North Carolina Legislative Report - 2011 Long Session
By: Dave Simpson and Berry Jenkins
June 27, 2011

CAGC Has Excellent Legislative Session

Before adjourning the long session on Saturday, June 18, the NC General Assembly approved more than $1 billion toward construction projects and did not cap the gas tax, a move that will result in more than $1 billion going toward transportation in the next decade.

In one of the shortest long sessions on record, dominated by Republicans for the first time in 140 years, Carolinas AGC achieved our top goals, in monitoring hundreds of bills, including:

• Legislative approval of a record-setting $559 million for UNC System construction projects; not placing a proposed cap on the gas tax, generating about $250 million more for transportation in the next two years; and approval of about $250 million of a $545 million federal rail grant toward highway-heavy work.
  
  Our message to legislators was now is the time to get competitive prices on badly needed infrastructure projects and bolster the economy, as every $1 billion spent on construction creates or sustains 18,500 jobs at a time when the construction unemployment rate is about 20 percent.
  See details on the $559 million in UNC System construction project funding

• Rejection of a bill that would have caused a nightmare on public work bidding involving military veteran participation. CAGC testified at three House committee meetings against the bill, H172, which would have required contractors to submit, with their bids, extensive information about military veteran participation. CAGC members did an outstanding job in contacting lawmakers to express their opposition to the bill.

• The state House did not approve a Senate-passed bill, S435, which would require the construction industry to first get a Certificate of Merit before civil action could be taken against designers. The bill, still alive for next year's short session, would result in a costly and cumbersome process with a chilling effect on the construction industry. CAGC led successful efforts with other industry representatives to keep the bill bottled up despite an aggressive campaign waged for the bill by engineer/architect representatives. In helping in a team effort to oppose the Certificate of Merit legislation, Charlotte attorney Bob Burchette with Johnston, Allison & Hord, PA, wrote the following letter to Sen. Fletcher Hartsell, R-Cabarrus, the chief sponsor of the bill:
  Read the letter
  
  
• Securing an agreement for stakeholders to make recommendations on how to improve North Carolina's underground utility safety law. The work will be based in part on CAGC-led legislation passed in South Carolina this year.
  
  Just before the NC session ended, CAGC put together a meeting with Rep. Fred Steen, R-Rowan, and chair of the House Public Utilities Committee, attended by CAGC lobbyists Dave Simpson and Allen Gray, along with numerous utility industry representatives. The meeting resulted in unanimous agreement to develop recommendations for the NC legislative short session, which should begin next spring, with Rep. Steen overseeing the meetings. A study bill, H773, still alive and eligible for consideration when the legislature reconvenes July 13, authorizes a related study.
  
  
• Keeping in place the state's 6-year statute of repose for construction at a time when it is 12 years for other business and industry.
  
  
• Working with a coalition, led by the NC Chamber, which resulted in passage of legislation for workers' comp reform (H709), tort reform (H542) and regulatory reform (S781) that will result in environmental and other rules generally not being more stringent than federal rules. Another bill (S33), which was vetoed by the governor and will resurface in the legislature next month for a possible override by legislators, is a legal reform measure that would have helped drive down the cost of health care by avoiding costly defensive medicine practices.
  

• Rejection of proposed legislation, strongly opposed by CAGC, which would have increased the force-account ceiling substantially for universities and community colleges. S575 bill would raise the ceiling to $500,000 for construction work that could have been done by UNC System employees (now $200,000) and community colleges employees (now $125,000), a troubling precedent.
  
  
• Approval of a gradual, phased-in, new e-verify program for new employees for all employers in North Carolina with 25 or more employees, a main priority for Republican lawmakers. The watered-down bill, H36, deleted previous versions of the proposal that would have only applied to public construction work and would have involved a felony for noncompliance. Language in previous versions of the bill, which was deleted, also called for a reporting process that would help solve problems with the double-payment problem.
  
  
• Preservation of open, competitive bidding on public work. About a dozen local bills were introduced this session that would severely hamper, or eliminate, the current competitive bid system on public work. S36 would have allowed the City of Charlotte to use unlimited design-build on public work. The bill could have become statewide legislation had CAGC not been involved.
  
  After lengthy negotiations and strong opposition by CAGC staff and members, the City of Charlotte agreed to limit the design-build process to no more than 3 projects per year, including only one building, with a 5-year sunset when the bill would expire. Just before adjournment, H442 was approved with those provisions and that same bill, which would have given the Town of Cornelius unlimited design-build, also was limited with a two-year sunset, as requested by CAGC.
  See details on other such local bills which could have become statewide if CAGC had not been involved

Other Transportation, Construction Issues

CAGC lobbyist Berry Jenkins also helped lead in these successful efforts:

• Worked with the NC Department of Transportation and other industry associations to preserve and increase contract construction funding for the NCDOT. This will result in an increased construction market in transportation. The funding is significant in that all state agencies had sizable budget reductions. Increases will be realized in bridge construction, infrastructure system preservation and contract resurfacing projects.
  
  
• Helped defeat legislative efforts that would have prevented NCDOT from accepting and spending Federal Railroad Administration Grant funding of $545 million, which will provide an increased construction market for our members. Much of this grant money will be utilized to improve roadway and bridge infrastructure associated with corridor improvements between Raleigh and Charlotte.
  
  
• Worked with the engineering associations to obtain Senate passage of a bill which provides that all projects submittals made in pursuit of a design-build project are excluded from the public records act until the project is awarded by NCDOT. This bill will be eligible for consideration in the short session of 2012.
  
