[BLANK_AUDIO] [BLANK_AUDIO] [SOUND] Finance committee please come to order. First thing first, I want to introduce our sergeant at arms who help us make this meetings very efficient, Kerry Bournehart, Jim Hamilton, Carl Roche, thank you folks we appreciate very much all of your hard work, all right, let's also recognize our pages for the day and I am gonna do my best to make sure I pronounce this correctly. Edmond Goyin/g, Senator Blue stand up please or raise your hand, okay, fine , than you. Rachel Johnson. Senator Berger? [BLANK_AUDIO] Andrew Bowman, Senator Apodaca, John Nickelson, Senator Apodaca? Thank you, good to have you here. I've got Zane. I'm gonna need a little help with this one. It's almost like Rucho. [LAUGH] >> Not that bad is it? >> [LAUGH] It really is >> [CROSSTALK] >> Help me with this. Is Zane and Sam thank you, All right, we appreciate you coming here today. I'm sorry I couldn't pronounce that and Trevor Hartley, Senator Brown Good thank you. Good to have everybody here I hope you stay in the General Assembly visiting us and watching the budget process and the committees are going to be informative and maybe just a little bit of fun. All right, the first bill we'll put before the finance committee today is going to be house bill 292. Beach Bingo licences Representative Harley. Welcome Nice to have you here Senator Robin makes a motion that we accept the PCS for discussion.All favor please say aye. >> Aye. >> Okay [LAUGH] All right please describe what we have before us, the staff is available to help you if need be and this bill is before the finance committee. [BLANK AUDIO] First and for most I wanna thank the chairs for allowing me to present this bill today, it's been resting over here for about a year. And I appreciate you hearing it today I really do. If you would tell the difference in the PCS and the regular bill that you could have the >> Staff. >> Okay Identify yourself Nic. >> [INAUDIBLE AUDIO] Legislative analysis. First of the original bill requires licencor for beach bingo games. It also criminalizes the operation of beach bingo game without a licence as a class two misdemeanor and proving false information on the application as a class two misdemeanor. And lastly it incorporates a fee for licence of $300 as well as re-licence insure of $300. The difference between the PCS and the house bill is the updating of the effective dates. It's previously there were 2015, so we've updated them to 2016 dates and changing the department of public safety to the state bureau of investigation as the alcohol law enforcement division has been moved under the state bureau of investigation and 2014 and 2015 the budget of the general assembly noted that the state bureau of investigation is in fact an independent organisation for operational and investigative purposes from the department of public safety. Is incorporated under the department of public safety simply for administrative purposes. >> [INAUDIBLE] >> Excuse me, you have a question? Senator Tillman. >> [INAUDIBLE] from Randolph County and I'm from Randolph County. I didn't want anybody here but her sir. If you and I are going to beach and playing Bingo, I know the operators get filed, what's the penalty, if we are caught playing bingo?
>> I don't think there's any penalty for that. I'll address that and it's not just at the beach, I want you all to know today, it's not just at the beach, it may have started there but it's all over North Carolina now and we have no idea who they are or where they are, so therefore it's been impossible to regulate this, so we fell like it's the none profits, have to pay a fine, a licence, by licence and pay a fee of $200 per year that we should do the same for those who are profit making and are all over the state so that we wanna know who they are and so we do the city of $300 yearly for them to do business here in North Carolina and for us to know who they are. If non profits have to register with the state, they have an annual application fee of $200 and this fee is going to the general fund. They are limited to two sessions per week and no more than five hours per session. No two session shall be held within a 48 hour time frame, maximum price in cash for merchandise for anyone game is a maximum of $500. The maximum total amount of cash or prices is one session cannot exceed point $1500 and if only session is held on a week the maximum total is $2500 and this are for none profits. For the beach bingo is no beach bingo may offer a price more than $10. However there was a robbery in Durham in the last couple of weeks so I don't know how much they were bringing in there but they say they may be doing for ore than $10. And no limit on number of sessions per week or maximum earn per session and no government entity to ensure beach bingo operators are following the law. It was regionally house at DHSS but now it is in LA and they have regulated it for at least 15 years. Currently 246 registered non profit bingo establishments are in North Carolina. Carolina, we have no idea how many of non profit, of the other profit ones are. ALE has one full time none sworn/g person to handle non profit bingo which is set as a receipt supported program. the receipts do not generate enough revenue to even cover the salary of one FTE. But this would be going into the general fund and I would ask that you please let this move forward, and I'll be glad to answer any questions. >> Members of the committee, any questions? Representative Daniel. >> Thank you Mr.Chairman. Representative Hrley I think senator Davis and I are feeling a little left out here being from the mountains. Can you uproot [INAUDIBLE] in the mountains? >> Yes. I understand there are and they have been. [LAUGH] I don't know who though. >> It's called Mountain Bingo instead of beach Bingo. >> [LAUGH] Senator Sanderson >> Thank you Mr.Chairman, Representative Harley, are these facilities currently being inspected at all at any time? >> No sir, we don't even know where they are. >> Follow up. >> Follow up. >> Can you briefly explain maybe the method that we're going to use to keep track of this, are we gonna send officers in, or are we gonna rely on the public to let us know when this things. I mean I see them all the time operating 12, 14 hours a day seven days a week and so, can you explain a little bit how we're gonna do the enforcement part of this. >> Yes ma'am if you can answer that question. >> Okay I understand that once they know to go to get their licence and we know who they are and where they are. We will be able to regulate them and do hat we need to do. For those who don't know that we're giving out the authority to check on them and say who they are and what they are. So I think that will take care of that. >> Okay, I give Senator McKissick. >> I just wanna you thank you for bringing it forward. I think a lot of the non profits appreciate this. And so at an appropriate time, I'll move for a favorable report. >> Okay we'll hold that please. Senator Wade. >> Yes. Thank you Mr. chairman. Representative Harley so is the maximum files for a bingo game under the Beach bingos is still going to be $10 >> That's what it is. >> Okay and it's correct me is $500 per session for non profit? >> That's correct. >> Follow up. >> How many games will you have to play in beach bingo to get to the $500? >> [LAUGH] >> I don't know the answer to that question. [LAUGH] >> We'll have to ask staff to calculate that number. Okay, I've got Senator Curtis. >> So they'll have so long to get registered and if not registered they'll be shut down? >> They will. I guess go to them if they haven't registered, if they haven't gotten their licence then yes they will be shut down.
