Legislative Update

Wednesday, November 15, 2017
Tax Cuts & Jobs Act - Senate Edition
 

On Nov. 9, the Senate Finance Committee unveiled its own version of the Tax Cuts & Jobs Act (“TCJA”). The committee’s release did not come with bill text. Instead, the Senate tax reform proposal came in the form of a conceptual draft or “Chairman’s Mark”, which contains a technical section-by-section explanation of the forthcoming legislation. The actual bill text will be released after the committee concludes its markup process later this week.

The Tax Policy Update team has put together a detailed overview of the Chairman’s Mark. The overview covers select provisions that may be of interest to our tax policy clients.

We have also updated our breakdown of the House tax reform bill (H.R. 1) — the update reflects the amendments approved by the Ways and Means Committee last week.

The quick reference chart below provides a high-level comparison of the House tax reform bill (H.R. 1) with the Senate Finance Committee’s tax proposal. 

House and Senate Tax Reform Proposals
Side-by-Side Comparison of Key Provisions

 

 

 

       

 

 

Business Taxation

Provision

House

Senate

Corporate Rate

Permanent, flat 20% corporate tax rate, effective immediately.

Permanent, flat 20% corporate tax rate starting after Dec. 31, 2018.

Carried Interest

3-year holding period requirement for qualification as long-term capital gain for partnership interests held in connection with the performance of services.

No Provision

Cost Recovery

Full and immediate expensing for 5 years

Same as House

Net Interest Expensing

Limitation on net interest expense deductibility to 30% of adjusted taxable income (i.e., EBITDA).

Limitation on net interest deductibility to 30% of adjusted taxable income (defined under Senate tax reform bill as EBIT, not EBITDA).

Net Operating Loss (NOL)

NOL permitted to offset 90% of taxable income; carryforward indefinitely.

Same as House

Sec. 199

Repeal

Same as House

WOTC

Repeal

No Provision

New Markets Tax Credit

No additional allocations after 2017.

No Provision

Wind & Solar Production Tax Credit

Eliminates inflation adjustment for new wind facilities (i.e., reverts rate to 1.5 cents/kilowatt hour).

No Provision

Investment Tax Credit

Extends the investment tax credit to cover fiber optic solar, fuel cell, microturbine, combined heat and power system, small wind, and geothermal.

No Provision

Nuclear Production Tax Credit

Allocates remaining megawatt capacity available to qualifying nuclear facilities after 2021.

No Provision

Bonds

Repeal tax-exempt status for qualifying private activity bonds, advance refunding bonds, and tax credit bonds.

Repeal tax-exempt status for advance refunding bonds.

Compensation

No changes to non-qualified deferred compensation.

Substantive changes to non-qualified deferred compensation.

Alternative Minimum Tax (AMT)

Repeal of corporate and individual AMT.

Same as House

 

 
 

Individual Taxation

Provision

House

Senate

Rates

4 Brackets: 12%, 25%, 35%, 39.6%

7 Brackets: 10%, 15%, 22.5%, 25%, 32.5%, 35%, 38.5%

Standard Deduction & Exemptions

Nearly doubles the standard deduction; repeals personal exemptions.

Same as House

Pass-Throughs

70/30 split between business income and compensation. Maximum rate of 25% on business income.

17.4% percent deduction for pass-through income.

Child Tax Credit (CTC)

Expands CTC to $1,600 per qualifying child.

Expands CTC to $1,650 per qualifying child.

State and Local Tax (SALT)

Repeals SALT deduction for income and sales tax; maintains deduction for property tax.

Full repeal

Mortgage Interest Deduction

Deduction for existing mortgages will be preserved but will cap deduction for newly purchased homes at $500,000 and disallow deduction for mortgages on second homes.

No Provision

Tax Preparation Service Deduction

Repeal

Same as House

Education

Repeals: the student loan interest deduction and the Sec. 127 employer-provided educational assistance credit.

No Provision

Estate & Gift Tax

Doubles the current estate and gift exemption of $5 million to $10 million. Repeals the estate and generation-skipping taxes after 2023. Lowers gift rate to a top rate of 35%.

