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Senate | July 1, 2013 | Committee Room | Finance

Full MP3 Audio File

[Speaker changes.] Meeting will come to order please. We're going to have a full room today and so I'd ask for everyone to remain quiet and not move around too much. I'd also ask that the Sargent-at-arms keep the air conditioners down as low as possible for Senators Hise and Hunt. We will get started. Our Pages have gone downhill from whose normally sitting over there but we're welcome to have those in attendance. Our Sargent-at-Arms Captain Donna Blake, Ed Kessler, Steve Wilson. We appreciate their work today and you may have your work cut out for you because we do have a full gallery. Today, we going to hear a PCS on House Bill 998. Do I hear a motion to hear the PCS? Senator Brunstetter? All those in favor please say "aye". (Ayes.) Opposed? Motion carried. Senator Berger, if you'll present the bill please. [Speaker changes.] Thank you, Mister Chairman. Members of the Committee, we are back to talk a little more about tax reform. Two and a half weeks ago, we had a bill that was passed by the Finance Committee in the Senate, on the floor...it passed second reading...and because of some discussions we were having with the House...and because of the importance of moving ahead with tax reform, we pulled the bill from the floor, brought it back to the Finance Committee to continue our discussion. Since that time, we've participated in a number of intense but, I would say, productive conversations with our House colleagues. We've made a lot of progress and we've reached consensus in a number of key areas. Today, I am presenting a further compromised tax reform plan that resolves...resolves the vast majority of the differences that were voiced...differences that were voiced and concerns that were voiced by members of the House. This plan continues to simplify our 1930's tax code, continues to provide substantial tax relief to working families and it continues to make our state a more attractive place for businesses to locate, to grow and to operate. It significantly reduces the state's personal income tax rate, it phases out the corporate income tax rate, it cuts the business franchise tax, and it caps the gas tax while accepting the House's position on most items in contention. For example, it adopts the House approach on offering deductions for mortgage interest, property tax and charitable contributions. It continues to exclude Social Security benefits from the tax base and it substantially modifies proposed changes effecting local governments, rural hospitals, and non-profits to lessen and, in most cases, eliminate any adverse fiscal impact. What does this plan do? The bill before you, members of the committee, in the first year..the first three years alone will put over a billion dollars of money back into the pockets of North Carolina's hard-working families and businesses. It reduces the state's personal income tax rate from the current maximum of seven and three-quarters percent to five and three-quarters percent in the first year and 5.7% in 2015. It provides a standard deduction for all tax payers applied to the first $15,000 of income for married, filing jointly; $12,000 of income for heads of household; and $7500 in income for single filers. It retains the state child tax credit. It offers a $15,000 combined maximum deduction for mortgage interest and property taxes. It makes charitable contributions fully deductible, phases out and then eliminates the corporate income tax by 2018. It makes substantial changes to the business franchise tax and, I understand, Mister Chairman, that there's an amendment that will modify the language that's in the bill on the business franchise tax. It caps the state's gas tax and it eliminates the North Carolina's death tax. After months of public....

…dialogue and weeks of negotiation, the time has come for the Senate to move the tax reform process forward. We believe this plan is the fair compromise that addresses the bulk of concerns expressed by House leadership. We hope it is the foundation for a final agreement that delivers meaningful and much-needed tax reform for the people of North Carolina. Mr. Chairman, I would ask the members of the committee you have in front of you, a proposed committee substitute. At the back of the document you have, there is a comparison sheet. This is page one of that comparison sheet. I wanted to go through a few things that are here. What you’ll see is the first column would be the House bill as passed. The House bill as passed. The second column is House Bill 998, the Senate version that was on the floor previously, and the third column is the current bill. I am advised that on the personal income tax rate, the five and three quarters is in 2014 and holds at that number. But again, that’s a substantial reduction from the current seven and thee quarters percent. On itemized deductions there are unlimited charitable contributions in this bill. Fifteen thousand dollar cap on mortgage interest in property taxes on real estate. Social Security there is no change from current law. Go the second page you’ll see the modifications in the corporate income tax treatment eliminates the corporate income tax over the course of five years, the previous bill would have done that over the course of four years. Other modifications and changes are noted. Does make creates the new business privilege tax and makes changes in the franchise tax and as I indicated I think there’s an amendment coming with reference to the franchise tax. On page four, if you’ll note on privilege tax changes whereas the original bill that come out of the Senate eliminated those local privilege taxes in 2018. This PCS makes no change as far as the local privilege taxes are concerned. Sales tax changes are the rate does not change and many of the modifications are things that were pretty much agreed to in the House version and the Senate version to begin with. And the big change or one of the big changes in sales taxes we did remove packaging from the items that we continue the exemption for packaging whereas the previous version would have eliminated over time that exemption. And the very last page notes a revenue loss study to address various issues that still will need to be discussed. Members, I would go section by section through the bill but those are the major changes from the bill we had before. I would invite any questions and we’ll try to respond to them or have staff assist in responding but Mr. Chairman, if it would be appropriate now would be time for the amendment. [SPEAKER CHANGES] the amendment. Thank you, Senator ?? recognize for an amendment [SPEAKER CHANGES] Thank you Mr. Chair. The purpose of this amendment, and we do have copies so I guess we need to get those around to everyone before I begin. [SPEAKER CHANGES] Member, this will be page ten, if you’d turn to page ten.

