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Senate | April 24, 2013 | Committee Room | Senate Finance

Full MP3 Audio File

Can the finance committee come to order please? Thank you. Alright first thing first. Let's say thank you to our sergeant at arms who helps keep an orderly and efficient meeting, Ernie Cheryl, Justin Owens, Donna Blake, Anderson Meadows. We appreciate y'all your help very much. And also we'll say welcome to our pages and senate finance today and it's Caleb Sanders, Senator Daniel, Elijah Dukes, Senator Rabon, Ben, I might mispronounce this Ben, Hexspith I think, Senator Meredith, and then Nick Carroll, Senator Goolsby. Alright. We welcome and we hope that your visit to the general assembly in the North Carolina Senate is well worth your time. It's generally very interesting and exciting. And to go from that point of excitement now onto Senator Jackson with Senate Bill 378 Access Propane Bill is distributed Senator Jackson the floor is yours. [SPEAKER CHANGES] Thank you Mr. Chairman. Members of the committee this is a ?? referral from commerce basically 378 is a assessment bill for the propane industry. There is 19 other groups in North Carolina that access their members on assessment and this would be for the dealers and also the distributors who would be assessed. It does not affect the market price of propane because that is determined nationally and so it has no bearings on the cost to the consumer. In other words it might actually be better because currently they are doing their own marketing. This way they can collectively do it and hopefully be some efficiencies in that way. I'll be glad to answer any questions or we'll entertain a motion. Thank you Mr. Chair. [SPEAKER CHANGES] I've got a motion for Favory Port from Senator Tillman on Senate Bill 378. Members of the committee any questions? This bill does not oppose any additional cost on the consumer. Correct Senator Jackson? [SPEAKER CHANGES] That is correct. [SPEAKER CHANGES] OK. Members of the committee? Seeing none. Motion from Senator Tillman Favory Port for Senate Bill 378. All in favor please say aye. All opposed nay. Ayes have it. Thank you sir very much. Good job. Very exciting bill. We appreciate it. Well we would love to see. Senator Tucker's not here. The amendment is being done. [SPEAKER CHANGES] Thank you we have a PCS for Senate Bill 523 do I hear a motion to PCS Senator Tillman? All in favor say aye. [SPEAKER CHANGES] Aye. [SPEAKER CHANGES] Thank you. Senator Rucho if you will discuss the bill please. [SPEAKER CHANGES] Thank you Mr. Chairman, members of the finance. This bill, Senate Bill 523 Clarify And Reduce Penalties For Failure To File Tax Returns. This was requested of us and the Department of Revenue actually was very instrumental in helping us craft the language in this bill. What it does is it clarifies that a penalty will be imposed for failure to file a return when it is due. As in anybody expected whether you have taxes due or you've got taxes owed. Secondly it reduces the penalty maximum that can be opposed from 25% to a failure to file the return on a timely manner. Right now the current law the way it is, is not the way the Department of Revenue has interrupted this law. So it actually allows for and you'll love this part, the current statute requires the imposition of a penalty for failing to file a tax return on time that is equal to 5% of the amount of the tax per month with a maximum penalty of 25%. That penalty is very stiff and I don't believe the Department of Revenue currently follows that statute because in reality the, when it turns out that the taxpayer is actually owed a refund and that penalty is in place so

What we’re trying to do is clarify the language so that the Department of Revenue clearly understands what the policy should be. I would say to you that we are delighted to be of some help to the Department of Revenue. It appears the previous administration didn’t follow the law as how they arrange this policy, that’s why we are here to fix it. Thank you very much Tom for being of assistance. Mrs. Averitt is there anything else that needs to be addressed? [SPEAKER CHANGES] No, the only other thing I will clarify is the question I keep getting asked, this requires a penalty to be paid on the amount of the tax minus any credits, but it does not allow for any payments, installment payments or with holding payments before the penalty is imposed. So, this would create the situation to where if a refund was due, there could still be a failure to file penalty. [SPEAKER CHANGES] Thank you. Any further discussion Senator? Questions from the Committee? Senator Clyde [??] [SPEAKER CHANGES] May I ask the question? I think [inaudible] because what she just said. [SPEAKER CHANGES] You may ask. [SPEAKER CHANGES] As I understand that the IRS does not collect a failure to file penalty on a return, if the return shows a refund due and that has been the practice, if not the law. That has been the practice we followed at North Carolina. If you do a refund and you file your return late, you don’t pay a penalty, right? [SPEAKER CHANGES] Yes Sir, the Federal law requires that they only impose on the net amounts due. So, if there is nothing due and you’re owed a refund, there’s no penalty and that is the way the Department had been interpreting this law. In October their new program is coming online and they looked at the law, what the law says the penalty due on the amount of the tax. They are now saying that in October, the way that they’re going to interpret that is the total tax due. So this clarifies what the amount of the tax is. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] I follow you so far. My follow up question is; what will the Bill the do? Will it now mean that there will be a penalty if you file a return late but the return shows you’re due a refund? You will still be paying a penalty? [SPEAKER CHANGES] Yes sir, what the Bill does, it defines the amount of the amount due for purposes of calculating the penalty as the tax, minus tax credits, for example, the credits for children. However, it doesn't allow a credit for tax payments, including installment payments or with-holding payments. [SPEAKER CHANGES] Mr. Chairman. [SPEAKER CHANGES] Senator [??]