Doubles the current estate and gift exemption of $5 million to $10 million.

Savings & Retirement

No mention of Rothification.

Same as House

Medical Expense Deduction

Repeal

No Provision

 

 

 

 

NEXT STEPS

The Senate Finance Committee kicked off its markup on Nov. 13. Chairman Orrin Hatch is planning to offer a package of modifications to the Chairman’s Mark on Nov. 14. The committee is expected to vote and approve the modified mark by Nov. 16.

Here is an updated timeline for congressional action on tax reform:

Nov. 9

House Ways and Means Committee approved H.R. 1, as amended.

Nov. 13

Senate Finance Committee began its markup of the Chairman’s Mark for the Tax Cuts & Jobs Act (the Senate’s tax reform bill).

Nov. 14

Senate Finance Chairman Orrin Hatch to issue a modified mark for the Tax Cuts & Jobs Act.

Nov. 16

Senate Finance Committee to vote on the modified Chairman’s Mark; House to begin debate of H.R. 1; possible House vote on the bill.

Nov. 20-22

Senate could potentially take up consideration of its own tax reform bill.

Nov. 28-30

Senate to continue consideration of tax reform bill; possible Senate vote on the bill.

Dec. 4-12

Conference to resolve differences between the House and Senate bills.

 
 


DOCUMENTS INVENTORY

There have been a lot of documents floating around since the tax-writing committees began their markups for the Tax Cuts & Jobs Act. We have compiled the various reports, scores, and amendments, putting them all in one place for ease of reference:

House Ways and Means Committee: Tax Cuts & Jobs Act (H.R. 1)

·         Bill Text for H.R. 1 (as reported by the Ways and Means Committee)

·         Committee Report (115-409) for H.R. 1

·         JCT Score for H.R. 1 (as reported by the Ways and Means Committee)

·         CBO Score for H.R. 1 (as reported by the Ways and Means Committee)

·         JCT Distributional Analysis of H.R. 1 (as reported by the Ways and Means Committee)

Senate Finance Committee: Chairman’s Mark of the Tax Cuts & Jobs Act (S.____)

·         Description of the Chairman’s Mark

·         JCT Score for the Chairman’s Mark

·         JCT Distribution Analysis of the Chairman’s Mark

·         Text of Amendments

·         List of Amendments

 

 

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Tuesday, October 17, 2017
October 17, 2017 Legislative Update

General Assembly Tackles another “Special Session” & Prepares for another Veto Override

After wrapping up a third “special session” last week, legislators will likely be back in town this week to consider Gov. Roy Cooper’s veto of SB 656: Electoral Freedom Act of 2017. Meanwhile, a number of oversight committees met this week and municipal elections were held in 26 counties.  

 

From the Governor’s Office

Gov. Cooper took action on both of the bills that were sent to his desk at the conclusion of last week’s special session.

On Monday, Gov. Cooper vetoed SB 656: Electoral Freedom Act of 2017, which proposes to ease ballot access requirements for third party candidates and would eliminate judicial primaries in the 2018 election cycle. Gov. Cooper’s concerns with the bill focus on the latter provision; in his objection message, the Governor states that the bill “takes away the right of the people to vote for the judges of their choices.” Legislators will likely return to Raleigh next week to consider the Governor’s veto; SB 656 passed with veto proof majorities in both chambers last week.

Gov. Cooper signed SB 582: Budget & Agency Technical Corrections on Sunday. The bill makes a number of agency requests and technical changes to existing state laws, including:

  • Ordering the Attorney General’s Office not to delegate criminal appeal duties to local district attorneys.
  • Correcting a provision in the budget which would have resulted in pay cuts for long-serving principals.
  • Eliminates the sunset for the Film and Entertainment Grant Fund, which was set to expire in July 2020.