Thank you do the members all have a copy? So sorry ?? make some available in the back we’d appreciate that please. Senator Barringer you have the floor to explain your amendment. [SPEAKER CHANGES] Thank you Mister Chair. This amendment does several things as he mentioned we began on page 10, line 45, what we’re going to do is change that from removes or phases out the lower franchise tax rate to lowering the franchise tax rate and then as you can see on page 12, lines 14 and 15 we are now going to be substituting the number 1000 and then also we’re going to be adding something to our studies about this. Let me explain what this does as those particular technicalities do. First of all it removes C Corporations from the new business privilege tax. It changes the minimum franchise tax from 2000 in 2016 and 3000 in 2017 to $1000. It removes the section that would repeal the franchise tax because until we make other provisions it will remain at the $1000 and then finally adds to the issues for study by the revenue laws the elimination of the franchise tax. This last part to me is the most important. I’m absolutely passionate and concerned for our small businesses in North Carolina. This will allow us the opportunity to determine the best way to fairly treat the small businesses in North Carolina which are the backbone of our economic engine. We have to be fair and equitable to all businesses. [SPEAKER CHANGES] There’s what it does to revenue other whether it’s increase or decrease. I expect its increase but wanted to get a sense of what that was. [SPEAKER CHANGES] This amendment would reduce revenue as we do have a preliminary estimate of what it would be. If you give me just a second Senator Stein. [SPEAKER CHANGES] Thank you can you hold that for a second. I can give you a rule of thumb but I would rather the staff give you the proper number. [SPEAKER CHANGES] I’m ready. For the 15-16 fiscal year this would have a total impact after the amendment you would see where this plan would reduce revenue collections for the franchise tax of about 80 million dollars. For the 16-17 Fiscal year it would be about 150 million dollars and that’s not just through the amendment that’s with the affect of the plan as if you amend it on current revenues. [SPEAKER CHANGES] Thank you. Follow-up? [SPEAKER CHANGES] I didn’t understand that last point. So if we do not pass this amendment there would be 80 million in additional revenue in 15-16 and 150 million in additional revenue in 16-17? [SPEAKER CHANGES] Let me try. I didn’t think they did a very good job at explaining it. Under the current proposal, if you just look at the amendment. The amendment produces revenue by about 40 million dollars in fiscal years 16-17 and by about 30 million dollars in fiscal year 17-18. That’s just the amendment compared to the current proposal

Follow up? [SPEAKER CHANGES] Question for the chair? Is there any requirement amendments be revenue neutral whether here or on the floor? [SPEAKER CHANGES] To whom? [SPEAKER CHANGES] I was asking the chair. [SPEAKER CHANGES] ?? I am going to say that I don’t know how to give you the proper answer to that. I’ll ask the staff if they can. You want to know if these have to be revenue neutral? I’m going to say of the top of my head no but I’ll ask the staff. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Questions from other members? Senator Hartsell. [SPEAKER CHANGES] I have a question sir on the amendment. My question doesn’t have to do with the amendment. [SPEAKER CHANGES] Thank you. Senator Brown? [SPEAKER CHANGES] Thank you Mister Chair I just want to clarify that’s 30 million and 40 million additional savings to small businesses as it’s in the bill now. I guess that’s what you’re saying? The amendment comes up with an additional 30 and 40 million dollars? [SPEAKER CHANGES] You return that to ?? yes sir. [SPEAKER CHANGES] Senator Tillman? [SPEAKER CHANGES] Thank you Mister Chairman. Since we’ve not completed the budget yet I don’t imagine that amendments would have to be revenue neutral because we will get a bottom line figure before we complete the budget so whether they add to or take away from the bottom line at this point matters very little I guess at this point. [SPEAKER CHANGES] Correct. Thank you. [SPEAKER CHANGES] Any further questions or discussions from the members? [SPEAKER CHANGES] Mister Chairman? [SPEAKER CHANGES] Yes sir. [SPEAKER CHANGES] Just out of curiosity what’s the bill sponsor think of this amendment? [SPEAKER CHANGES] That’s a good question Senator Apodaca ?? what do you think of this? [SPEAKER CHANGES] Mister Chairman there have been a lot of questions that were asked about the impact of elimination of the franchise tax on C Corporations and the imposition of a flat