This will get in the authority. There's someone here from ALE Rodney Beckham is here if you need to question. >> All right Mr Beckham would you have anything more to add to this? All right please come forward and identify yourself. You need to put that mic on. >> Sorry [INAUDIBLE] ALE yeah currently there is no number, roughly about several hundreds exist, but we won't know if we start pulling licences but currently only charitable Bingo regulate. There is no regulation whatsoever on sessions or any way to tell how much they're offering. Prizes outside of what they're mandated to but no regulations exist. for beach bingo statewide. >> Okay, any additional questions members of the committee? Senator Bryant >> Mr chairman I just I just am a little bit lost on this. The bill is just gonna require Beach Bingo operators to get a licence. If they get a license are there any laws that regulate what they do. Is beach Bingo regulated at all That's what we are trying to do, get their licence and make sure they do what they're supposed to do about what they have here. >> Follow up? >> So, what are the regulations now for beach being/g goers, is that what you just went over? >> Yes. >> Okay. I just one other question Mr Chair. >> Follow up. >> Was it a reason why they were exempted, the GS14-3 on them .14 was there reason for that? >> I wasn't here when that was done. >> Any exact member help us with that reason for why they were exempted The beach bingo. Ask us a question we got an answer to Representative Bryant. >> Thank you. >> So to forward we have a motion for a favor report but go ahead. >> Mr Chair. >> Now go ahead. >> Thank you Mr Chairman you are always good about that [LAUGH] Quick question is As it relates to and clarification for enforcement. Is it my understanding that there's only one staff person to do this. >> At this particular time that's my understanding. >> Follow up. >> Follow up. >> So with the unknown number, do you have in a company Creations to staff it so that you could be more effective in regulating this new regulation. >> [INAUDIBLE] Go ahead. >> I think they think that this fee will cover it. >> So it will be fee supported? >> Yes. >> All right, Members of the Committee ->> Mr. Chair. >> Yes I'm sorry. Wadell I missed you sorry. >> Thank you. I just have two questions. There are a lot of organizations now that are doing bingo. Will those be grandfathered and they are not doing it for profit. They are charitable organizations. >> That has nothing to do. >> Okay they don't come under this. >> That doesn't come on to this. That's why we're doing this because nonprofits [CROSSTALK] >> Follow up question. >> They have competition now with this other thing that is not regulated, and that is what we're trying to do. So we know who they are and what they are. >> Okay so there are several bingo houses too. That do it like every week and two or three times a week, and some of them are not doing it for monetary prices monetary. But they are doing well you get other gifts as result of it. I don't see anything that covers them is that cover them too. >> Have any answer to that. >> As far as I know they don't have Have a licence and they're not writing correctly if that's correct. >> Senator Wadel. >> That's it thank you. >> Okay members of the committee additional questions, seeing none senator Mechisk made a motion for a favor report on house bill 29 nine two PCS and unfavorable to the original bill this will question and comments see none all in favor of that motion please say aye, oppose neigh, ayes have it and representative hally who do you want to handle that on the floor? >> [INAUDIBLE AUDIO] Senator Tillman will take care of that one on the floor. [BLANK AUDIO] Okay, there is physical note and incaseration mode part of the package you have before you just in case you need to be aware of the fact that the bingo cheating. Okay, All right, next person will be house bill 958 felony death and voting
shayne law and this is representative Pittman, Flary and Ford. Welcome good to have you and there is no PCS required so if you will be kind enough to explain this, representative feinly good to have you with us today, Mr.Chairman, ladies and gentlemen. The shayans law felong death by impaired boating shayan marshal would have graduated high school this past week but last year on July 4th, 17 years old, she was at on Lake Norman with friends having a good time enjoying the lake. Was on a knee board when a drunken boater ran over her and kill her in a very horrible way. The family looked in to what the ramifications of this would be as far as sentencing and found that it was only a misdemeanor and that person likely served very little time by our point of view. So they asked me if I would run a bill to equalize the sentencing for death or serious injury by impaired boating with death or serious injury for driving while under the influence and so that what's this bill basically does. I did ask for an incarceration note on this and for the moment I can't remember bigger but all they were able to give me were an amount per incident they could not give us an annual figure because they don't know how many there would be. certainly I think a lot less than DWF, but the point is to make the sentencing equal because if you're killed or seriously injured, it doesn't matter whether it's a boat or a car. Somebody driving drunk or riding a boat drunk does that to you needs be the same sentence those basically about is named after shayan because her family asked me to run this bill cuz of what happened to her. All right, would you like to speak? Representative Fraily. >> Thank you Mr.Chairman my involvement in this actually came from spending a day like many of you if done with wildlife people observing their jobs have been learning about the challenges that they face it turned out the root that I was with unlike Roman worthy wildlife team that was first on the scene at this accident. That ultimately led to a lot of discussion about this types of accidents, what can we do to try to help reduce them or eliminate them and the first thing that they said was we can put some teeth in the wall for people that calls this tragic accidents, I started looking into this and also learned Representative Pittman was working on this so we joined forces on this wildlife group is totally supportive of this as our various marine commissions that I spoke to in other professional bonus. Appreciate your support, thank you. >> Okay, members of the committee questions. Senator Sunderson. >> Thank you Mr Chairman. Representative Pittman will this as an automobile accident where the victim is actually on or in a car would be an automobile that says somebody is drunk driving and wrecks the car and a victim is a passenger, that this also applies as far as a boating accident is concerned let's say that the victim actually is on the boat itself that is being operated on under the influence >> My intention is that it would, I don't think that we plainly stated that would be my intention in the bill. >> Senator Sanderson are you Okay? >> Mr Chairman, That would be a consideration if it's not plainly stated because I know of several incidences where the victim was actually a passenger on the boat that was being operated by someone under the influence. And to me that should carry the same penalty whether it's in a separate vehicle or a second watercraft just like it would be in an automobile accident. Okay, [CROSSTALK] >> I would agree with that, I may not. I guess we just didn't think to spill that out, I guess it's kind of assumed. [INAUDIBLE] Okay, you are right we should have not slept that out. >> Representative Pittman let's have staff try to help you with that please. Nick. >> Under the definition itself, it simply covers the death of another person. So it doesn't require to be somebody outside the boat or anything