. Whether you’re owed, whether you owe money or whether you’re due a refund, everyone has the obligation to file taxes in a timely manner and they shouldn’t be considered any differently and that’s all this does. It clarifies that, it reduces the significantly the penalties on that sense but it realities it just a matter of making sure that everybody is treated the same. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] I think I now understand, but if I’ve over paid my taxes on my estimated or with-holding, then the state has the use of my money and they owe me back, what they’re penalizing me for now is not asking for the money they owe me quick enough? I don’t get it, I just don’t get it. [SPEAKER CHANGES] Senator [Clydefelter] What they’re asking is the fact that you didn’t file in a timely manner. That’s the obligation that we all have and the law is the law and it should be treated that way and the department should follow the law as the General Assembly has set out. [SPEAKER CHANGES] Mr. Chairman. [SPEAKER CHANGES] Senator Tillman. [SPEAKER CHANGES] Following Senator [Clydefelter’s] line of thinking, I’ve got a huge problem the fact the you ay file a day late and you’re owed $15,000 back or maybe its $15, and now, contrary what the Federal does, Federal takes nothing if you’re owed a refund, they’ve been using this money for a long time, they’ve continued to use it right up until you file and before you get your money back. I think they are profiting by that and now to put 5% penalty because you were a day a late or 10 days late. The other part I think is great, we’re reducing by 15%, the penalties and that’s when you owe the state money and I totally follow that. But, I certainly have a problem with this 5% on it, just because you may have filed for it a day late. Never before have we done that. Thank you. [SPEAKER CHANGES] Senator [??] The law is clear Senator Tillman and all we’re doing is clarifying it so that the fact . . . [SPEAKER CHANGES] The law is clear, the penalty is not. [SPEAKER CHANGES] Well, it is now. Because that’s what this Bill does. That’s correct and you’ll have a vote I’m sure, but the reality is

that if a person is late, then they accept the responsibility. I mean, that’s why April 15th is there, like it or not. I mean, you’ve got to treat everybody the same. If you’ve got money coming, if you got $15,000 coming in a refund, you’d be the first guy out there to try to get that money back because you ought to be. Well, now they will. [SPEAKER CHANGES] That’s good. Senator Hise. [SPEAKER CHANGES] Two questions, and first trying to clarify this. I believe I understand you said that under current law, they may have been misinterpreting up to this point, but under current law, if we do nothing they will pay the penalty for not filing their taxes at a higher rate than this bill allows them to do, that’s my first question, just to make sure I’m correct on that assessment. [SPEAKER CHANGES] Yes, sir. The Department of Revenue is getting a new computer system commonly known as TIMS. When that computer system goes online, that computer system has been programed under the way the law is currently written as interpreted to be applied to the total amount, so if nothing was done, as of October 1st, and when this computer system goes online, the penalty for failure to file will be between 5 and 25% of the total amount of the tax regardless of any of the credits or pre-payments. [SPEAKER CHANGES] On a...I’m trying to figure out what plays into this. Is extensions? If you are owed money back, but on April 15th you filed an extension, and they gave you six more months to file your return, would that still be without penalty for filing an extension? [SPEAKER CHANGES] Yes, sir. The penalty only applies if you don’t have an extension. [SPEAKER CHANGES] Thank you. Senator Apodaca. [SPEAKER CHANGES] Senator Rucho, I often wonder, you know, you have to pay penalties and interest if you’re late paying. If you paid too early, I think the state ought to pay you interest for using your money. [SPEAKER CHANGES] It actually does. [SPEAKER CHANGES] How about a penalty too for taking our money before they need it? [SPEAKER CHANGES] No sir, you’re welcome to request it, but you do get money back on interest if it’s held up by the state. [SPEAKER CHANGES] At what rate? [SPEAKER CHANGES] You know the rate that you get for refining it? [SPEAKER CHANGES] 5%. [SPEAKER CHANGES] That’s a good investment. [SPEAKER CHANGES] Senator Apodaca will have us hold his money for about a year. [SPEAKER CHANGES] I think someone answered from the back, I couldn’t remember the exact interest amount, but the interest doesn’t begin to accrue until I think, 30 days later. So if your refund is not refunded to you at the end of May, that is when the interest begins to accrue. [SPEAKER CHANGES] Thank you. Senator Cook. [SPEAKER CHANGES] I just want to make sure I understand this, Senator. This bill has a limit of 10% and it’s 5% a month, so after two months, there’s no incentive to pay? [SPEAKER CHANGES] Who can answer that? Heather? [SPEAKER CHANGES] I’m sorry. [SPEAKER CHANGES] The bill in question has a limit, as I read it, of 10% of the tax, that’s your penalty. But it says 5% a month. So if you go two months, you’re at the 10%, after that, you might as well not pay it for another twelve months. [SPEAKER CHANGES] Yes sir. I mean you’re correct. It’s 5% each month of the amount of tax due, not to exceed an aggregate of 10% under the bill. The current law is an aggregate of 25%. [SPEAKER CHANGES] Thank you. Could the department like to make a comment on that? Is there anyone here from the DoR. [SPEAKER CHANGES] Good afternoon, I’m Tom Dickson, I’m the Assistant Secretary of Tax Administration. Our policy on this has been a longstanding, well, it’s not actually a written policy, it’s been a practice. We found this when the new computer system was being programmed and found that we had been interpreting the law not as is written in the statute. There’s nothing in the statute that talks about the failure to file penalty being done on a net amount. The Feds have done it that way, and quite frankly, in past administrations, as most of this conversation has been talking about today, we have looked at taxes in terms of individual income taxes and how it would impact individual taxpayers. The fact of the matter is, this is not just a bill for individual income tax.