fee. The flat fee in some instances lessen the adverse impact on some of those C Corporations and give us situations where the franchise tax actually goes down but the downward motion of the franchise tax stops at 75 per 1000 and the minimum does not go up beyond the 1000 dollar figure. That’s the reason that it’s important for us to study this issue to see what the particular impact of the elimination of the franchise tax and the imposition of a flat fee will do to some of those C Corporations, particularly those C Corporations that don’t have a great deal of revenue running through them and I think that’s the reason that Senator Barringer felt so strongly about this amendment and the Bill sponsor is happy with the amendment. [SPEAKER CHANGES] Senator Apodaca. [SPEAKER CHANGES] I’m just glad we finally got to an answer. I felt like I was meeting with a lawyer for a moment. [SPEAKER CHANGES] Thank you Senator Apodaca. [SPEAKER CHANGES] Charged by the word. [SPEAKER CHANGES] I thought for a second you were going to say you were sorry you asked. Ladies and gentlemen the question before the Senate is amendment number 1. All those in favor please say aye. Opposed no. The ayes have it. Amendment passes. We’re back to the original bill. Any further discussion or debate on the ???? Senator Hartsell? [SPEAKER CHANGES] Thank you Mister Chairman. If you look on page 3, line 16 about deduction amount. It indicates the taxpayer may deduct from AGI, either the standard or the itemized deduction and from the description that we had earlier and looking at the chart it appears that it should be and or is that right or wrong? That’s my question. [SPEAKER CHANGES] Senator Hartsell I will defer to staff on that. My understanding is that with reference to the standard deduction a taxpayer can choose that. If a taxpayer, and the taxpayer can then deduct an unlimited amount of charitable contributions in addition to the standard deduction. With reference to the

The specifics of the mortgage industry for the first deduction, and the deduction of the property taxes. I'm not sure in the latest version whether that is . . .[SPEAKER CHANGES], thank you, Cindy could you answer that?[SPEAKER CHANGES]Cindy will answer that.[SPEAKER CHANGES]Just like under the current tax law, the tax payer can take either the standard deduction or the itemized deduction. And I think it may help if you look at how the three plans differ. Under the house bill, the standard deduction was 12,000 dollars. And then the taxpayer could get the unlimited, or the itemized deductions. Unlike current law, where a taxpayer could take all the itemized deductions that the taxpayer took; the taxpayer's federal return. Under all these plans, it is more limited. Under the house version, you would be able to your mortgage interest deduction, plus your amount you itemized on real estate, capped at 25,000 dollars. And you're also allowed to take an unlimited amount; whatever your charitable return was on your federal return, you were able to take it on your state return. Under the Senate plan, that this group adopted earlier in the month, not only was the standard deduction eliminated, but also the itemized deduction. That went with very broadest of all possible bases. And just had a zero percent tax rate. This proposal is a hybrid you may say. Instead of a zero percent tax rate, we're back to a standard deduction amount, which is a little higher than what was in the house bill. And it mirrors the itemized deductions that a taxpayer may take. Unlimited, the same amount you took on the federal return, you can take on the state return. And then you may also take whatever you took on your home mortgage interest, and for your property tax and real estate interest, instead of it being capped at 25,000, it's the same standard deduction amount at 15,000 dollars. I hope that helps.[SPEAKER CHANGES] Thank you, but my question is, under this plan, any individual can take the standard deduction, and they can take the itemized deductions as identified.[SPEAKER CHANGES]No sir.[SPEAKER CHANGES]No?[SPEAKER CHANGES]They may choose one or the other, just as they do under the current law.[SPEAKER CHANGES]So it one or the other, so in reading the column to the right, you can't add the two. It's one or the other.[SPEAKER CHANGES]Staff?[SPEAKER CHANGES]That's correct.[SPEAKER CHANGES]Members, questions, Senator Nesbitt.[SPEAKER CHANGES]I'm not sure who this would be to. Has there been any agreement to the governor's office, and the revenue office as we go forward? I see numbers on here from a billion, to one hundred million, to a billion. But those are all based on revenue estimates. And I don't know who's they are. Is there a consensus estimate with the governor yet?