House leaders skeptical of tax, incentive changes

House Bill 1224 would give most counties more freedom to raise sales taxes with voter approval, up to a cap of 2.5 percent. But it would restrict taxing authority in Mecklenburg, Wake, Guilford and Forsyth counties, which currently have the authority to raise their sales tax to 2.75 percent, with voter approval, to pay for transit and other needs.

The legislation also expands two economic development programs and eases restrictions on their use, and it changes state securities law to allow crowd-funding of small businesses like tech start-ups.

In addition, the bill creates a new incentive program, the Job Catalyst Fund, sought by Commerce Secretary Sharon Decker to help "seal the deal" in job-recruitment efforts. 

The Senate voted last week to approve the measure, but several Republicans voted against it, expressing discomfort with the sales tax changes. 

House leaders echoed those concerns in a Finance Committee hearing Wednesday morning. 

Rep. Skip Stam, R-Wake, pointed out that counties could tell voters they're raising the sales tax for "education" but could then shift money around within their budgets to use that money for any purpose they want.

Before the panel even finished discussion on the first section, chairwoman Rep. Julia Howard, R-Davie, recommended voting not to concur with the measure so House leaders "can have some input" in conference committee.

The bulk of the debate, however, was over the Job Catalyst Fund. Budget writers say it would be funded at $20 million for the first year, a level Decker described as "an appropriate place to begin."

Decker said the fund's purpose would be to assist landing "large transformational projects" that would create "exponential" job growth. The commerce secretary would have sole discretion over how those funds would be used. 

She said she decided to ask lawmakers for the fund, similar to those in most Southeastern states, after looking at projects the state failed to land in recent years, “as well as what we’ve got in the pipeline moving forward and where the opportunity is.”

Pressed by lawmakers for details, Decker said automobile manufacturing would be a target. 

"We know as a fact that a large number of European automobile manufacturers are going to build plants in the U.S. in the next five to 10 years," Decker said.  "Part of the drive here is to get a framework so we can make quick decisions and stay competitive.”

However, skeptical committee members of both parties peppered Decker with questions and concerns about the fund.  

Reps. Mike Hager, R-Cleveland, and Paul Luebke, D-Durham, said it doesn't create enough incentives for development in rural or economically challenged areas. It could be used even in the state's most prosperous Tier Three counties. 

Decker said some manufacturers want to be near urban areas and will not consider rural sites. However, she said, a project built near the edge of a Tier Three county could draw commuting workers from less-prosperous counties nearby.

"The world is urbanizing," she said. "We need to think regionally."

Rep. Susi Hamilton, D-New Hanover, who's been advocating unsuccessfully for the extension of the state's film tax credit, took a dig at Republican leaders who opposed that program as an "incentive."  

“This is an incentives bill, right? I just want to make sure we’re all speaking the same language," Hamilton said. "Have House and Senate leadership changed their position on incentives?”

"Existing tax credits," such as the historic preservation credit that many GOP leaders don't like, have already proven their worth to the state's economy, she said.

“Why are we abandoning those tools and creating incentive programs for jobs that don’t exist yet?” she asked.

Stam, who is opposed to tax credits, also panned the Job Catalyst Fund.

"The functional equivalent of a targeted tax expenditure is a targeted discretionary grant program. There’s no difference," he said. 

The section of the measure that deals with crowd-funding originated in the House and was approved unanimously last year. It received no discussion Wednesday morning. 

The committee voted nearly unanimously to recommend that the House not concur with the plan. That's expected to happen Thursday. However, with lawmakers trying to end their session by Saturday, House and Senate negotiators will have only a small window of time to work out their differences.