..taxpayers. There are other taxpayers such as sales tax and alcohol taxes that we distribute back to local governments. When we receive those monies in that's a good thing. But, if those taxpayers do not file their tax returns in a timely manner, and we have to chase them down to try to figure out how to distribute those monies. So this is more than just a bill about individual income tax it this touches all the taxes ??? the department has also administratively actually done this in a couple of different ways some of the tax schedules that we have currently are not on our iTax system. iTax is the current tax system that we use and it's about 20 years old. We have a number of taxes such as alcohol and smaller taxes that are on legacy systems. Those taxes have been been administered differently. When we implement TIMS supposedly sometime later this year, hopefully around October, all these tax systems will come under one system.The new TIMS system. So we brought this up to the leadership and asked for their assistance in trying to clarify this we understood that it was going to be a difference in the way this has been administrated and Senator Rucho and staff has worked with us to try to craft a bill that would that would address a true fair and final penalty and not what was merely a failure to pay ??? [SPEAKER CHANGES] Thank you, sir. Senator Hartsell. [SPEAKER CHANGES] It seems a little to me like we are letting the Borg take over. Where resistance is futile. We got a computer system now that is putting together . . . we decided there's a difference in interpretation that we want to put into the computer system that would that would result in folks who paid money in and we've used the money by accident or otherwise having to pay more to get their own money back because and to me common sense says that we need to at least program in to the computer system what has been the case for at least the last fifty years. I don't I mean I understand the difference in a failure to file and the failure ??? and all these kinds of things, but if somebody has had his money withheld, and for whatever reason, one day late gets a return in and a return says he is going to get a refund of X and it actually exceeds and this doesn't make sense to me. I agree with Senator Tillman and Senator Cook I can't understand this why in the world would we want to change a common sense provision. [SPEAKER CHANGES] Mr. Chairman. [SPEAKER CHANGES] Senator Cook. I just want to follow-up on that question. I'm not sure I heard anything that helped me with this. As I understand it, it's 10% after two months and after that whoever owes us money is gonna be thumbing their noses at us. Good luck, cause you're not gonna be able to hurt me anymore. Do we need to fix that? [SPEAKER CHANGES] I think, Heather, is it would you explain that because its reality it is only 10% if its if you do refund. So we minimize it. It would go. The original bill would go to 25% and we have reduced that to 10%. You would hope that someone was do a refund would do what they were supposed to do and that's file a tax return. And that's all we are expecting them to do. [SPEAKER CHANGES] Follow-up. Can I follow-up? That's good. But, what about the deadbeats? Folks who don't tend to pay the dagum thing, and after two months they say, "Right, I got 10% that's all you can do." Seems like there ought to be some provision for folks who are really trying to do us out of the money to have some further penalty after two months [SPEAKER CHANGES] Heather, will you please respond, please. [SPEAKER CHANGES] Yes, sir, there are other penalties under Chapter 105. There's a failure to pay penalty as well. There's also the interest provisions that we've been discussing so this is just for the failure to file and that is a lower amount and it does apply to the lower amount that Senator Rucho's discussing the 10% and that would apply if you got a refund or if you are owed a payment, however, if you owe money you are still gonna have the failure to pay penalty and you are gonna have other penalties and interests so that I believe is the stick that you are looking for. [SPEAKER CHANGES] Thank you. That's exactly what I wanted to hear. Thank you. [SPEAKER CHANGES] Thank you.