like that. >> Okay. So it covers the language. Members of the Committee any other additional questions or thoughts. Senator Black. >> At the perfect time I'd like to move for favorable report. >> Okay. Senator Blanche makes a motion for a favorable report on House Bill 958 felony death of voting of Shayan Law. Any additional comments or questions. Seeing none, all in favor please say aye. >> Aye. >> Opposed neigh. Ayes have it. Okay thank you and who'll handle that for you on the floor? >> I pledge so. >> Okay, Senator Hudson will handle it. Thank you. >> Thank you so much, I appreciate it. >> All right. Now let's go on to Senate bill 817 Constitutional Amendment maximum income tax rate of 5.5%. Senator Rabin. presenting it. There is a document that's being handed out by the Treasurer's office and we will allow the Treasurer's office two minutes to explain it. And they better be prepared to answer some very tough on it because I think their document is flawed. But go ahead. >> [LAUGH] >> Thank you. I will move to the bill. Ladies and gentlemen currently there's a gap in the North Carolina constitution of 10% on income tax. This bill or this proposal would be an amendment to our constitution to lower that gap to 5.5% that is the bill, there's nothing else to it and Mr. Chairman I can entertain questions from this point on. >> Okay. Committee you have before you Senate bill 817 constitution amendment on the maximum income tax rate of set at 5.5% Senator Raven what will the rate be next year? >> The rate next year will be 5.49% and is currently 5.75%, and that is the tax rate for every tax payer in this state. Once they have made their good standard deductions or they [INAUDIBLE] deductions. >> Okay. Senator McKissick has a question. >> Sure and I will ask this of staff. I am just curious in other states that have adopted similar legislation. I understand Colorado has done so, what has been the result in those types of jurisdiction, and it's my understanding they even countered some problems and complications effectively. >> Senator Raven explained it first and then you can stuck in follow up. >> Okay. >> Okay, Senator McKissick unless you have seen from the flier from the Treasurer's office, they seem to have [INAUDIBLE_AUDIO] some state That have repealed this Colorado, being the only one that remains as she said. That's not quite exactly, nearly true. Georgia also has a cap on their income tax and that is 6%. Georgia has done just fine, and we will do just fine. And I do not believe that it is going to affect our bond rating, it has not affected the bond/g rating in the state of Georgia. >> Sure, simple follow up. Are we gonna hear from the treasurers office now, or when are we gonna hear from Senator Rucho. >> We are gonna hear after. >> After this. And now we just simply say that I don't see why there's really a need for us to change the constitution as it is today. I think reserving flexibility for this general assembly in the future [UNKNOWN] is the best course of action that we could take. >> Is that a statement or a question? >> It's a statement and I guess my thoughts are simply this, if we go back through a period like we did. during the great recession we ended up with a $3 billion hole in our budget, we had to back fill it by increasing sales taxes. Our sales taxes will go up close to 10% and that gives me deep concern when I think that we need to reserve the possibility for future General Assemblies may convene there's a time of financial crisis, there's a unforeseen circumstances or emergencies or our natural disasters they are able to address it and take care of it. So I don't see where there's a need to reduce it down to the 5.5. >> Senator Raven. >> Senator McKissick you made some very good points there. Yes in previous administrations which were not of this party. You did raise the sales tax and you did that wisely if you needed to create more income, I am not saying what we did at that time was wise, and this is reason. The treasurer says this is no notoriously prone to fluctuations, that's not true, data shows that sales tax does not fluctuate nearly as much as income tax neither
personal nor corporate in terms of economic down turns. It also shows, history also shows that an itchy economic down turn the flexibility or the dubs that has been taken in personal and corporate tax had been much deeper than they were before, one point. Second point to answer part of your statement that was not a question and that is when you're in a downturn or when you do get into problems this general assembly has showed up the rainy day fund and we now have money that was previously spent, we have more money in than we've every had before and that's a good thing. The other thing that is a very good thing and a very common in very common sense, is that if you need money in a hurry, income tax is not the way to get it because you have a one year lag at least, however, sales tax you have a 30-day lag, so we need money in a disaster or in a time when it really becomes a necessary that more money in a hurry sales tax or consumption is the way to go. >> One last follow up Mr. Chair >> This is a common sense, this is a common sense way to- >> Follow up question? >> Question, simply there's, Senator Rabin and I had a grate respect for you, the thing I am deeply concerned about though is the financial handcuffs that we'll be putting on ourselves, I mean, I understand why you are saying we could increase the sales tax and they may go up to 10% but why would we wanna put our financial handcuffs on when we don't have to do so. >> Senator McKissick may I? >> Yes sir. >> I don't see this as handcuffs handcuffing us at all for the past five years we have been trying to move from a fact system that penalized labor and penalized productivity to one that rewarded that