Interim Committee Meetings

Capital Improvements Oversight

The Joint Legislative Oversight Committee on Capital Improvements met to receive updates from the Office of State Budget and Management (OSBM) and the UNC General Administration on projects being funded by the Connect NC Bond. OSBM budget Analyst Mark Bondo presented an overview of the $2 billion bond package, which is funding projects in the University and Community College systems, state and local parks and the NC Zoo, the Department of Public Safety (DPS) and the Department of Agriculture and Consumer Services. Will Johnson, Associate VP for Finance and Capital Planning from the UNC General Administration presented an update on the 21 bond projects in the university system, which include 11 new STEM buildings, a western campus for the NC School of Science and Math, two new business school buildings and seven targeted building renovations. The average cost per square foot for all 21 projects is $398, however, lawmakers questioned the variable costs between projects, and called for more standardization in construction.

 

Emergency Management Oversight

The Joint Legislative Emergency Management Oversight Committee met to discuss the state’s ability to respond to manmade and natural disasters. The committee discussed the state’s electricity grid and received presentations from Duke Energy, NC Cooperatives and Electricities on their efforts to protect the state’s grid. Additionally, Section Chief of the Division of Public Health, Chronic Disease and Injury Section Dr. Susan Kansagra updated the committee on the opioid crisis. Three North Carolinians die from an opioid related overdose every day, however, Dr. Kansagra noted that that statistical trends show that number will soon increase to four. Lastly, Director of Emergency Management Michael Sprayberry presented to the committee on the Division of Emergency Management’s State Emergency Response Team’s disaster preparedness plans. 

To view all documents from the committee’s meeting, click here.

 

Health and Human Services Oversight

The Joint Legislative Oversight Committee on Health and Human Services met to hear several presentations.

First, Department of Health and Human Services (DHHS) Secretary Mandy Cohen provided remarks to the committee, in which she highlighted the 25% increase in opioid related deaths in 2016 compared to the prior year.

Then, Deputy Secretary for Human Services Susan Perry-Manning, Assistant Secretary for Human Services Sam Gibbs and Deputy Secretary for Technology and Operations Michael Becketts of DHHS presented updates on the implementation of three state laws designed to improve child welfare in NC: Implementation of the Federal Program Improvement Plan, NC FAST Child Welfare Case Management, and the Rylan’s Law/ Family-Child Protection and Accountability Act.

Finally, Deputy Secretary for Medical Assistance Dave Richard presented an overview of the Department’s investigations into Cardinal Innovations Healthcare Solutions, the largest LME/MCO in the state after an audit in May reported extravagant spending at the executive level. In their responding statement, Cardinal reported that there are “factual inaccuracies” in the state’s reports and that the Board is working to address the state’s concerns.

To view all documents from Tuesday’s meeting, click here.

 

Justice & Public Safety Oversight

The Joint Legislative Oversight Committee on Justice and Public Safety met to discuss medical treatment in state prisons and county jails. Deputy Secretary for Administration of Adult Correction and Juvenile Justice Joe Prater presented an overview of inmate health care, including reorganization strategies implemented to meet what Prater called “the new day.” Prater emphasized that the inmate population is aging, more chronically and mentally ill, and has been effected by the opioid epidemic, all of which drives health care costs up, while resources remain stagnant. Eddie Caldwell, Executive Vice President of the NC Sheriff’s Association, and Steve Lewis, Construction Section Chief, Health Service Regulation, DHHS, addressed health services in county jails, and noted how inmates are evaluated upon intake for mental and physical health needs. 

 

Medicaid Oversight

The Joint Legislative Oversight Committee on Medicaid and NC Health Choice met to hear Medicaid enrollment and financial updates from Deputy Secretary for Medical Assistance Dave Richard as well as an update on the status of the state’s 1115 Waiver application, which was submitted to the federal government in June 2016. Medicaid enrollment has roughly tracked in line with forecasts and is 4% higher than last year and Medicaid expenditures are 1.9% favorable to the authorized budget. Along with Richard, DHHS Secretary Mandy Cohen overviewed the Department’s proposed managed care design, which Secretary Cohen’s administration released in August. The Center for Medicare and Medicaid Services has not progressed NC’s waiver application.

To view all committee documents, click here.