Tillman was next. [SPEAKER CHANGES] Thank you, Mr. Chairman. I don't know if we can resolves this here or not because I see a conflict in the practice that we've been doing plus penalizing people who are getting a refund, but I'd like to ask Department of Revenue spokesman a couple of questions. [SPEAKER CHANGES] Certainly the department would yield [inaudible][?] [SPEAKER CHANGES] Tom Dickson with the Department of Revenue. [SPEAKER CHANGES] In ballpark figures, how many people that are owed a refund are late filers? I'm not talking about failure to file. I'm talking about failure to file by the deadline. [SPEAKER CHANGES] I believe that number is around one hundred thousand. [SPEAKER CHANGES] Hundred thousand are late filers that are getting a refund? [SPEAKER CHANGES] Yes, sir. [SPEAKER CHANGES] Well, that seems awfully high to me. However, I'm going to take that. Then how much extra help do you have to put on around April 15th crunch time in the DOR office. [SPEAKER CHANGES] You mean for mail opening or..? [SPEAKER CHANGES] Just for the tax filing deadline. Period. There's a month or so in there prior to and a little bit after that you have to have additional help. How much help do you need around that time? [SPEAKER CHANGES] We hire hundreds of temporary employees. [SPEAKER CHANGES] How much do you expect to net in this five percent that we are accessing people that are due a refund. How much money? If it's a hundred thousand taxpayers and the average refund would be about---oh, what's an average? [SPEAKER CHANGES] Around five hundred. [SPEAKER CHANGES] Five hundred or a thousand and a hundred thousand of those are accessed at five percent. You don't have quite a windfall it looks like to me. [SPEAKER CHANGES] I don't know those numbers, but I believe the windfall is the state's windfall. [SPEAKER CHANGES] A windfall is a windfall. It's going away the taxpayer. Mr. Chairman, I need to go through Apodaca, I believe. [SPEAKER CHANGES] No. You can go through me because I was fixin' to cut you off. [chorus of laughter] [SPEAKER CHANGES] I've been cut off before. I understand. [SPEAKER CHANGES] This is one more time. [SPEAKER CHANGES] I have an amendment I want to offer if Senator Rucho is amenable. [SPEAKER CHANGES] Thank you. Let's do this. There is quite a bit of discussion and let's pull this bill back and wait on that amendment and do it that way so that we have time. If Senator Barringer wants to ask a question now, you may then we will put it back because you were on the list. [SPEAKER CHANGES] Thank you very much. It's to understand the implementation of this particular law. In calculating the five percent each month, that varies depending on how much tax is owed. Am I correct? That's what it's based on. [SPEAKER CHANGES] You mean under the bill, it would be based on the amount of the tax which is defined as the amount owed minus credits. [SPEAKER CHANGES] Right and that's what I mean. So, the more refund a person owes, the higher penalty. Am I interpreting this correctly? [SPEAKER CHANGES] I do not believe the amount of the refund would impact the amount of the penalty. The amount of the refund wouldn't be tied to that because it's the amount of tax imposed. [SPEAKER CHANGES] Alright. I'll take a closer look at the bill and perhaps you and I can speak. [SPEAKER CHANGES] Yeah. Follow-up. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Thank you, Senator Barringer. Were going to pull this back for now. We do have some public comment but we'll wait on that until we run the bill again for the vote. With Senator Rucho will take over and we'll move ahead. Thank you. [SPEAKER CHANGES] Thank you, Senator Rabin. Okay. Let's go ahead and bring forward House Bill 488. And that is Representative Moffitt, Representative McGrady, Representative Ramsey, and regionalization of public utilities. [SPEAKER CHANGES] Thank you, Mr. Chair. It's a pleasure-- [SPEAKER CHANGES] Before...let me get a motion for acceptance of the PCS for House Bill 488 for discussion. All in favor. [SPEAKER CHANGES] [chorus] Aye. [SPEAKER CHANGES] All opposed. Aye have it. You have the podium. [SPEAKER CHANGES] Thank you, Mr. Chair, members of the committee. It's a pleasure to be before you today. This is a rather straight forward bill. If you have the summary in front of you, I'll work through the summary in a fairly quick manner. Essentially what this does is it establishes the statutory framework for the creation and operation of a metropolitans water and sewer district and requires regionalization of certain large water systems interconnected sewer systems. Section one, basically outlines the size of the public water or sewer utility that this would be applicable to. Section two basically defines the framework for the creation and operation of the metropolitans water and sewer district.

