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Tuesday, January 31, 2023

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Now that we are past the primary election, you’ll begin hearing about the North Carolina’s General Assembly short session, which opens Wednesday, May 14 at noon. Although the duration of these multi-week, every-other-year sessions is not legislated, they typically run mid May into July.

Essentially, these short sessions are to take care of any unfinished business already introduced. But savvy watchers know — stuck in other legislation where you might least expect it and with only a nanosecond’s notice, can be your worst nightmare — so it pays to keep one eye on the GA all through these summer weeks.

Topping the list of work is the state’s two-year budget, roughly $20 billion. The drumbeat is consistent nonetheless: reductions, reductions. As it stands this week the honorables are facing a net decrease in anticipated revenues of $445 million for the current fiscal year (ends June 30) and a net lowering of the revenue estimates for 2014-15 of $191 million.

Adding to the stress are shortfalls in state Medicaid funding to the tune of $100 to $200 million. And Obamacare expands Medicaid.

You’ll hear a great deal on teacher pay raises. North Carolina’s teachers are now ranked 46 out of 50 states in teacher pay. Look to see a proposed 3 percent pay raise package for teachers and state employees.

The debate over repeal and replacement of Common Core State Standards will continue. The standards, which set rigorous expectations for students in mathematics and English language arts, adopted in 2010, are deemed problematic at best.

Last weekend, anticipating the debates on film incentives set to sunset Dec. 31, supporters of continuing incentives staged a rally in downtown Wilmington. The film industry is a feel-good benefit to living in the Cape Fear region. It adds glitz and glamour, and employs creative people who are our neighbors. This is a clean industry versus one that burns coal and produces coal ash, all the while being located on one of the state’s unspoiled rivers, as is the proposed Titan cement plant.

The film commission’s report by Dr. Robert Handfield said N.C. film incentives support 4,259 film jobs in the state and the industry has a net contribution of $25.3 million to the state.

But a memo last month from the General Assembly’s Fiscal Research Division said Handfield miscalculated and misunderstood the state’s tax laws, plus had invalid or overstated assumptions. The GA’s research guys, who are non-partisan, say the correct figure is a net loss to the state of at least $33.1 million.

Another item meant to sunset this year is the North Carolina historic preservation income tax credits. Historic Wilmington Foundation’s George Edwards commented this week that there wouldn’t be much of a film industry in Wilmington without the historic preservation effort, of which these tax credits are an integral part.

The historic preservation tax credit is an income tax credit for a qualifying rehabilitation of income-producing historic properties.

For example, architect and developer Clark Hipp renovated the A. David Building, located on Front Street in downtown Wilmington to provide spaces for 34 workers and 12 different small businesses. The Italianate structure was built in 1884 for a prosperous dry goods merchant, Abram David. For qualifying income-producing commercial projects, state income tax credits of 20 percent are combined with federal income tax credits worth 20 percent, yielding a total possible income tax credit of 40 percent against eligible expenses.

Hipp says since he purchased in 2006, he’s invested more than $1 million. Hypothetically, if he submitted paperwork for his expenses and they qualified, he could receive as much as $20,000 credit off what he owes on his federal return, plus $20,000 credit on his state income tax return.

Also in the sunset is the state’s 30 percent credit for the rehabilitation of non-income-producing historic properties, including private residences.

The film incentives for television, film and commercials shot (and spending $250,000 or more) in the state are different from the historic credit. The state’s film incentives are a cash payout out in the form of a check directly from the state of North Carolina.

The state stroked checks last year to production companies filming here to the tune of $85 million. For those who care little for the state’s film industry, that chunk of change is going to be mighty attractive to help plug the current estimates of a $400 million 2014-15 budgetary shortfall.

The incentive to these film companies is a flat 25 percent “refund,” one quarter of what they spent in the state. All of their expenses, including equipment, are totaled, and the state cuts a check for 25 percent.

For example, the television crew filming the Fox pilot called “How and Why” that was in the news last week, staying at Station One. Theoretically, if a Station One condo rents for two grand a week and say there are six condos rented for the production, they’d spend $12,000 for housing per week. If the production runs 12 weeks, North Carolina taxpayers would contribute 25 percent of that, or $36,000, toward the oceanfront stay. If that same film crew runs up food and bar bills at the best restaurants in town, 25 percent, including tips, will be presented back to them with the state’s taxpayers’ compliments. Wages for everyone employed on the production, yep, 25 percent of the payroll is kicked back from taxes paid in by the state’s taxpayers. It counts as expenses, and we were told the expense reports are “confidential,” not open to public or legislative scrutiny, either.

The difference between an incentive and an income tax credit is one must have an income tax bill to use a tax credit. Film productions typically take their profits out of state, so no income tax is due. The state only gets sales tax on the purchases of the production company, and any employee tax paid in.

I am not against film incentives, but wonder if the GA would consider incentives for my industry, too. Imagine the ability to pay workers 25 percent more and the state cover it with a check at the end of the year. In general, a check for 25 percent of this company’s expenses would be a windfall of historic proportions.

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