and by doing so we've been able to lower the Income tax rate and the corporate income tax rate and hopefully with this budget we will raise to zero bracket. And the way we have accomplished that is by expanding our consumption base to our sales tax base and we tries to do that in a way that everyone profited, in a way that everyone profited and in a way that we continue to grow the economy. And so far what we have done has worked and what this amendment will help us do will be to continue down the same path that we are on that will continue to make North Carolina the leader in tax reform in the nation and I think there's a very hard argument to say that it does anything else. >> Okay I've got Senator Tillman and then I've got Senator Ford, Senator Hise/g and Senator Cook. >> Thank you Mr Chairman. >> Senator McKissick you were not here when your party had a structural defect that kept building budget after budget you were taking one time money and spending it on recurring expenses. Had you not done that, you wouldn't have had the recession problem. They had no rainy day for them to speak of, so boom, you were in a terrible $3 billion hole within a period of about 18 months. Had you budgeted wisely and spent recurrent money on recurrent expenses, we wouldn't have had this problem. So your answer was to tax about a billion dollars worth of taxes on the Penisole/g stacks that you put on which we had to take off. If you love spending you won't want a spending cut, you won't want a cap on spending and all this does basically is save the taxpayers money, you know what it's gonna cost you in taxes and it's gonna keep spending at a reasonable level. You're not gonna get your spending out of hand if you don't have the money, that's all this does, it's a guarantee. >> Thank you Senator Pittman, Senator Ford. >> Thank you Mr. Chairman. Can I get staff to help me out with the personal income tax as it was to where it is now and the impact of the proposed legislation at 5.5 so can you walk me to where the personal income tax was let's say the last two years to where it is now and then the impact it would be at 5.5 and it will be 5.49 now next year is already set. >> I'm sure I completely understand what you need but I will begin perhaps one of the fiscal analysts can help on the impact. Prior to 2014, North Carolina had a bracketed income tax rate system .
So we had three rate ranging from 6% to 7 and 3/4 %. Then beginning in 2014 that rate became a flat rate and it had a five I believe it started at five and three quarters or maybe 5.8 and then it fell to five and three quarters and it is scheduled to fall to 5.499% next year. >> Follow up >> Follow up. >> So this legislation would prevent going to 5.4 if it were passed. >> It would not prevent it from going to 5.4 it would prevent it from moving up to 5.6 >> Follow up, so the next would be 5.5. >> Follow up next cap is 5.51 income tax. That's corporate and personal. >> Combine. >> No, either 5.5 on corporate and or 5.5 on personal. >> The question I have now Mr chairman is as relation to the revenue impact for I think we are at a $22.2 billion budget now with this being implemented will the revenue remain the same or is there a projective reduction in state revenue. >> [INAUDIBLE] would you help him with that please. >> [INAUDIBLE] Fiscal Research the tax rate is getting ready to go to 5.499 in the next tax year which would be below the state of 5.5% so the Senate bill 817 would have no fiscal impact. >> Last follow up. >> With the theory in the move from the general assembly to go to a base expansion and as you have already articulated we seem to have hit a wall with our basic expansion as it relates to moving over into white collar or professional services. I don't understand Mr chairman the future of North Carolina with this cap and the lack or the willingness of not looking at base expansion to include all services. >> Senator Raven >> I'm not saying that we're going to move to all services immediately, but I believe in the foreseeable future that more services will be added and that most of those services in the future will probably be white collar services. >> To follow up on that, the goal is to get into a zero income tax at some point. The way you do it is by broadening the sales tax base on services. We've made some great strides up to this point. I don't believe we've hit a rock wall. I think what we're doing is transitioning at some point it must be that if you have white collar services and blue collar services, they all need to be treated the same, you and I agree upon that. And so that should be the move of this general assembly into the future. Senator Raven. >> Mr Chairman the same time we have been faithfully tightening up loop holes and special collar belts for individuals as well as companies, and that too adds to the [CROSSTALK] >> Well said Senator Raven. I've got Senator Hise. >> Thank you Mr Chairman, for my question just to know a few would remind the committee so that we can have our questions directed to the chair. And not the staff as people are starting to direct us. >> Yes sir I noticed that. And that would be fixed. >> So thank you, the question I had is can you give me any kind of indication of where our current constitutional amendment that limits income tax as a a number of 10%, how has that ever been viewed negatively by credit ratings or specifically how have we ever got a credit negative rating as a sense that that is a part of our constitution? >> With the triple A bond rating apparently it's not All right, I'll go on to Senator Cook. >> My question was asked and answered, thank you. >> Thank you Senator Cook, Senator Brock. [LAUGH] That's Brock, the one on the right side. >> She [INAUDIBLE] outside my office so we are not on speaking terms right now. Actually Senator McKissick if you look at the rate and kind of understand this more about it's not so much of a taxation problem as you see it it's a spending problem that we had here in the state. We had thousands and thousands and thousands of unfilled positions that were funded year in and year out, ghost departments. Enron had nothing on the State of North Carolina, I'll repeat that
