State prison system or other State or local confinement facilities.
(4)	The amount required to fund increases in average daily membership in the public schools and thereby fulfill the mandate of the North Carolina Constitution to provide a uniform system of public schools.
(5)	The amount required to fund enrollment increases at community colleges or at The University of North Carolina.
(6)	The amount required to pay for community college courses that provide literacy instruction, job training, or job retraining, as identified by the General Assembly in the current Operations Appropriations Act.
If a 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 subsection (f)	of this section, 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.
(e)	Determination of Limit. – 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.
(f)	Spending in Excess of Limit. – The General Assembly may, by an affirmative vote of two-thirds of the members of each house, make General Fund appropriations for a fiscal year in excess of the General Fund expenditure limit for that fiscal year.
"§ 143-2.2.  Compliance with General Fund expenditure limit; use of excess revenue.
(a)	Governor. – In preparing the General Fund 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 for that fiscal year established in a fiscal report under G.S. 143-2.1.
(b)	General Assembly. – In enacting a General Fund budget for a fiscal year, the General Assembly shall not make appropriations from the General Fund in excess of the General Fund expenditure limit for that fiscal year established in a fiscal report under G.S. 143-2.1.
(c)	Excess Revenue. – The Tax Relief and Critical Needs Fund is established in the State treasury.   Interest and other investment income earned by this Fund accrues to the General Fund.  General Fund tax and nontax revenue collected in a fiscal year in excess of the General Fund expenditure limit for that fiscal year shall be credited to this Fund in accordance with G.S. 143-2.3.  Revenue in this Fund may be used only for one-time tax relief or critical needs.
"§ 143-2.3.  Use of General Fund credit balance.
(a)	Allocations. – The General Fund credit balance at the end of each fiscal year shall be applied to the following Funds, Accounts, and purposes in the order listed:
(1)	The Repairs and Renovations Account, in accordance with subsection (b) of this section.
(2)	The Rainy Day Fund, in accordance with subsection (c) of this section.
(3)	The Tax Relief and Critical Needs Fund, in accordance with subsection (d) of this section.
(4)	Capital and other nonrecurring expenditures, in accordance with subsection (e) of this section.
(b)	Repairs and Renovations Account. – The Repairs and Renovations Reserve Account is established as a restricted reserve in the General Fund.  Interest and other investment income earned by this Account accrues to the General Fund.  The State Controller shall reserve to the Repairs and Renovations Reserve Account at the end of each fiscal year the greater of the following:
(1)	One-fourth of any credit balance remaining in the General Fund at the end of that fiscal year.
(2)	Three percent (3%) of the replacement value of all State buildings supported from the General Fund at the end of that fiscal year.
(c)	Rainy Day Fund. – The Rainy Day Fund is established in the State treasury.  Interest and other investment income earned by this Fund accrues to the General Fund.  After making the allocation to the Repairs and Renovations Reserve Account under subsection (b) of this section, the State Controller shall reserve to the Rainy Day Fund at the end of each fiscal year the lesser of the following:
(1)	One-fourth of the remaining credit balance in the General Fund at the end of that fiscal year.
(2)	The amount needed to increase the amount of revenue in the Fund to an amount that equals eight percent (8%) of the total General Fund appropriation for the prior fiscal year.
(d)	Tax Relief and Critical Needs Fund. – The amount of General Fund tax and nontax revenue collected in a fiscal year that exceeds the expenditure limit for that fiscal year, less the amounts allocated under subsections (b) and (c) of this section at the end of the fiscal year, shall be credited to the Tax Relief and Critical Needs Fund.  If more is allocated under subsections (b) and (c) of this section at the end of a fiscal year than was collected in excess of the expenditure limit, no part of the remaining credit balance is required to be credited to the Tax Relief and Critical Needs Fund for that fiscal year.
(e)	Remaining Credit Balance. – The General Assembly may appropriate that part of the anticipated General Fund credit balance that is not allocated under subsections (b) through (d) of this section only for capital improvements, one-time tax relief, or other nonrecurring expenditures.
(f)	Determination. – The State Controller shall determine the General Fund credit balance.
"§ 143-2.4.  Uses of Rainy Day Fund.
(a)	Deficit. – If the Director of the Budget determines, pursuant to Article III, Section 5(3) of the North Carolina Constitution, that 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 transfer funds from the Rainy Day Fund to cover the expenditures.  If the Director of the Budget decides not to transfer funds from the Rainy Day Fund under 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.