[SPEAKER CHANGES]Senator Grovner[SPEAKER CHANGES]Senator Nesbitt, my understanding of the staff and the budget office staff at the general assembly have agreed on the revenue estimates from the various plans that have been out there. I'll defer to Barry, I don't know if they've actually talked about this plan in particular, but it would be my understanding that the calculations that took place would be consistent with those calculations [SPEAKER CHANGES]Dr. Boursin, would you care to comment?[SPEAKER CHANGES]Yes,it's very important the fiscal research division, with respect to the estimates, obviously we try to work with the executive branch, whether it's the OSBM, or the Department of Revenue, in getting a better understanding of the fiscal impact. That's what you see in front of you are the fiscal research's estimate. Just with any other fiscal estimate or fiscal impact analysis. These are analysis of fiscal research division.[SPEAKER CHANGES]Thank you, Senator McKissing. Now you'll follow up, Mr. Boursin.[SPEAKER CHANGES]What I'm asking about is the underlying estimate. The estimate of the growth of the next three or four years. This is based on something. I think it was based on three or four percent. Somewhere around there. You can tell what this is based on. Is that, has that been agreed upon with the governor's office? That's necessary before you can do the budget, tax policy or anything.[SPEAKER CHANGES]The first two years, as with again, with any fiscal impact analysis we do, we have a consensus forecast in place, then we'll use those base lines for estimates with respect for let's say any kind of tax law change. It's no different here.

Throughout the years we've had several options available to us. We could take long term growth, we could use some other perimeter, such as population inflation to grow those out years. But, there's no consensus basis for out year analysis. Fiscal research chose to use a slightly more conservative approach, for baseline growth, by using only the population inflation growth numbers. Which were around 4.2%, 4.3% in those out years as opposed to long term growth averages of 4.6%, 4.7%. But, again those were decisions made by fiscal research division. The only consensus we have with OSBM is with the current buy in ?? forecast. [SPEAKER CHANGE] Do you have a follow up? [SPEAKER CHANGE] If I could, what is that consensus estimate on this year and next . . . On the two years of buying in? [SPEAKER CHANGE] The growth estimate going into 14'-15' is at 4.5%. [SPEAKER CHANGE] Senator McKissick. [SPEAKER CHANGE] Thank you, Mr. Chairman. Senator Berger, I have a serious of questions, I guess I want some clarification upon which you can help me with. Some of the items you've talked upon, others you have not. Of course, I gather with the corporate taxes you're now I guess, reducing it and stepping it down completely to elimination in 2018, it won't be the flat tax that was recently proposed, is that correct? [SPEAKER CHANGE] I believe the difference between this bill and what was originally proposed in the Senate version of the bill was that in the Senate version of the bill stepped the tax down over 4 years to zero. This steps it down over 5 years to zero. [SPEAKER CHANGE] Five years to zero? [SPEAKER CHANGE] Yep. Other than that I think its basically the same. [SPEAKER CHANGE] All right. Now, let me ask you this, in terms of . . . [SPEAKER CHANGE] Is this a follow up? [SPEAKER CHANGE] Follow up, please, yeah. There was a credit for low income housing, how is that being changed and revised? It looks as if there are some limitations which are being established and an ultimate phase out of that credit? It appears on page 2 of the summary. [SPEAKER CHANGE] Senator McKissick . . . [SPEAKER CHANGE] Perhaps staff could help with that. [SPEAKER CHANGE] Right. I think that that would be helpful. My understanding is that there are some changes with that and if Ms. Averett could help us with that. [SPEAKER CHANGE] Yes. [SPEAKER CHANGE] The credit for low income housing. [SPEAKER CHANGE] Yes, Sir. On the credit for low income housing, the bill puts two different limitations on the credit. The first is the same limitation that the House put in its version of the bill, which is it limits it to housing located in tier one and tier two counties. What this bill does in addition to that limitation is to say, whatever credit amount you receive, you calculate, it's going to be eliminated over 5 years. Whatever your credit amount is in 2014, you get 100% of it if it was in tier one or two. The next year, whatever your credit amount is, you get 75%, the next year 50%, the next year 25%, until 2018, it's eliminated along with the corporate income tax. [SPEAKER CHANGE] Okay. Thank you. [SPEAKER CHANGE] Follow