Enron had nothing on the state of North Carolina and we came in 2011 and start making the cuts that were needed in our budget to put the money where it rightfully belongs back into the pocket books of North Carolina citizens that were able to turn the state around. They are not financial handcuffs at all. Best thing to do is not to get yourself into a spending problem. Think about the long term impact of what you're doing in your budget. This is a good rate, it's a good bill and I think that people of North Carolina will overwhelmingly support it when it comes on the ballot. >> Thank you. Senator Davis. >> Thank you Mr. Chairman. Senator Raven are you >> Right here Sir >> I got you. >> Are you aware of any study that shows shows that the solvency of a state is directly related to its increased income tax. Personal income tax, right? >> I'm not aware. >> Actually Senator Davis there are studies out there that show that high tax states actually have less GDP growth, less population, less jobs created. >> Follow up. >> Sir. Thank you. Even though I'm not an attorney I knew the answer to that before I asked it so I think that seems to be the >> [LAUGH] >> Also, it appears as though the default mechanism of some is when a government gets in trouble that they take more money from the private sector to the government. Are you aware of any economic downturn that affects only government and not the people? >> I don't think that exists. >> Thank you Senator Davis. Senator Bryant, questions? >> Thank you Mr. Chair. My question is about what potential impact this could have on local property taxes. It would seem to me that if the result of this amendment is that it puts a significant downward pressure on the state government being able to cover whatever existing services it covers. For some reason or another some of these other ideas don't pan out, expansion or whatever might be needed. Could this not end up with a negative impact on local property taxes? That is, forcing them to be raised by local governments to cover services that we previously covered is that Have you thought about that, is there any information on that [INAUDIBLE]? >> I have thought about that and I have thought that if the local government had done over the last five years what the state government has done local property taxes would have been lowered. And if they would look at the way we've handled our budget and think about handling their budget the same way. I think they can lower their overall taxes rather than [INAUDIBLE] >> Follow up. >> Follow up. >> So it sounds like part of the guess is clear, the part of the philosophy of this amendment is that not only does it force the reduction in taxes of the personal income tax. >> I think it's the personal income tax. But it also is designed to force a reduction in spending at both the local and ->> Senator Raven. >> No ma'am not at all. Not at all, if you think about this for just a moment Senator Bryant you will realize that expansion of the base means more sales tax. counties and municipalities get a portion of that sales tax. A percentage of more is more, not less >> Follow up? - >> Follow up! >> Okay, That was my point, the expansion of the base is to be developed, to be continued, to be enacted it doesn't completely exist at the level that would be ideal at this point, and that's always a political question too like the spending would be- >> Excuse me but your point should be that local taxes could go down because their portion of the sales tax would go up if they want to be prudent, and good stewards of the monies that they receive from the state >> Just one more ->> Last follow up >> Okay do we have any kind of feedback from local governments about what how they see this proposal and >> The only thing you have is from the local treasurer's office Local Government Commission and you have that before you. And so Senator Bryant, I don't see any co-relation within the fact that the local property tax. The state doesn't have a property tax and any impact on income tax they just don't seem to be related. So okay add that any other questions people, senator McKissick. >> And I guess this would be addressed to doctor boardman/g if that's okay.
>. [INAUDIBLE] The Chair. >> Mr Chairman can I ask Doctor boardman/g >> What's the question? >> It was about the magnitude of our budget shortfall during the great recession. I thought it was a range of about 3 billion dollars that we had to backfill that time and that we did in fact at that point have a small surcharge on high income earners to help with that backfilling. But we also got money from Washington. How we would be able to do it were this constitution amendment passed. Cuz I think it would be extraordinarily challenging. If we went through the same experience that we went through just back in 2008 and 2009. >> So what's the question? >> How will we do it? First, it wasn't a $3 billion deficit that we experienced, not very long ago and what we have to do today to make up for that $3 billion short fall f we went to- >> First Senator Rabin will explain and then Dr. Boardman will have an opportunity. >> Thank you, first that's were we started with your question Senator McKissick. The Democrats had spent the rainy day fund. We now have a rainy day fund that showed up. So that's part of your answer right there. We can go to that rainy day fund and thank you Senator Jackson and Brown for seeing that we've done that. The other thing is we did not raise income tax. As I said earlier it takes a year or more to see the benefit of that, you raised your sales tax and the senators we were elected we reduced that sales tax because it was time to do something so we took what we reduced by I believe a billion and a half dollars Mr chairman by dropping the sales tax back from what it had been raised to we did that immediately reducing the income tax again, takes a year, we did that immediately if we get in the tight then we have to raise taxes and we should cut spending rather than raise taxes a place to do it it's under consumption tax. >> Doctor Bordman would you wanna add to that? >> I'll just verify that the great recession we dropped in revenues at 10%, it's a budget short fall of almost 15%, with close to three billion. It was called the great recession cuz it was the largest economic downturn since the great recession, the great depression, excuse me. So hopefully that's not the norm but we certainly did experience that recently. Thank you. >> Okay. I've got Senator Hise. >> Thank you Mr. Chairman >> Let's get going cuz we've got some guests from out of town on this transmitted bill and so we would like to continue moving but Senator Heis. >> I think it would be sure [INAUDIBLE] no one have asked it but I've flipped over the political memo from the treasurer and check something here, it says that it's increasing volatility I remember pretty extensively when we went through the responses of different types of income to the state that income tax was actually the highest volatility we experienced in revenue. And so my question would be, what in limiting the amount that income tax is part of our overall revenue picture actually decrease volatility in revenue? >> Absolutely correct, in addition to that when you look at this it also talks about the fact that there are a number of states that have that this is [INAUDIBLE] Texas, Florida , Tennessee, a number of states having zero income tax and yet they have good bond ratings so. Yes sir >> Senator we should kick the source quite