(b)	By Two-Thirds Vote. – The General Assembly may appropriate revenue in the Rainy Day Fund only by the affirmative vote of two-thirds of the members of each house.
Sec. 3.  G.S. 143-15.2, 143-15.3, 143-15.3A, and 143-15.4 are repealed.  The funds in the Savings Reserve Account are transferred to the Rainy Day Fund established by G.S. 143-2.3, as enacted by Section 2 of this act.
Sec. 4.  G.S. 143-10.2 reads as rewritten:
"§ 143-10.2.  Limit on number of State employees.
The total number of permanent State-funded employees, including permanent employees in the Department of Transportation but excluding employees in the State's public school system funded by way of State aid to local public school units, shall not be increased by the end of any State fiscal year by a greater percentage than the percentage rate of the residential population growth for the State of North Carolina.  The percentage rates shall be computed by the Office of State Budget and Management.  The population growth shall be computed by averaging the rate of residential population growth in each of the preceding 10 fiscal years as stated in the annual estimates of residential population in North Carolina made by the United States Census Bureau.  The growth rate of the number of employees shall be computed by averaging the rate of growth of State employees in each of the preceding 10 fiscal years as of July 1 of each fiscal year as stated in the State Budget."
Sec. 5.  G.S. 143-15.1 reads as rewritten:
"§ 143-15.1.  Current Operations Appropriations Act; General Fund Financial Model.
(a)	Act. – The General Assembly shall enact the Current Operations Appropriations Act by June 15 of odd-numbered years and by June 30 of even-numbered years in which a Current Operations Appropriations Act is enacted. The Current Operations Appropriations Act shall state the amount of General Fund appropriations availability upon which the General Fund budget is based. The statement of availability shall list separately the beginning General Fund credit balance, General Fund revenues, and any other components of the availability amount.
(b)	Model. – The General Assembly shall review the results of the General Fund Financial model, a computer-based financial model used to project long-term expenditure and revenue trends under various simulations, in its budget deliberations. The model shall be maintained and, from time to time, updated by the Fiscal Research Division of the General Assembly."
Sec. 6.  [State General Obligation Bonds] G.S. 120-36.7 is amended by adding a new subsection to read:
"( e)	Proposed Bond Authorizations. – Every bill introduced in the General Assembly proposing the issuance of State general obligation bonds shall have attached to it at the time of its consideration by the General Assembly a fiscal note prepared by the Fiscal Research Division.  The fiscal note shall estimate the debt service of the proposed bonds over the life of the bonds."
Sec. 7.  [Local Government General Obligation Bonds] G.S. 159-50 reads as rewritten:
"§ 159-50.  Notice of intent to make application for issuance of voted bonds; objection by citizens and taxpayers.
(a)	When a unit of local government proposes to issue bonds that must be approved by a vote of the people, it shall first publish a notice of its intent to make application to the Commission for approval of the issue.  The notice shall be published once not less than 10 days before the application is filed. The notice shall state all of the following:
(1)	That the board intends to file an application with the Commission for approval of a bond issue.
(2)	In brief and general terms the purpose of the proposed issue.
(3)	The maximum amount of bonds to be issued.
(4)	The projected average annual debt service on the maximum amount of bonds to be issued, an identification of the revenue that will be used to pay the debt service on the bonds, and the amount of any property tax increase required to pay the debt service.
(5)	That any citizen or taxpayer of the issuing unit may, within seven days after the date of the publication, file with the governing board and the Commission a statement of any objections that person may have to the issue. 
The Commission may prescribe the form of the notice.
(b)	Any citizen or taxpayer of the issuing unit who objects to the proposed bond issue in whole or in part may, within seven days from the date of publication of the notice, file a written statement of objections with the board and the Commission. The statement shall set forth each objection to the proposed bond issue and shall contain the name and address of the person filing it. The Commission shall consider the statement of objections along with the application and shall notify the objector and the board of its disposition of each objection.
(c)	Failure to comply with this section shall not affect the validity of any bonds otherwise issued in accordance with the law. This section shall not apply to bonds that need not be submitted to a vote of the people."