  
• Worked with the engineering associations to fight potential legislation that would allow the General Assembly to direct engineering decisions that should be properly made by qualified engineers within NCDOT.
  
  
• Supported and testified at legislative hearings related to enacting the Regulatory Reform Act. It limits state agencies from enacting rules and regulations more stringent than required by federal law and requires an economic assessment of the impact of any proposed regulation or rule on business.

Sales Tax Reduction

For the construction industry, a major change in the sales tax rate takes effect July 1, 2011, when the state sales tax rate will drop:

Effective July 1, 2011, the general state tax rate applicable to sales and purchases of tangible personal property, certain digital property and certain services is 4.75%. As a result, the general state and local tax rate will be 6.75% in eighty-two counties, 7% in Alexander, Catawba, Cumberland, Duplin, Haywood, Hertford, Lee, Martin, New Hanover, Onslow, Pitt, Randolph, Robeson, Rowan, Sampson, Surry and Wilkes Counties, and 7.25% in Mecklenburg County. NC Department of Revenue info here.

Other Issues

Double Payment, Liens & Study Bill: H773, the studies act, did not pass, though it is eligible to be approved next month and authorizes a study of improving lien/payment bond laws. H489 is still alive for next year's short session and had language involving the issue of double payment and liens. H489 was the result of intense work by the construction section of the NC Bar Association involving improving lien and payment bond laws. An earlier version of the bond section of the H489 would help solve problems with building contractors having to pay twice for the same work or materials when the contractor pays the first-tier sub or supplier, who in turn, does not pay lower-tiered subs/suppliers, who then file claims against the contractor's payment bonds.
Click here for plans by the construction section of the NC Bar Association on this issue from committee chair Keith Coltrain, a Raleigh attorney.

In a related development, CAGC and industry allies were successful in amending a H174, involving liens for commercial real estate brokers, to ensure that those liens do not take priority over construction liens.

PPPs: H320 cleared the House and is in a Senate committee to continue studies of Public Private Partnerships for public construction work. CAGC testified before the PPP commission, which included Ricky Vick of S.T. Wooten Corp., in strong opposition to unsolicited bids that could cause an unlevel playing field for bidders. This bill is still alive.

In-State Bidding Preferences: CAGC was successful in defeating S291, which would have given a 5 percent bidding preference on public construction work involving local bidders on Catawba County as well as prevented from being introduced similar statewide legislation this year.

Vocational Education: CAGC staff and Bill Downey of L.A. Downey & Sons, Inc., and former chair of CAGC's Board of Directors, met with Sen. Harry Brown, R-Onslow, the Senate majority leader and a strong supporter of Career Technical Education, as well as other legislative leaders to successfully preserve vocational education funding at a time when most other education programs were significantly reduced in the budget bill, saving what otherwise could have been a loss of millions of dollars for construction and other training in the high schools.

General Contractor Licensing: H648 passed, as pushed by homebuilders, to crack down on unlicensed contractors building homes. H497, a bill CAGC did not support which attempted to clarify the definition of a general contractor, was unsuccessful.

Bonding: H919, which CAGC did not support, was unsuccessful and would have provided a waiver of payment and performance bond requirements for construction work of up to $2 million for repairs or renovations on state and UNC system projects. The bond threshold currently is $500,000, after being raised from $300,000 in 2010. This bill had the same language as the budget proposal by Gov. Beverly Perdue, which also was unsuccessful on this issue.

Electronic Notice: CAGC closely monitored S773, which was unsuccessful and would affect how public construction work is advertised for local governments.

Appointments: S686 includes the appointment of Marshall Gurley of Raleigh, CEO of Centurion Construction Co., to the State Building Commission, as recommended by CAGC, which has one appointment on the panel. The three-year appointment, by House Speaker Thom Tillis, takes effect July 1, 2011.

Prison and other Construction Funding: Legislators approved $125 million for renovations and repairs of UNC and state buildings; $100 million for school construction via lottery proceeds; $58 million for the NC Mobility Fund to provide resources to relieve traffic congestion; and H646 provides $20 million for completing medically related construction work as well as calls for maximizing the Inmate Construction Program.

Unions: CAGC worked with local governments and business allies to prevent union-pushed bills from passing that would have repealed NC's longstanding prohibition on collective bargaining for state and local government employees.

Short Long Session

The GOP-led legislature passed hundreds of bills in 87 legislative days. The end of the session marked the quickest adjournment in a long session since 1973. Republican lawmakers steered state government and policy on a conservative course after decades of Democratic rule. "This has been a session of real accomplishment and a real change in direction for North Carolina, a direction that the people of North Carolina have long been looking for," said Senate leader Phil Berger, R-Rockingham.

Republicans enacted a two-year state government budget two weeks ahead of the start of the fiscal year - the earliest in more than 30 years - and over the strong objections of Democratic Gov. Perdue, who became the state's first chief executive to issue a budget veto. GOP leaders managed to override the veto by keeping five House Democrats who supported their $19.7 billion spending plan.

Lawmakers also let the sales tax hike sunset, dropping it by a penny, as well as let expire higher income taxes for high income earners. The first $50,000 of net profits for companies will not be taxed.
See related comments by House Speaker Thom Tillis and Senate leader Phil Berger

What's Next?

Lawmakers are slated to return to Raleigh at noon on July 13 to redraw legislative districts, consider whether to override any bills the governor might veto and deal with election laws. They also are expected to return in September for another brief session to take up issues involving constitutional amendments. The short session next year, which may begin around May 2012, will be held mostly to fine-tune the budget.