North Carolina Legislative Report

2004 Short Session

The North Carolina General Assembly is set to convene its Short Session on May 10, 2004. The main purpose of the Short Session is to make any necessary adjustments to the two year State budget that was passed in the 2003 "Long Session". In addition to budgetary matters, bills that were passed by either the House or the Senate remain eligible for consideration in the Short Session. Also eligible for consideration are legislative proposals from study committees and commissions that have been meeting during the interim. Traditionally, however, budget matters dominate the short session, and this year is no exception.

There is no limit on how long the Short Session can last, and in fact Short Sessions in the past have lasted until October. However, many observers believe that this Short Session will truly be short for a number of reasons.

1. This is an election year and the legislators will be anxious to spend their time in their districts running for office.

2. Tax collections are ahead of projections, taking some of the pressure off of the budget.

3. The "co-Speaker" arrangement in the House appears to be holding together and the Speakers have stated that they want to finish changes to the budget prior to the July 1, 2004 start of the fiscal year.

Election Year Considerations

In March of this year, the U. S. Department of Justice cleared the legislative redistricting maps passed by the General Assembly in its special session in November of 2003. The approval has paved the way for the new maps to be used in the 2004 primary and general elections. The State Board of Elections had previously postponed the traditional May primary until July 20, because of the uncertainty over the maps. The filing period for candidates opened on April 26, and will end on May 7, according to the State Board of Elections. As a result, there is still considerable uncertainty as to who is running and what the races will look like.

The legislative maps have been the subject of litigation since the General Assembly’s first attempt in 2001 at drawing new maps after the 2000 census. The original maps drawn up in 2001 were declared unconstitutional, as were a second set of maps in 2002. As a result, elections in 2002 were held on the basis of maps drawn up by a North Carolina Superior Court Judge. With the ruling by the U.S. Justice Department, the 2003 maps drawn by the General Assembly will be used for the 2004 elections.

Even though the U. S. Justice Department has approved the most recent maps for use in the 2004 elections, the litigation over whether the maps are constitutional continues in state court.

Budget Considerations

Revenue figures from the Governor's office indicate that tax collections are ahead of budget projections. If the trend continues, there may not be as urgent need, as in past years, to cut programs or raise taxes. Even with increased revenues, budget writers will still have to deal with a number of areas where additional funds may be needed, such as Medicaid, state employee raises and health plan costs, and increased enrollment in state universities and community colleges. The General Assembly may also consider a number of economic development initiatives that may require additional revenue, or would reduce tax collections.

If there is a need for additional revenue to balance the budget, the General Assembly may look to specific tax increases to alleviate the shortfall. Senate leaders have indicated a willingness to consider tax increases on tobacco and alcohol, while House leaders have indicated that there are not enough votes in the House to pass any additional taxes, especially in an election year.

As an additional economic development tool, a number of groups have been calling for a reduction in the state corporate tax rate and the tax rate on the highest individual income tax payers. There is an ongoing debate as to whether the tax rates in North Carolina are conducive to attracting new jobs to the state. Some argue that the corporate tax rate of 6.9% should be reduced to 5.9%, to attract companies to locate in North Carolina. If any of these tax reductions are enacted, additional revenues will be needed.

Coalition Government in the House, Senate Still Controlled by Democrats

After the elections of 2002, the North Carolina House was equally divided between Republicans and Democrats. After days of inconclusive votes, a "co-speaker" arrangement was agreed to by a majority of the House. The arrangement called for equal representation on committees and two Speakers, Republican Speaker Richard Morgan and Democratic Speaker Jim Black, who preside on alternate days. During the 2003 Long Session, the coalition demonstrated that it could function and was able to act on a number of issues, including the budget. The coalition appears to be holding together and both Speakers have stated that they want to finish changes to the budget prior to the July 1, 2004 start of the fiscal year.

In the Senate, Democrats retain control, but with a smaller majority. Last fall, Sen. Tony Moore, of Greenville, switched to the Republican Party, leaving the Democrats in control of the Senate, but by a 27-23 margin. In the redistricting process, Moore, a first-termer, had been placed in the same district as Sen. John Kerr, a nine-term senator from Wayne County and Co-chair of the powerful Senate Finance Committee. The speculation is that we will see Moore competing against Kerr in the general election.

There were several areas where the General Assembly did not take final action in 2003, but which appear to be eligible for consideration in the Short Session, and they include the following.

• Death penalty moratorium - although the Senate passed a two-year moratorium, the House failed to take a vote on the issue.

• Medical malpractice insurance and tort reform – the Senate passed a bill in the "extra session" in September of 2003, Senate Bill 802, that contained a number of changes intended to alleviate the large increases in medical malpractice insurance rates. However, the bill did not contain provisions that most medical providers called for, including limits on "pain and suffering" damages, elimination of double recoveries, limits on attorneys’ contingent fees and periodic payment of damages. In the House, a Blue Ribbon Task Force has been holding meetings during the interim and has taken considerable testimony. The Task Force is expected to vote on draft legislation in the near future. It is uncertain whether the House will take up the draft bills from its own task force during the Short Session, or attempt to move the Senate bill, with or without amendments.

• Payday lending - the House passed a bill that would allow payday lending in the State with regulation, but the bill has yet to pass the Senate. The bill was re-referred to the Senate Finance Committee in the last days of the session.

• Alcohol and tobacco taxes - although the General Assembly did not vote to increase alcohol and tobacco taxes in 2003, if additional revenue is needed, they are expected to be on the table for consideration.

We will be actively engaged in lobbying and monitoring at the General Assembly on a number of issues on behalf of our clients this session and look forward to a productive and successful Session. Please feel free to contact Marvin Musselwhite at 919.783.2847 or mmusselwhite@poynerspruill.com or David Barnes at 919.783.2812 or dbarnes@poynerspruill.com if you have any questions or need assistance

This publication is published by Poyner & Spruill LLP to provide general information about significant legal developments. Because the facts in each situation vary, the legal precedents noted herein may not be applicable to individual circumstances.

Physical Address: 3600 Glenwood Avenue, Raleigh, NC 27612