and throughout Section 2 it basically brings forward a lot of existing statutory law and how we form these districts under Chapter 162A and we're establishing Article 5A which is a new subdivision of the state. Essentially this is forward thinking legislation contemplating the needs of our state and unique challenges that are public enterprises and water and sewer system space. It creates an orderly group blueprint for the consolidation of those public enterprises or water and sewer systems. It partakes the citizens and the rate payers of the state. This is particularly true when these systems reach a certain size where economies scales can be realized and that's what we have brought forward to you today. [SPEAKER CHANGES] Ok. [SPEAKER CHANGES] I'll take any questions. [SPEAKER CHANGES] Senator Blue. [SPEAKER CHANGES] Yeah Representative Moffitt, just perusing this rather quickly you start out and I'm on page 1 line 20 starting on line 18 basically. In Wake County we have two systems that operate pretty extensively. There's one in Cary and one in Raleigh. Several of the municipalities contract the Raleigh system. Several contract the Cary system. I think the Cary system has been issued a certificate for interbasin transfer because they're both in the Cape Fear basin and the Noose basin but there's no reason the Raleigh system would have gotten an interbasin transfer. In just quickly looking at this would this force the Raleigh system to merge into the Cary system? [SPEAKER CHANGES] Thank you Senator Blue it would not. We covered this thoroughly on the House side. [SPEAKER CHANGES] Why wouldn't it? [SPEAKER CHANGES] Well first of all you have to have a metropolitan sewage district form first in the county and there's not one. [SPEAKER CHANGES] Is that defined in here that's all I'm looking for? [SPEAKER CHANGES] It is. [SPEAKER CHANGES] Ok. In [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] I'm sorry. Follow-up. [SPEAKER CHANGES] Yes sir. [SPEAKER CHANGES] The metropolitan water and sewage district is defined as what Representative Moffitt? I'm just trying to figure make sure that we don't have unintended consequences with what you're doing here. [SPEAKER CHANGES] Mr. Chair if I could I would ask if you would not mind I would like to redirect that to Erica Churchhill. She could probably summarize it better than I could try to explain. [SPEAKER CHANGES] Ms. Churchhill can you help us with that clarification? [SPEAKER CHANGES] Yes sir, I'll try. The metropolitan water and sewage district is actually being created by this bill. It's establishing a statutory framework where one of those could be created. The existing NSD that Representative Moffitt was talking about that is part of the trigger language on page 1 lines 13 to 24 that you were talking about, that's already in the statute. It's Article 5 of Chapter 162A and is a statutory process to create one. I believe there's only three in the state. [SPEAKER CHANGES] Does that answer your question Senator Blue? Ok. I've got Senator Tarte. [SPEAKER CHANGES] Amendment ?? please. [SPEAKER CHANGES] Ok. Has everyone received the amendment? [SPEAKER CHANGES] I believe so. [SPEAKER CHANGES] Ok. [SPEAKER CHANGES] ?? [SPEAKER CHANGES] Explain it from there will be fine. [SPEAKER CHANGES] Yes this bill this amendment to this bill is nothing more than a clarification under the authority to restrict it limited to the outstanding debt assuming the members are comfortable. [SPEAKER CHANGES] Representative Moffitt are you ok with that amendment? [SPEAKER CHANGES] Thank you Mr. Chair. Yes the sponsors are ok with the amendment. [SPEAKER CHANGES] Does anyone have any questions or discussion? Senator Nesbitt on the amendment. [SPEAKER CHANGES] Can someone tell me what the amendment does? [SPEAKER CHANGES] Ms. Churchhill can you help us with that please? [SPEAKER CHANGES] Yes sir. Senator Nesbitt the bill is drafted the new NSWD that would be created. There's language on page 5 starting on line 36 that would require the local government commission to approve any transfer or would lease, lend, sell, grant, convey to the district. The local government commission has asked that that authority be restricted and they only oversee and approve those transfers that are related to any outstanding debt of the new NSWD. [SPEAKER CHANGES] Senator Nebitt did you, are you satisfied with that answer?

Okay, we’ll come back to you. Let’s see. Any other comments on the amendment? Senator Hartsell. [SPEAKER CHANGES] It’s not on the amendment. [SPEAKER CHANGES] Not on the amendment. Any other comments on the amendment? Senator Nesbitt. [SPEAKER CHANGES] Thank you Mr. Chairman. I think I see what they’re getting at here. Apparently the way the bill was drafted, it gave them jurisdiction over the transfer of the asset as opposed to just the funding. Does this mean that the local government commission has got to approve the transfer of the bonded indebtedness? And this is important because it applies to Charlotte and I mean, we’re, it’s the same situation ?? [SPEAKER CHANGES] Your question, Representative Moffitt, do you have an answer or do we want to get staff or the treasurer’s office on that? [SPEAKER CHANGES] Defer to staff. [SPEAKER CHANGES] Ms. Churchill, can you help us with that? [SPEAKER CHANGES] I’ll try. I believe this is establishing a new framework for the NSWD and it would be prospective only for once the NSWD was up and operating that the LGC would have to oversee or approve any transfer of the asset with the outstanding debt. [SPEAKER CHANGES] Senator Nesbitt. [SPEAKER CHANGES] Then I guess I’ll pose this to her. Because in this instance, there’s a serious question about transferring an [SPEAKER CHANGES] Let me do something to help you. Let’s have the treasurer’s office respond to that. Can someone from the treasurer’s office come forward? Identify yourself please, and help us explain Senator Nesbitt’s question. [SPEAKER CHANGES] Sir, I’m ?? Hollam, Deputy State Treasurer. We had suggested this change, feeling that the commission’s role in our state is to see that our outstanding debt is repaid, we’re charged with that responsibility by statute. And that our role in this process should be to see that that debt is handled properly. As far as this transfer goes, the ability of it potentially to be transferred from the issuer to this district. Or if not, the fact that it would be settled some other way. And we felt like that was probably what was intended initially, and that would spell out exactly what our role in that process would be. That the amendment would. [SPEAKER CHANGES] Senator Nesbitt, are you comfortable with that? [SPEAKER CHANGES] If I could ask him a question. [SPEAKER CHANGES] Follow up question. [SPEAKER CHANGES] Thank you Mr. Hollam. I sent you a letter yesterday, from bond council up there, and asked for a response from treasurer’s office about it and I got none. I didn’t know anything about this, nor did they respond to my request. [SPEAKER CHANGES] I’m sorry sir, I’ve not seen that letter. I apologize. [SPEAKER CHANGES] Can you, there are some serious concerns about the transfer of this debt. Just as similar as what’s going on in Charlotte. And I’ve seen your letter on that. Are you envisioning that it would not go forward until you could ensure that the bonds would be transferrable, or are you just simply taking a look after the fact? What do you intend to do, regarding the disposition of outstanding debt? That’s what I’m trying to get at. [SPEAKER CHANGES] Well, I would say that we have looked at the bond covenants, related to the city of Asheville’s debt, and they are written in a way that clearly contemplates a transfer. And essentially, in order to make that transfer, you have to be able to transfer to an entity with the same bond rating, and you have a consultant verify that that rate should not be negatively impacted by the transfer. And then the bond documents actually make the provision for that. And of course we would monitor that process and make sure that everything was settled out with the debt. And again, I think that was the role that was intended for us in the statute and that amendment would simply clarify that. [SPEAKER CHANGES] Senator Nesbitt. [SPEAKER CHANGES] And what happens if the entity does not have the same bond rating? [SPEAKER CHANGES] What ultimately would have to happen is the debt would have to be retired and new debt issued. [SPEAKER CHANGES] Senator Nesbitt. [SPEAKER CHANGES] And who would have to do that and would it be done before the transfer occurred, or after the transfer occurred? [SPEAKER CHANGES] Well, we would have to get probably attorneys to help us as far as to route the exact sequence of events but the debt would be ?? by the issuer, the city of Asheville, and the new debt would be issued by the new authority that is created. And as far as the timing of that, we’d have to have bond council’s advice as far as the exact sequence. [SPEAKER CHANGES] Senator Nesbitt, one more follow up. [SPEAKER CHANGES] Thank you sir. Don’t the bond covenants require that all of this be done prior to the transfer? [SPEAKER CHANGES] Again sir, we’d have to get bond council to confirm the exact sequence of that event. But again, I know

that these documents, they do anticipate a transfer. We can verify that, we certainly will at the time, and be certain that it occurs in the proper sequence. [SPEAKER CHANGES] We can get that information for you then, Nesbitt, then you can talk about it. [SPEAKER CHANGES] Alright. We have an amendment before us, anybody else who would like to speak or comment on the amendment? Seeing none, all in favor of the amendment please say "aye". [SPEAKER CHANGES] Aye. [SPEAKER CHANGES] All opposed "nay". "Aye"s have it. Alright. I've got the House bill 488 as amended before us, and I've got- Sen. Cook is not here, Sen. Rabin. [SPEAKER CHANGES] Is this initiative toward regionalization tied to the one that Sen. Brown is working on with regard to getting other entities together? [SPEAKER CHANGES] There would not be. [SPEAKER CHANGES] So we're gonna have stacked regionalization again when the other regionalizations were done to save money and all of that, I just- I don't understand why they're not coordinated if they're both regionalization projects, and why we can't get a lot of these things together and really get a bigger bang for our buck on saving money? [SPEAKER CHANGES] Thank you Sen. Rabin. I believe what Sen. Brown is working on is more administrative in regard to state, this is establishing a framework to where we can handle these water and sewer utilities. [SPEAKER CHANGES] Okay. Let's go on to Sen. Hise. [SPEAKER CHANGES] Thank you Mr. Chairman. I was going through the what I see as contradictory information that seems to have come from the city of Asheville on their little one, and I wanted to ask a question about one of the first areas that they put together. Have experience with the local government, was former mayor, and went from the town, and that town's history, the town's taxpayers put up the money, bottled water, shed, put in pipes, and lines, and water treatment plant, and sewer treatment plant, and we charged after doing all that when we expanded it outside the city limits, we charged a higher rate for those outside than those inside to kind of make up for those across its history. How is the situation different for the city of Asheville? Would this process and what is the result of why they do not charge rate payers outside a different rate than they charge inside? [SPEAKER CHANGES] Thank you Sen. Hise. Essentially 488 is a public bill, and we're establishing a new subdivision of the state. Now there is an example of the outcome of this particular bill if it passes, which you're referring to the city of Asheville, and I would defer those questions to Rep. Ramsey to answer. [SPEAKER CHANGES] Rep. Ramsey? [SPEAKER