 

State Lottery Oversight

The Joint Legislative Oversight Committee on the NC State Lottery met to review recent legislative changes to the NC State Lottery and to hear an update from the Alice Garland from the NC Education Lottery. The committee also reviewed and accepted proposed legislation to increase the allowable percentage of annual lottery revenues that may be used for advertising from 1% to 2%. According to Garland, net proceeds from the state lottery since inception in 2006 surpass $5.2 billion and earned $622.5 million for education in the 2017 fiscal year. Additionally, Garland updated the committee on the state’s implementation of Keno gaming systems, which goes live on October 19 and is expected to increase lottery proceeds by partnering with social establishments.

To review all committee documents, click here.

 

Posted by: Kerri A. Burke, McGuireWoods Consulting LLC @ 12:00:00 am  Comments (0)
Monday, October 9, 2017
October 9, 2017 Legislative Update

General Assembly Tackles Another “Special Session”- Adjourning Until January

The General Assembly gaveled in for the third time since adjourning the long session in June to take up additional business this week. A two-day “special session” was held to consider several issues, including two veto overrides, judicial redistricting and technical corrections to the 2017 budget. Per the adjournment resolution, legislators will reconvene on January 10 for another special session

Special Session Report 

Agency & Budget Technical Corrections

A conference report to SB 582: Budget & Agency Technical Corrections was introduced on Wednesday in the House Committee on Appropriations. The bill makes clarifying changes to the state’s budget and other agency requested technical changes and modifications, including:

  • Narrows the scope of school construction projects that can be funded with lottery proceeds to only new building construction.
  • Eliminates the sunset for the Film and Entertainment Grant Fund, which was set to expire in July 2020.
  • Requires the average weekly wage of inmates employed under the Prison Industry Enhancement Program to be calculated in accordance with the Worker’s Compensation Act.
  • Removes a requirement for a randomized control group for a medication-assisted opioid use disorder treatment program.
  • Requires the Attorney General to handle all criminal appeals and prohibits delegation to any district attorney’s office.

SB 582 was approved with veto-proof majorities in both the House and Senate on Thursday, and has been sent to the Governor.

 

Appointments Approved

Sen. Bill Rabon (R-Brunswick) introduced SB 694: Further Modifications to Appointments on Wednesday. The bill includes a number of appointments, including former Rep. Mike Stone to the Oil and Gas Commission and Sen. Tom McInnis (R-Richmond) to the High Speed Rail Compact Commission, at the recommendations of House Speaker Tim Moore (R-Cleveland) and Senate President Pro Tempore Phil Berger (R-Rockingham), as well as corrections to existing appointments. SB 694 was passed by the Senate on Wednesday and the House on Thursday evening, it is not subject to approval by the Governor.

 

Electoral Freedom

When the legislature adjourned in June, SB 656: Electoral Freedom Act of 2017 had just been sent to conference. Both chambers reviewed and gave approval to the conference report with veto-proof majorities this week. The bill:

  • Reduces the number of signatures required for unaffiliated candidates to be included on a general election ballot for offices other than the General Assembly and municipal offices from 4% to 1.5%.
  • Amends the qualifications for a group of voters to be recognized by a political party. Under the proposed legislation, parties that are included on the general election ballot in 35 other states will be recognized parties in NC. 
  • Eliminates primaries for judicial offices in 2018. Sen. Ralph Hise (R-Mitchell), the bill's sponsor, stated that this is needed since the legislature plans to consider different options for selecting judges, and the Senate plans to look at the House's judicial redistricting plan, in the coming months.

The bill has been sent to the Governor.

 

Judicial Redistricting

A proposal to redraw the state’s court districts from Rep. Justin Burr (R-Stanly) moved forward in the House. HB 717: Judicial Redistricting & Investment Act, which has been discussed by a House select committee and the state’s Court Commission in recent weeks, passed the House on Thursday night with a veto-proof majority. The Senate did not take up HB 717 this week, but Sen. Berger indicated that judicial redistricting may be taken up in the coming months or in the short session.

 

Veto Overrides

The legislature overrode two of Gov. Cooper’s vetoes during the special session.