Sec. 8.  [Certificates of Participation]  G.S. 160A-20(g) reads as rewritten:
"(g)	Before entering into a contract under this section that includes the issuance of certificates of participation, a unit of local government shall publish notice of its intent to enter the contract and hold a public hearing on the contract.  The notice shall state the time and date of the public hearing, identify the revenue that will be used to make the projected annual payments under the contract, and state the amount of any property tax increase required to make these payments.  Before entering into a contract under this section that includes the acquisition of real property but does not include the issuance of certificates of participation, a unit of local government shall hold a public hearing on the contract.  A notice of a public hearing required by this subsection shall be published once at least 10 days before the date fixed for the hearing."
Sec. 9.  The catch line to G.S. 105-286 reads as rewritten:
"§ 105-286.  Time for general reappraisal of real property; notice of revenue-neutral property tax rate."
Sec. 10.  G.S. 105-286 is amended by adding a new subsection to read:
"( d)	Revenue-Neutral Rate. – When a county completes a reappraisal of real property or a horizontal adjustment of real property, it must publish in a newspaper having general circulation in the county a notice of the revenue-neutral property tax rate for the reappraisal or readjustment.  The 'revenue-neutral property tax rate' is the rate that will generate the same amount of revenue that was generated by the property tax in the year before the reappraisal or readjustment became effective."
Sec. 11.  The catch line to G.S. 105-241.1 reads as rewritten:
"§ 105-241.1.  Taxpayer rights and assessment procedure when additional taxes assessed."
Sec. 12.  G.S. 105-267 reads as rewritten:
"§ 105-267.  Taxes to be paid; suits for recovery of taxes.
No court of this State shall entertain a suit of any kind brought for the purpose of preventing the collection of any tax imposed in this Subchapter. Whenever a taxpayer shall have a valid defense to the enforcement of the collection of a tax assessed or charged against the taxpayer or the taxpayer's property, the taxpayer shall pay the tax to the proper officer, and the payment shall be without prejudice to any defense of rights the taxpayer may have in the premises. At any time within 180 days after payment, the taxpayer may demand a refund of the tax paid in writing from the Secretary of Revenue and if the tax is not  refunded within 90 days thereafter, the taxpayer may sue the Secretary of Revenue in the courts of the State for the amount demanded. The suit may be brought in the Superior Court of Wake County, or in the county in which the taxpayer resides at any time within three years after the expiration of the 90-day period allowed for making the refund. If upon the trial it shall be determined that the tax or any part of the tax was levied or assessed for an illegal or unauthorized purpose, or that the tax was for any reason invalid or excessive, judgment shall be rendered for the taxpayer and the tax shall be refunded, with interest, to the taxpayer. The amount of taxes for which judgment shall be rendered in the action shall be refunded by the State; provided, nothing in this section shall be construed to conflict with or supersede the provisions of G.S. 105-241.2."
Sec. 13.  G.S. 20-66 is amended by adding a new subsection to read:
"( j)	Information on Use of Revenue. – The Division must include in each notice of registration renewal a brief explanation of the source and use of revenue in the Highway Fund and the Highway Trust Fund.  The explanation must be presented in the form of a chart or another means that is easily understandable."
Sec. 14.  G.S. 105-248 reads as rewritten:
"§ 105-248.  Purpose of and information on State taxes.
The taxes levied in this Subchapter are for the expenses of the State government, the appropriations to its educational, charitable, and penal institutions, the interest on the debt of the State, the public schools, and other specific appropriations made by law, and shall be collected and paid into the General Fund.  The Secretary must inform the public about the taxes imposed by this Subchapter by including in the instructions for filing an individual income tax return a brief explanation of the source and use of revenue in the General Fund.  The explanation must be presented in the form of a chart or another means that is easily understandable."
Sec. 15.  Article 20 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105-321.1.  Information on use of property tax revenue.
The assessor must inform the public about the taxes imposed by this Subchapter by including in the annual notice of taxes due a brief explanation of the use of property tax revenue and the percentage of total unit revenue that comes from property taxes.  The explanation must be presented in the form of a chart or another means that is easily understandable.  The explanation may be presented in a separate document that accompanies the notice of taxes due."
Sec. 16.  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 consider legislation on this issue after a careful and comprehensive study of the issue has been made.
Sec. 17.  (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 Institute of Government, 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. 18.  G.S. 143-2.3, as enacted by Section 2 of this act, is effective for fiscal years beginning on or after July 1, 1995.  Section 12 of this act becomes effective October 1, 1995, and applies to taxes paid on or after that date.  The remaining sections of this act and the remaining provisions of Section 2 of this act are effective upon ratification.