up, Senator McKissick. [SPEAKER CHANGE] Sure. [SPEAKER CHANGE] So, it would be eliminated completely. So, if low income housing was being built it would be eligible outside of the tier one and tier two areas that it would not be eligible for any type of relief whatsoever. [SPEAKER CHANGE] No, Sir. You're correct. Not beginning with the 2014 taxable year. [SPEAKER CHANGE] Follow up. [SPEAKER CHANGE] Follow up. [SPEAKER CHANGE] Now, what are we doing with manufactured housing, so I can be clear on what's being proposed here now, as it compares to what was originally in the Senate version of the bill? [SPEAKER CHANGE] Did you hear the question? [SPEAKER CHANGE] Yes, Sir. [SPEAKER CHANGE] For manufactured housing, yeah. Of course, that's on page 4 of the summary. [SPEAKER CHANGE] Yes, Sir. There is no difference between this version of the bill and the last version that you had before you, earlier in June. It increases the tax rate on those to the state rate, and the state rate right now is 4.75%. [SPEAKER CHANGE] Follow up, if I could. [SPEAKER CHANGE] Yes, Sir. [SPEAKER CHANGE] Will that also fall into the category of the modular housing, as well? [SPEAKER CHANGE] Yes, Sir. [SPEAKER CHANGE] Okay. Follow up? [SPEAKER CHANGE] Yes, Sir. [SPEAKER CHANGE] Now, what are we doing with service contracts? It looks as if we're moving around some of the requirements

The facsimile service contract with the captive acceptable in the day: that led to an art could you clarify that city that fire at the plant and piney Salem clear bond debt timeout that they can come from the house version of the dell and then fed contact can't defend the defense contractor can, copy and headed out that Bennett said the contract on the property in my client that began at the Omni that you can then be able to hire a con man behind that can contact the company expected to alleys that allowed Law meeting time to the client daily attacks, and then felt that the fed can't write down the D?? (SPEAKER CHANGES) contact Jeff like the man known more for that, if the department of public health: the goal of the delay had projected revenue stream that would like the D anticipated results of this data came from 11:00 AM and goals television and film the notion that a little belief that the two of a fake and, more than comparably open to that that the Detroit?? (SPEAKER CHANGES) and that the number 18 Mortgage Insurance contracts and health education estimates that the just over 29,000,000 times left behind in the following: good money after the Cuban colony ship, the Federal payroll and the wind, is the only good to have time to go, but two: that if the court found that the Mormon and turned them into the history and the mentally and the injured contract what we're looking at in terms of additional than taking the helm only a day to day care, financial-minded managing the provision care time that he acted and that the combine the two of the universe O'Neal and that the pope bringing the dynamic ole on that date back home to the display right including the model homes and the state sales tax by Libya $10,000,000, which meant that, if you're a legend Michel time of day and perhaps something of a building that's the way he wanted clear: the study time you fill a vacant your honor, and launch including against women in the one that he'll have taken a few time to look at this stage of export laws that would do we have a time when?? (SPEAKER CHANGES) Wednesday to take place and then again, but one thing only good Italian civilians from lee indicated the time is going to the pool expected that policies are currently in place will remain in place time the HK a bad situation and income going to love people have much time of his soul my understanding that bill and that he would make the change came up with 40 two long time have imposed or collect the projections that that may have little hope for a fact of nature one hand when they have time to attend the fed cut the highest year, some are just a couple questions home, and the others all weekend long-time and we would do not tax them-that-that-made it clear I also have to live in the story of a horror stories courtroom in the pivot: I believe this show language in your allow former chicken candidacy on Friday full-court panel and you can show me all the election Ly and commercial one and was not intended to clear-cut ability I can do is I'm the guy toward the footage from the on the wall that could lead to have about a long and author Walter them more time, built and the court has some provisions- and all the questions are about about the above the national economy may want to talk about a copy of the above the left-of-the time:: : Dave Phillips, does that, then that's been the time ??.... dry…..