a while but one more thing Senator Hise, when you have a cap on that and when you have a zero bracket on that. You being the math person that you are. Your volatility has to fall between certain lines and so you decrease it that way and then when you're using a consumption tax with less volatility than an income tax you have to put it in a cable if you will if in stead of ribbons blowing in the breeze so you're absolutely right >> I've got a motion from Senator Tillman. Senator Tillman makes a motion that we have a favor report on the senate bill 817 and that motion is before you members of the committee, all in favor please say aye. >> Aye. >> Opposed Nay? >> No. >> Ayes have it. Okay. And let's go ahead and this is for discussion and this is an important issue. This is Senate bill 680 North Carolina Money Transmitters Act. There was a lot of questions about this bill, a lot of uncertainty, passed the house 115 to one, I had the chance to speak to the one vote and still has concerns about it but let's bring it before us today for discussion. Senator Gun, you're before us, explaining the bill. >> That would be incorrect chairman,
there's more people to do that but I will make a couple of comments to get started. First of all as I thank Representative Rolls for sharpening this bill, companion bill through the house with near unanimous vote, some people think that they decided to vote on it before they found out what was in it. Then it got to the Senate and we realized that we're not as smart as the House so it kinda stalled. So I'll let you determine which one you think that is. Also I'd like to thank Senator Brown, Senator Ford, Senator McKissick joining me trying to understand the bill a little bit better as we work through commerce where it did pass on our side, but there seems to be a lot more questions than there were answers, so I do appreciate the opportunity today to allow some of the experts to weigh in on the Money transmitter Act and how the industry has changed how it has affected the North Carolina Commissioner of Banks relative to regulation and to the necessary fees that are needed to adequately put in place the right stuff and the right programs to make sure we find the right balance between consumer protection and the fact that technology as relates to Money Transmitter and the virtual currency is among us and it growing and we need to have the Right balance. Mr. Chairman. >> Yes Sir. >> If you do not mind, I think it would be very, very appropriate to have Lady Boskina/g with the deputy of the north Carolina Commissioner Banks to come up and explain the Bill a little bit better and the transmitter phenomenon and open it up for questions. >> Miss Bochkin/g, come forward please. [BLANK_AUDIO] Please identify yourself. [NOISE] >> Thank you Mr. Chairman and Senator Gunn my name is Katy Buskin I am the deputy commissioner of banks for legal affairs with the commission of banks office. As Senator Gunn said earlier we are here before you today to update a 2001 piece of legislation that was passed by the general assembly related to the regulation and supervision of money transmitters in the state of North Carolina. This bill is important to the opposite commissioner of banks for a variety of reasons, but chief among them is the funding problem that our agency currently experiences in this area. Our agency is a receipt funded agency we do not receive funds from the general fund. And we expect each industry under supervision with our agency to pay there own cost evaluation, and we believe that the industry is under our supervision support that principle as well. Currently we have 109 money transmitter licenses. The area attempts to examine each one of these licensees on a periodic basis. Getting every licensee examined within a five year time frame. Our goal is to have them done every three years, that allows us to catch significant problems much more quickly. By contrast banks are under examination every 12 to 18 months and mortgage companies are on a similar three to five year cycle. The area is under funded and has been for quite some time since fiscal year 2015, 2016 the area lost approximately $326,000 those funds are expanded on examination staff, their salaries must be paid. The deficit is made up by other areas under supervision. The way that the office works is we access various industries under supervision based, typically on assets or transition volume. We re-bait a portion of those assessments when the costs of running the Commissioners office do not meet the amount of revenue generated by the assessment. And we have successfully re-bated funds to a variety of industries for the immediate preceding years. At the current pace of regulation, we currently have four examiners that are dedicated to money transition supervision. We are projecting a deficit of approximately $540,000 for the coming year. That deficit will have to be borne by other areas under supervision. And our office believes that is not fair or appropriate,
those rebates should be given to those industries. We also believe that members of the money transmission industry support this change in regulation and as you will see, Senate Bill 680 attempts to craft an assessment structure that is appropriate to the area that will fund the cost of supervision, but does not unnecessarily burden the industry and allows the industry to continue to innovate and prosper. The assessment structure is designed to tear up as companies become more successful, larger players justice with bank and mortgage companies will pay will pay more money in assessments as they grow but when they are smaller they are supervisory costs are lower and as their assessments can also be lower. We believe that the assessment structure is better than the current structure in place for funding this area of the agencies needs. Currently we are on examination billing and licencing billing we receive sporadic income on those things occasionally exam billing can result in a very large and anticipated bills for companies under regulation. We believe that the assessment structure smooths that out. >> You know you have five minutes that's right? >> Yes sir, I have completed my prepare remarks and happy to answer any questions directed by the chair. >> Okay members let's hold the questions. We'll have a couple more two minute presentations and then you'll have the story before you and then we can ask questions to anybody you chose to. Okay, so if you'll stay close. I need to see Perryanne/g Boren/g. Okay. You've got two minutes and starting now and please identify yourself. >> [BLANK_AUDIO] >> All right. My name is Perrryanne/g Boren/g . I'm the founder and president of the Chamber of Digital Commerce. We are the largest trade association in the world that represents the digital currency and the block chain industry I join you here