CHANGES] Thank you Sen. Hise. The basic history of the water system in Asheville and Buckham county is different than what you have experienced. The general assembly in the 1920s created water districts that formed a portion of this system. Over the years, legislation was created in the 1930s to regulate what customers would be charged. In the 1950s, there was a state supreme court case that upheld that general assembly action. The county, over the years, has invested tens of millions of dollars into this water system, and in 2005, the general assembly enacted additional legislation relating to the water system located in our community, and the North Carolina court of appeals in 2008 unanimously upheld that legislation. In that decision, the court of appeals stated it is not necessary in this case to determine which entities own which parts of the water system, but there is a difference of opinion between the parties in the state of- in the City of Asheville v. State of North Carolina, of which parties own which parts of the water system. So in your community, it was clear from the beginning that the city, town of Spruce Pine own the water system and that's their right. That's the uniqueness of Asheville and Buckham county, and that's why state legislation has been enacted over the years and why we've had court decisions that have turned out the way they have. [SPEAKER CHANGES] Okay, thank you. Sen. Hise, you all set? Alright, I've got Sen. Stein, then Sen. Hartsell. [SPEAKER CHANGES] Thank you Mr. Chairman. It is a question provoked by the questions from Sen. Blue earlier. As I see this, you could have an existing city water district that if you meed these criteria you automatically get subsumed into a metropolitan sewage

water district whether you want to or not, which doesn’t seem fair, but I also want to make sure that we don’t get swept up here in Wake County. To create a metropolitan sewage district in Wake county, for Ms. Churchill said there was a process under the law to do so. I was curious what that process is to see whether one could be created and then through operation of this legislation, if enacted, swallow up the Raleigh water system. [SPEAKER CHANGES] Is that a question? Miss Churchill, can you help us with that question? [SPEAKER CHANGES] The metropolitan sewage district is created by local/political subdivisions, two or more in one or more counties, initiating the creation by resolution of the governing body of each political subdivision. And then they send that resolution to the environmental management commission and then the environmental management commission determines whether or not they are created. [SPEAKER CHANGES] Senator Stein, follow up. [SPEAKER CHANGES] Yes, more of a comment. So basically if two municipalities in Wake County want to take over the Raleigh system, all you have to do is get two town...majorities of two town councils to enact it. And if you have an environmental management commission which is indifferent to the interests of the city of Raleigh and approves it, you’ve thereby created a metropolitan sewage district, and by operation of this law, the Raleigh system is taken over. Am I misunderstanding that? [SPEAKER CHANGES] Mr. Chair. [SPEAKER CHANGES] Go ahead. Excuse me, Representative Moffitt. [SPEAKER CHANGES] Thank you, Senator Stein. We actually went through that entire argument on the House side with Representative Deborah Ross and Skip Stam and we resolved that to where anything in Wake County would not be swept up, and as far as the scenario that you just painted, I believe, Miss Churchill could possibly speak to that, because we did cover that particular item. [SPEAKER CHANGES] I have great faith in the House, but not all faith in the House. [SPEAKER CHANGES] Miss Churchill, would you...do you have anything to add to this discussion? All right, I’ve got Senator Hartsell. [SPEAKER CHANGES] Just a simple question to Miss Churchill. She indicated a moment ago that there are three metropolitan sewer districts in the state. Could you tell us where they are? [SPEAKER CHANGES] Mr. Chair. [SPEAKER CHANGES] Yes, ma’am. [SPEAKER CHANGES] I believe one is in Buncombe County. I believe one is in Pamlico, and one in Pitt. [SPEAKER CHANGES] Senator Clark. Get your microphone so we can... [SPEAKER CHANGES] In regards to section one they have these three criteria here. What was the basis of these criteria? It’s almost as though they were just designed to handle a specific water district. [SPEAKER CHANGES] Representative Moffitt, do you have comment? [SPEAKER CHANGES] Yeah. Thank you , Mr. Chair, thank you Senator Clark, I appreciate the question. You have to start somewhere. And when we’re looking at achieving true economies of scale, these were the determinants, or these were the factors that we determined would be the appropriate place to start. [SPEAKER CHANGES] Senator Clark, you okay? I’m planning to vote this out. Senator Nesbitt. [SPEAKER CHANGES] Yes, Mr. Chairman. There’s some folks here from the city of Asheville that would like to be heard too. [SPEAKER CHANGES] I’m going to give them an opportunity once the committee is finished their questioning. [SPEAKER CHANGES] This is a comment more than a question. I think I can get it done quicker. Just so you understand what’s going on up in our county, I was here and the delegation was here in 2005, passed the bill that was referred to earlier. And restated what had been 75 or more years of practice up there, which was that we would not have differential rates. There was always a fight between the county and the city over this stuff. We laid all that to rest and it went to the Supreme Court and the Supreme Court said let it rest. Actually, the Court of Appeals did a 70 page opinion that laid out all the history. We resolved it all. Then… [SPEAKER CHANGES] Senator Nesbitt? [SPEAKER CHANGES] Yes. [SPEAKER CHANGES] Is this adding, and I don’t mean to disrespect, but is this adding to the discussion here as to try to get some clarification on this bill? [SPEAKER CHANGES] Well I’m trying to, Mr. Chair. [SPEAKER CHANGES] All right, go ahead. [SPEAKER CHANGES] And this started as a