in that. That presently, what the bill would do is allow a phase out of the current exemption that some folks have for paying sales tax. [SPEAKER CHANGES] And your second question, sir. [SPEAKER CHANGES] No, sir. That's all I have. [SPEAKER CHANGES] Thank you, Senator Tarte. [SPEAKER CHANGES] Yes, thank you, Mr. Chair. A question under section ?? seven under the sales tax refunds. If you can clarify for me as I read this and a few people have been asking questions. We've included the University of North Carolina healthcare system as part ?? making the definition that is part of the state agency and the clarification I'm seeking is to know that as I read this there is no exemption of any component so the entirety of the UNC health system would be included, is that correct? [SPEAKER CHANGES] ?? answer that ?? [SPEAKER CHANGES] That is my understanding. Yes. [SPEAKER CHANGES] If I could, Mr. Chairman, just for purpose of clarification, I had neglected to mention this, on the sales tax issue for non-profits, that is one of the things that we had a lot of questions about and the original bill basically provided for a phase down of the refund. And that phase down actually went down to 100 thousand dollars and there were a lot of concerns about rural hospitals and small colleges and this version of the bill continues the phase down of that refund, but the phase down stops at I think it's 2.8 5 million dollars. So the net effect is that for all rural hospitals, they will receive the full refund and for practically every private university in the state, they will receive the full refund. And I think an entity would have to spend about 40 million dollars in taxable items in order to exceed the 2.8 5 million dollar amount that the bill stops at. And it takes us four years, I think it is, to get to that 2.8 5 million dollars. Again, in the spirit of trying to work towards some consensus, this is a significant movement away from where we were before and a significant movement towards the position that others have expressed and a significant movement towards, hopefully, reaching some compromise on this bill. [SPEAKER CHANGES] Thank you. Senator Stein. [SPEAKER CHANGES] Thank you, Mr. Chair. With the last version of the bill, we had a one page chart that showed the actual dollar consequences of each change that isn't in this version. ?? I guess, question for staff is to when that will be available because it was through seeing that chart last time we were able to realize that there was a more than 200 million dollar hit on hospitals and Senator Berger just talked about moderating the impacts, but I don't know what the cost of hospitals are from the changes from what we have here. [SPEAKER CHANGES] Thank you. I'm sure staff will be happy to provide ?? when they can that sort of information and a sheet very similar to the last one. Thank you, sir. [SPEAKER CHANGES] And then a follow up comment. It does have the summary consequence of this and it ends up taking a billion dollars out on the out years from a recession level budget that we have in North Carolina and by cutting the income tax to a flat tax rate has the consequence of giving a third of the benefits from the income tax cut to the wealthiest 1 percent of tax payers in North Carolina and I just don't think that this is a sound way to do physical policy in North Carolina. We need to make sure we have enough to fund the critical services and not a dollar more but this isn't the time to be doing tax cuts down the road for the wealthy when we have a lot of critical needs, so I'm gonna be voting against this proposal. [SPEAKER CHANGES] Thank you. Senator Berger, did you care to comment? [SPEAKER CHANGES] Mr. Chairman, what I would say is that what this plan does is it provides an additional 600 million dollars to fund growth and government in 2014 15. Another 600 million dollars above that to provide growth in 15, 16. Another 800 million dollars to provide growth in 17, 18 and another almost 1 billion dollars in 17,18.