today from Washington DC. We would like to commend the commissioner thanks, Members of the Committee and the North Carolina Legislature for your work in supporting technology in North Carolina, for supporting the technology industry through this bill. I have two industry experts with me here today who will also speak to the technical and legal merits of this bill. The first one is Jerry Cuomo here to my right. He is a senior fellow with IBM. He is not a lobbyist, he does not work in government affairs, he is a technologist and he is here to talk to you about how this bill is a good step forward for the technology. I also have on the other side of Jerry, Carlo Rays, who I've brought from Seattle Washington. She's our outside legal counsel. She has a particular expertise in money transmission and can answer questions on the technical, legal merits of the bill. We've gotten multiple legal councils on this bill from our inside council and outside council so I know there has been questions about how this bill affects the industry, I can assure you this is a good thing for innovation, jobs, and investment in the state of North Carolina. >> Thank you Jerry [INAUDIBLE] have you two minutes to to explain what you know about this and how the pros and the cons? >> It's my pleasure and thank you very much for the opportunity, I'm Jerry [INAUDIBLE] from IBM and as a member of the technology companies in North Carolina, we in IBM are very excited about the prospects of the virtual currency and specifically manipulating digital assets which are in the same class of virtual currencies, things like digital assets, manipulated on distributed shared ledgers using digital identity and exchanging assets about tangible and intangible value, so exchanging assets like virtual currencies, boats, cars, stocks, or intangible assets like exchanging of land deeds, votes, and even disputes, all right so we see this technologies as being something on the rise I'm very excited and companies in the North Carolina area are investing in this pretty significantly companies like IBM, Red Hat, Sisqo, AMC along with banking and financial services companies in the area like Wells Fargo, Bank of America, and Fidelity. So from an opportunity around innovation,
jobs and stimulating activity especially in the North Carolina area we are very excited about the prospects brought up by this particular bill. >> Okay thank you, Carly Race please identify yourself and you have two minutes. [BLANK_AUDIO] Well can't hear you yet. [BLANK_AUDIO] >> [INAUDIBLE] >> No we need to have you with the microphone, just grab one of the microphones that's viable, please. We'll get that one checked. How's this? Good? So my name is Carla Reas/g, I'm an associate at Perkins Quin/g Seattle Washington here at Council The Digital Chamber of Commerce. I am a payments lawyer. I have worked in payments industry since 2010 but since late 2012 the majority of my practice has focused on The Coin and Blockchain companies/g. Only a small portion of which are in the payments application area. I'm here to offer you a practitioner's perspective and from a practitioner's perspective, the key benefit of this bill is clarity. I've been operating and counselling my clients under your prior law, the current money transmitter law and I have engaged in analysis which gives me certain answers and in other places the answers are bit unclear and we would need to go engage the commissioner of banks in a discussion or a dialogue to figure what we are supposed to do. The benefit of this bill is that it offers clarity and in particular in the specific areas where we would have previously come and use used up time of the commissioner of banks that they don't really have to try and figure out what the answer would be, further from a general perspective the agent of the payee provision is helpful to financial technology companies and money transmitters in general and another point of just clarity for the industry not just for [INAUDIBLE] companies Members that's the end of the outside guest and they'll be here for us to answer some questions members of the committee today is for discussion only. Senator Berger question. >> Thank you Mr chair and at your discretion if you will direct this questions to whomever would be appropriate my first question is I'm concerned about unintended consequences do we need to be looking at our uniform commercial codes sections three or nine or any of the other uniform commercial code sections to comply with this specifically the definition of money? >> Ms Reas/g is that your question? >> If you like it would be yes so as to article nine, that's a good question. And there are people looking at that. The question so far isn't so much whether, by that I mean people across country looking at that under other states. The question isn't so much one of amendment, but one of interpretation in particular because different agencies, of both the federal and state level view what is a virtual currency. Differently is its [INAUDIBLE] property and so that question I don't think can be answered in the context of the money transmission act necessarily. As to the definition of money, my answer personally from practitioners perspective is no, I don't think the definition of money needs to be changed in the UCC. In fact, I use the definition of money in the UCC to argue in other states that their Money Transmission Act doesn't cover virtual currency. And finally, to the extent of the question about what is legal tender. I actually am of the position that in order to make virtual currency legal tender in the United States you Have to amend the coinage act to 1965 which is the law that makes dollars, the legal tender of the United States and until that provision 31USC5103 is changed that virtual currency could not a legal tender. >> Senator Bingham follow up. >> Thank you. With respect to definition of legal tender, have you looked specifically at our language in North Carolina as we have enacted the uniform commercial code? >> Ma'am, identify yourself again. >> I am Carol Race again, yes but in North Carolina when I look at your money transmitter after the current version I don't have to get that far, because you have monetary value. Which is defined as, any medium of exchange whether or not redeemable as money. And in my opinion, under your current law that covers virtual currency, and it's just unclear from time to time in which ways it's covered under the money transmission definition which is where this bill changes it. This bill clarifies that yes, my interpretation under your prior law is correct. It is a form of monetary value so it is covered under the bill. And it tells me which prong of money transmission it is regulated at namely, money transmission and- >> Okay no, we'll get back to some more questions. I've got a couple of other folks.