HB 56: Amend Environmental Laws which makes a number of changes to state environmental laws, including: 

  • Establishes a study of excluding certain riparian buffers from taxation. 
  • Repeals the plastic bag ban in effect for portions of the Outer Banks.
  • Appropriates $435,000 in funds to respond to the discharge of GenXinto the Cape Fear River:

In his objection message, Gov. Cooper criticized the legislature for failing to provide resources to any state agencies to respond to GenX, and objected to provisions in the legislation that he said weaken environmental protections.

SB 16: Business Regulatory Reform Act of 2017, which makes changes to state law including:

  • Allows bed and breakfasts to provide additional, optional meals to guests. 
  • Directs the Building Code Council to study electrical safety requirements for swimming pools. 
  • Requires backup lights to be operational to pass a state automobile inspection.
  • Authorizes private condemnation of land for pipelines originating outside of NC.
  • Clarifies a number of stormwater laws including providing that when a preexisting development is redeveloped, increased stormwater controls may only be required for the amount of water-resistant surface being created that exceeds the amount that existed prior to the redevelopment

Gov. Cooper stated that he believes the legislation makes dangerous rollbacks to regulations protecting water quality.

 

Posted by: Kerri A. Burke, McGuireWoods Consulting LLC @ 12:00:00 am  Comments (0)
Monday, October 2, 2017
October 2, 2017 Legislative Update

General Assembly Stays Busy with Interim Committees and Return for “Special Session”

As legislators prepare to return to Raleigh this week, three House select committees met last week to discuss issues that may come up when the General Assembly returns to Raleigh this Wednesday, October 4 for another “special session.” 

What to Expect During “Special Session”

Legislators return to Raleigh this week (October 4th), the third time they have reconvened since adjourning in June. House Speaker Tim Moore (R-Cleveland) and Senate President Pro Tem Phil Berger (R-Rockingham) sent emails to their respective chambers outlining what to expect during this week’s session, which they expect to last three days. Speaker Moore noted possible topics on the House’s agenda:

 

Administrative Procedure Oversight Discusses Vetoed Bill

The House Select Committee on Administrative Procedure Laws met to discuss a conference report to HB 162: Amend Administrative Procedure Laws, which was introduced when legislators met in August. The conference report was adopted by the Senate, but has not been adopted by the House. If passed, HB 162 would disallow any new regulations that would cost at least $100 million over five years, and would require any rules with a projected $10 million aggregate financial impact during any five-year period to be reviewed by the General Assembly. 

During the meeting, members heard an overview of the legislation, and received a presentation on agency implementation of HB 162, should it become law, from the Office of State Budget and Management (OSBM). Assistant State Budget Director Anca Grozav presented OSBM’s concerns with the legislation, which includes health and safety risks if agencies lose certain rules and conflicting directives between HB 162, statutory mandates and federal requirements. 

HB 162 was referred to the Committee on Rules, Calendar, and Operations of the House on August 3. The committee did not indicate whether or not HB 162 will be taken up during this week’s special session.

 

Judicial Redistricting Moves Forward

The House Select Committee on Judicial Redistricting met to consider a proposed committee substitute to HB 717: Revise Judicial Districts, to consider amendments, and to hear public comment.

Twelve amendments were considered by the committee, four were adopted and eight failed. The adopted changes modify judicial district lines and reelection schedules. Several of the failed amendments proposed alternate methods of reforming the state’s court system, while others would have made changes in districts that favor Democratic candidates.

Organizations such as the League of Women Voters of NC and Together We Will NC, as well several individuals spoke against the legislation. Their remarks included opposition to partisan redistricting, concerns that changes to districts and an increase in rotational divisions will cut resources to the courts, and urged the committee to take their time with the legislation. Chairman Justin Burr (R-Stanly) and other members of the committee argue that revisions to the maps are necessary to give more power to rural voters and to reform the state’s judicial branch, which has not seen major revisions since the 1960s.

The bill passed along party lines and is expected to be taken up by the House during this week’s session. The NC Courts Commission, which is composed of judges and members of the legislature, is discussing the legislation today, and hearing from parties such as the Administrative Office of the Courts, Rep. Burr, and judges from across the state.