One of the big differences that many of us have on the issue of size and government and growth and government is how much is enough. It is my view that, this is enough. [SPEAKER CHANGES]. Thank you sir. Senator Apodaca [SPEAKER CHANGES] Thank you Mr. Chairman. You know I think ?? brings up a good point, the way we going now, may be the way to keep going? I don’t think so. I think we’re going the wrong way, when we go with taxes. I think now is the time to change it. We have stubborn unemployment rate, although it is going down, not going down as much as some of our colleagues who are friends; North, South, east and west. So, now I think is the time to do a change. You do a change when things are getting better so you won’t see them get worse as time goes on. So, I think we are on the right path. I was talking to one of my economic development officers today, as a matter of fact about fifteen minutes before we came in and he was excited about the potential by having a cooperate income tax rate below 5 and ultimately down to zero. He said it would help him so much in his recruiting efforts. It may not bring us more, but it will not run others off as quick when they are start their negotiations. That is one point they have always asked is cooperate income tax rate. With that being said we can sit here and pick it to death or kick it down the road a little more, but I would like to move for a favorable report to the PCS as amended unfavorable to the other PCS that we saw earlier. [SPEAKER CHANGES] Thank you sir, we actually have three more people ahead of you ?? ,but I’m going to jump across a few senators just so you can speak ?? [SPEAKER CHANGES] I did not realize I was jumping in front of anybody, but while on the subject of hospitals I wanted to ask a question because senator Sanders and I were looking at the bill and the conversations that we had about these proposals, were very consistent with what Senator Borah said, but I’m a little concerned about language and may be something that we need to be amended I’m not sure if I’m reading it wrong or what, but on page 22 lines 11 through 15, it does not look like the 2.85 is what’s in writing and I did understand that was what we were doing as senator Borah laid out, but I wanted to point that out that unless I’m reading the wrong section or something it looks to me we’ve got our numbers wrong [SPEAKER CHANGES] Senator If you look on page 21 and 22, if you add those numbers up I think that you will see that [SPEAKER CHANGES] Thank you Mr. Chairman [SPEAKER CHANGES] one is the state refund and the other is the local. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Ok we are going to hear from Senator Cook and then Senator Woodard, then we going to bring this thing to a bud. Senator Magisic I may just hear from you but thank you sir. Senator Cook [SPEAKER CHANGES] Senator Borah over here [SPEAKER CHANGES] Senator Cook [SPEAKER CHANGES] Wonder if you share with us what you believe the economic impact of this legislation will be in the future specifically more toward our business position as relative to other states and that sort of thing. [SPEAKER CHANGES] Well in some respect. Thank you Senator Cook. To build on what Senator Apodaca said in many instances I think corporations that are looking to grow, expand into another state, may not even be looking at North Carolina because they look at our tax rates. We have for years understood that we have the highest marginal income tax rates in the Southeast and the highest cooperate tax rate in the southeast. That has translated to us having the highest unemployment rate in our area so it is our expectation that by not making ourselves more competitive with reference to those rates but actually moving ahead of our neighboring states in those rates and ahead of many other states that we will help fuel growth in jobs and those jobs are important. I have said to a number of folks that; If you don’t have employers you not going to have employees and it’s our belief that what you do with plans such as this is you make North Carolina friendlier to employers. Making it friendlier to employers makes it easier for us to have more employees and that translates into jobs.

Sir, Senator Walters. [SPEAKER CHANGES] Thank you, Mr. Chairman, and this may just be for my edification, but back to the UNC healthcare exemption, is the East Carolina University Healthcare System considered a State agency? [SPEAKER CHANGES] Ms, Ms Everett? [SPEAKER CHANGES] It is currently considered a state agency under East Carolina University and it’s currently receiving the exemption. Only the UNC Healthcare system is currently receiving a refund as opposed to an exemption. [SPEAKER CHANGES] Thank you. Senator Nesbitt? [SPEAKER CHANGES] Thank you, Mr. Chairman. And I’m going to have to speak based on my understand of this. It doesn’t mean it’s so. And please correct me if I’m wrong, but when you get into these sales tax exemptions, if I’m not mistaken Mission Hospital up there that covers all the mountain counties basically gets $16 million from that. They also have some of the highest, one of the highest numbers of indigent care non-paid people in the State of North Carolina because they cover all those mountain rural counties and they’re all piped in there. And we’re in a situation where we’re not going to expand Medicaid so we’re not going to take that load off of them. And now we’re going to just ?? I guess $13 $14 million out of them. My chamber of Commerce sent a