Ladies and gentlemen, we've got about another 10 minutes cuz we've been able to delay the start of session so we could get this. I've got Senator Daniel. >> Thank you Mr. Chairman. I think this question is probably for the deputy commissioner in regard to the surety bond section of the bill. >> Okay >> Miss Boston/g, I believe. Yeah that's fine. >> So I guess my question ultimately is as you get to the higher levels of volume, you know the bond percentages decrease dramatically from 15% for a $1,000,000 operator, to less than 1% at a $50,000,000 operator. So is the department of the commission feel like that's adequate as the volume of transactions increases? >> The agency does feel that that is adequate and thew reason for that is that there are multiple backstops against which a failure would be worked out, if you will, in which consumers will be made whole. The bond is typically the last ditch, the last stop that would accommodate that. But in terms of setting a bond level, we made a recent decision to keep it at current levels to max out the bond at $250,000 while increasing some of the net worth requirements. And linking up some of the principle investment requirements for every transmitter. >> Okay Senator Daniel all right I've got Senator Ford. >> Thank you Mr chairman and along those lines Mr chairman I'm looking for continued discussion and clarity as relates to the surety bond section, and I heard the presenters state that consumers would be Made whole how would a consumer be made whole? >> Do you have an answer to that question? >> Yes Mr. Chairman. Thank you Senator Ford. We have had a transmitter in North Carolina abscond with consumer funds. This company left the state suddenly and without any warning took to I believe it was Peru, Amanda and Portugal, the company took consumers funds to buy their new houses in Portugal and our office was able to proceed against the bonding company to make all those consumers whole again and refund their money. Now they would have to go to a different money transmitter to transmit those funds to their ultimate destination but that was where the bond came in very useful in recent history. >> Follow up? >> Yeah quick follow up. There seems to be a contradiction as relates to the correlation in the legislation with the surety bond and you stating that they'd be made whole but you would go after the bond as a last resort but in the example you just said that you used the surety bond to make the consumers whole, so which is it? >> It was our last resort as a matter of fact. The participants in that company left so suddenly they actually left from the state of Massachusetts before our state became aware of it and if you remember this section of our agency remains underfunded so our staff is highly leveraged and was unable to catch it at >> [CROSSTALK] >> Less quick follow up. I don't understand how you can have these virtual transactions at one dollar amount and you have a surety bond which is substantially less yet you're gonna make consumers whole. To me the math doesn't add up. >> Okay. You have a response to that or, ma'am? >> The agency, we attempt to make the consumers whole but the bond is not intended to serve as a private deposit insurance agreement. It is intended to be one of multiple components in a safety and requirement for all money transmitters. >> Okay. I'd asked that question earlier today and there is no FDIC or any of that stuff behind it, it's a good question. >> Thank you sir. >> It hurt me to say that but it was. >> [LAUGH] >> Senator McKissick and Mr. Chair if you could perhaps direct one of the folks who are speaking, our guests today. It's also dealing with the shorty bandy issues. It's my understanding as I recall in the State of New York, the State of California they had barns who were up in the ring for about 500,000 up to a million dollars and I don't know what the experiences have been in those jurisdictions, but whether they perhaps believe that what we have here is this adequate based upon the number of transactions in this date and the value of those virtual transactions. >> Do you wanna respond to that or are our guests are able to handle that any differently. >> I believe our practice in other jurisdictions >> Alright which one would like to respond to Senator McKissick's question. >>This is [INAUDIBLE] again, I don't know the specific bond amounts in New York and California and I will say that they vary across all 50 states right from very low to very high, some jurisdictions
do a sliding scale where they base the bond amount so in my jurisdiction Washington for example and in particular with startup companies that I represent and when they apply for a Washington money transmitter licence, they won't go even to the application requires that you appear with your bond in hand. Often times the startups will come in and say we don't know what bond amount you want us to have let's talk about our volume and then we can do that on a sliding scale and the Washington department of financial institutions decides entity by entity based on their volume so there is a variety of approaches and it just seems to be in the regulator's own determination of what is appropriate for the licensees and their jurisdiction as to, I heard virtual transaction, the word come up in your question and I wasn't sure if you meant virtual currency specifically or just electronic transactions generally. >.Virtual currencies. >> Yes as to virtual currency the Newark bid license governs those and also is, I don't know of the top of my head what's the requirement is. But it is different from their money transmission license requirements generally and in California. California is currently not processing virtual currency applications. They haven't decided how they're going to approach it yet. >> Okay. Would you like to add anything more cuz we're gonna close it off because we have a session. Any other final comments and then. Senator Brown? >> The commissioner is here today. I think he would like to respond. >> Okay. You can go to the microphone back there and identify yourself and so we needed to be out of here at 2:15. >> All right, I'll speak as fast as my New York roots will allow. >> Yes sir. >> Which is fairly past the times. What's being missed here is that really the first remedy for protecting consumers from loss in this bill is the permissible investments section, whereby each of this companies are required at all times to maintain 100% of one to one ratio of permissible investments cash and cash equivalent investments to offset the amount of outstanding transmissions at any given time. The surety bond is truly the last resort when permissible investments are exhausted. >> Members of the committee, as you can see, this is not the Mill Bill requires a little thought and discussion and I know Senator Barringer and others have a question, questions , additional questions . We will take it up again but just before everybody leaves Senator Gunn has one minute to say farewell to us. >> Farewell. I thank you for listening to what I think is a very important bill. We know that virtual currency and transmitters are here to stay. We also know that they are growing, we also know that a certain sector of our economy depends on these and its the sector of innovation that we I think, have a responsibility to like in all businesses to try to let them grow and prosper. At the same time, we have to protect our consumers and we need regulatory environment through the commissioner of banks that will protect the consumers, the stakeholders and the citizens of North Carolina. I'd like to continue this discussion, I really do think that this is something that it's time has come here in North Carolina. Thank you. >> Thank you. Members of Committee, that is the end of Finance today, reminders