 

River Quality Committee Discusses GenX

The House Select Committee on NC River Quality held their inaugural meeting to discuss the discharge of GenX, an unregulated chemical compound, into the Cape Fear River. GenX is a byproduct of the chemicals manufactured at the Chemours Fayetteville Works site, which is about 100 miles upstream from Wilmington. During the all-day meeting, legislators heard informational presentations on the compound and other issues pertaining to water contamination.

Representatives from the Department of Environmental Quality (DEQ) and the Department of Health and Human Services (DHHS), two state agencies that have been involved in understanding the chemical compound’s presence in the river, groundwater and drinking water provided informational presentations to the committee. Sheila Holman, DEQ Assistant Secretary for Environment presented an overview of state and federal water regulations, data from recent tests of the river, and an update on testing of 14 wells on Chemours’ property. In lab tests, GenX was found in levels exceeding health guidelines recently adopted by the state. Because of these results, the state has begun testing private wells and examining how variations, such as well depth, may impact GenX levels. DEQ and DHHS have adopted a health guideline of 140 parts per trillion (ppt), an unofficial and unenforceable standard, however, a European study reported a Derived No Effect Level equivalent to 70,909,000 ppt, differences in these standards raised questions from some committee members.

State Epidemiologist Dr. Zack Moore followed with a presentation about the known health impacts of GenX and related compounds, Per-Polyfluorinated Alkyl Substances (PFAS). Some studies have demonstrated that there is a possibility that PFAS may have negative health impacts to humans, including effect on growth, learning, behavior, interference with the body’s natural hormones, and increased risk of cancer. Lab studies have been conducted on the health effects on animals, resulting in possible cancers and other effects to the liver and blood, however, there are no known human health impacts.

The committee also heard action plans on the implementation of HB 56: Amend Environmental Laws, should Gov. Cooper’s veto be overridden, from the Cape Fear Public Utility Authority and UNC-Wilmington; both entities were appropriated funds in HB 56 to respond to the discharge. The Authority expects more than $1 million in short term costs, including for ongoing GenX monitoring and water treatment evaluations, according to a presentation from Chief Operation Officer Frank Styers. Assistant to the Chancellor of UNC-Wilmington Mark Lanier presented the school’s research plans, which include conducting studies on bioaccumulation and biodegradation of GenX. Legislators are likely to take up HB 56 next week.

All committee documents considered the meeting can be found by following this link. The committee plans to hold their next meeting on October 6.

 

Posted by: Kerri A. Burke, McGuireWoods Consulting LLC @ 12:00:00 am  Comments (0)
Tuesday, September 19, 2017
September 19, 2017 Legislative Update

General Assembly Focuses on Judicial Redistricting During Interim

The House Select Committee on Judicial Redistricting, chaired by Rep. Justin Burr (R-Stanly), held its inaugural meeting on Tuesday with two presentations on the state’s court system. In April, Rep. Burr introduced HB 717: Revise Judicial Districts, which overhauls the state’s judicial districts, and Judicial redistricting will likely be in the spotlight when legislators return to Raleigh next month.

During their first meeting the committee focused on the history and current structure of the state’s court system. The committee received presentations from James Drennan, a former head of the NC Administrative Office of the Courts (NCAOC) and current professor at the UNC School of Government, and Judge Marion Warren, the current head of the NCAOC.  

Professor Drennan’s presentation reviewed the state’s judicial history, focusing on substantial judicial reforms. The last time the state’s judicial system saw serious reform was from 1955 to 1962 when lawmakers passed sweeping reforms to unify the state’s disjointed court system. Additionally, Drennan discussed the selection of judges and different methods used across the country. Currently, judges in NC are selected through partisan elections, while some other states utilize legislative or executive appointment or merit based systems.

Director Warren’s presentation was focused on the role of the NCAOC in overseeing the state’s system of judges, clerks and district attorney offices. The NCAOC provides centralized administrative and operational services for all state courts.

The committee will meet again Tuesday, September 19 at 1:00 PM.

 

 

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