resolution down here saying don’t do this, that you’ll kill our economy up there. We’re going to lose more jobs at Mission Hospital than we can recruit in a year. And I bring that up because, I don’t want to just talk about one hospital, there have got to be others out there that are in the same shape we are. We’re not part of the University system, and we’re not some great, we’re not Duke. We don’t have an endowment, we’re Mission Hospital. We’re just up there tending to the list. And you got to give some relief to these people somewhere. You’ve got to help them get paying patients which we can do to make it up. Or we got to leave them alone at least, although they need help from where they are. So I bring that up, I don’t know if somebody can look at that overnight and try to figure out if anybody else is in the same boat, or if there’s some way to fix this, but killing us up there. [SPEAKER CHANGES] Senator Nesbitt, just briefly, we are regularly advised by the hospitals that Medicaid and government pay is, is not the best pay. That private pay is the best. It is our hope that, and most folks who have jobs have private insurance, not all, but most who have jobs have private insurance. It is our hope that as we improve, hopefully the job situation in North Carolina, that hopefully that will translate into more people who have private pay and that’ll help all the hospitals and all the medical providers. I’ll have to quibble with you a little bit about not expanding Medicaid because if I recall correctly, we have already expanded Medicaid in terms of the amount of money we’re spending on Medicaid by almost $1 billion, $1.2 billion. So we are expanding Medicaid in terms of how much money the tax payers are putting into Medicaid. And most of that money goes into the hospitals and into the healthcare providers around the state. So they are receiving additional revenue. The other thing I would say is that hospitals have many advantages if they are organized as a non-profit. They, they have certificate of need which basically gives them a monopoly. They are non-profit. They don’t pay property taxes and they don’t pay income taxes. They are, particularly the large ones, in many instances, profitable institutions that are organized as non-profits. They pay their executives 6- and 7- figure salaries and there is more than one way for the state, if it’s appropriate, to fund hospitals, for those to be funded. It is our belief that funding those hospitals through the Medicaid system as we’re doing it, is a fairer way for us to make sure that the money goes to patient care as opposed to other things. [SPEAKER CHANGES] Thank you. Senator McKissick. Final question. [SPEAKER CHANGES] Sure. And ?? hospitals. First I do appreciate the fact that you’ve raised the cap to the $2.85 million in the last year. It’s certainly going to help the small hospitals and I have small hospital in my district over in Grandville County. But also Durham County in my district, which is Duke. And they’re

Get hit to the tune of about $40 million. And when you combine this with the increase cost of their experience, and do the ?? of the reimbursement schedules dealing with Medicaid, kind of moving to a model that impacts them in a very adverse way. Not expanding the Medicaid program overall is hurting them. Elimination of the Dish program is hurting them. And this is that time they went out there just recently and spent $200 million to the new expansions to the facilities. I understand in the last several years you created over 11,000 jobs. If they start taking hits to the tune of, if you were to total these things up, and also total up costs, that they will also have to shave as a result of less income. That they’re going to be paying that to other private insurance companies, Blue Cross Blue Shield is out there looking for the hospitals to pay less in terms of what they’re going to reimburse for procedures. You’re talking about a devastating impact on a major institution, a major employer, not only in my district, but in the Triangle, in the State of North Carolina. So I hope that as this proceeds, that there will be a further reconsideration of the other tax refunds to the non-profits because it, while that money goes back to them, they are producing jobs with those funds. They’re reinvesting it in the communities and, and making substantial improvements that we all reap the benefits of. So hopefully when this is all worked out in final form, there can be some further adjustment upward to the level of reimbursements they’ll be entitled to. [SPEAKER CHANGES] And thank you, Senator McKissick. Hospitals large and small face all kinds of challenges. And we understand that. I would say that this version of the bill moves substantially in the direction of trying to address some of those concerns. I think the thing that we don’t appreciate when we see the numbers that we’re talking about, is what percentage some of these represent of the total gross revenue of some of these larger institutions. And we’re probably talking about less than one percent. Much less than one percent of their entire gross revenues. [SPEAKER CHANGES] Thank you, Senator Burger?? Ladies and Gentlemen of the committee, after a fair and deliberate debate, and upon the motion of Senator Apodaca, to accept this PCS as amended, unfavorable to the original. All those in favor of the motion will please say aye. Opposed no. Motion carries. Thank you. Committee adjourned. [SPEAKER CHANGES] Very good job