?? towards the city of Ashville to take an asset that is worth billions from an elected body up there that we entrusted it to. It's true that it was a city county deal but in the thirties it was entrusted to the city of Ashville to operate and we controlled how they operated it so that everybody got the benefit of it. It's being taken from us and it's being taken from the citizens of Buncombe county. At the end of the day Henderson county is going to have twenty percent of the board appointees and they are putting up six percent- putting up a little sewer system they got that is six percent of the sewer system. I don't know how much of a water system they got but it's less than a percentage of that. Being given twenty percent of the board seats. And I'm fearful that Buncombe county is going to forever more subsidize the bill of a Henderson county system. They don't even have a sewage treatment plant there. We are treating their sewage now. And it's being done again against the will of the people and it's being done in a mean spirited way. The airport was taken last year. A bill is introduced. [SPEAKER CHANGES] Senator Nesbitt. Let's be relevant to this particular bill here because we've got the speaker and we've got a couple more questions. I don't mean to cut you off but we've like to get this [SPEAKER CHANGES] Just one more point mister chair. [SPEAKER CHANGES] Let's hear it. [SPEAKER CHANGES] And I had to read it this weekend in the paper where representative McGrady had introduced a bill to threaten the city of Ashville to conform on the airport authority and they're just beating us up over there in Buncombe county and taking our assets. [SPEAKER CHANGES] Thank you sir. Senator Brock you had a point here. [SPEAKER CHANGES] Move for favorable report. [SPEAKER CHANGES] We've got a favorable report. We'll hold that for a moment. Senator Blue. [SPEAKER CHANGES] Just want to ask a quick question of representative Moffitt. I go back to this concern that both the senators and I ??. Would you have any problem if in fact that I put a little provision in here saying if a municipality and/or a county has over four hundred thousand people it has to participate in the choice to form this district that resolves the ?? ?? issue. And the reason I raise that is because I'm as concerned about the ?? transfer as ?? taking over a system. [SPEAKER CHANGES] Thank you senator Blue. I would actually decline to have this bill amended with that. We feel comfortable we'v addressed the Wake county's concerns. We'll be more than glad to get the Wake county house delegation together with the senate and you guys can discuss it but we feel comfortable for the bill as is does not affect ??. [SPEAKER CHANGES] Senator Blue, you do have an opportunity between now and the floor to talk with your delegation and get that issue resolved. [SPEAKER CHANGES] I was going to suggest that. Maybe the house will get a chance to agree with the senate. [SPEAKER CHANGES] Senator Apodaca. [SPEAKER CHANGES] Thank you mister chairman. I feel compelled to make some additional comments. This was never remedied. This has been going on since oh four. Nathan. When the city of Ashville decided to dissolve our regional water system and take all the assets themselves even those that have been brought to the table by the county back in the thirties and in the twenties. Kind of like getting a divorce and saying I'm going to take everything honey and thank you for helping us out. That has never been remedied. We sat through I don't know. How many meetings, Nathan and Martin all together. Committee meetings trying to work this out so I just want it to be known it has never been worked out. This has been a bone of contention and let us just be honest here. The one that really got the bad end, the one that really got jolted out of this whole relationship is Henderson county. No obligation has been lived up to that had been promised to us by Ashville so we just want our just due. [SPEAKER CHANGES] Thank you senator Apodaca and I'm sure we will here more of this on the senate floor when the time comes. Let me do this. I have one speaker. Could the speaker come forward to the podium and identify themselves. And then we are going- we've got a favorable report on the floor and we're going to take it. You have two minutes sir. Please identify yourself. [SPEAKER CHANGES] Thank you for the opportunity. My name is Gary Jackson. I'm the city manager of Ashville. I've been in that position since two thousand five. I have over thirty years experience in city management, twenty three as a manager in four cities. Prior to being in Ashville I served as the city manager of Fort Worth Texas, slightly larger than Charlotte. Also has a regional water system that is administered as a department of the city. I humbly believe my extensive experience in public finance and management qualifies me to contribute a professional and nonpartisan nonpolitical perspective.

Today on House Bill 488. I will get right to it. The message today is to encourage you to vote against House Bill 488 because it is a bad president and bad policy. What do I mean by that? In our community in our region House Bill 488 undermines our determined efforts to support economic growth in the creation of jobs. In 2010 Forbes recognized Asheville as a top ten city for business in the country. In 2012 Asheville metro led North Carolina metropolitan areas in percentage of jobs created. And more incentives exist for exceptional companies to come to town. Most recently in 2012 New Belgium Brewery out of Fort Collins announced 175 million dollar investment in Bunkum county. It will be serviced by this water utility. Also Sierra Nevada will be locating in Henderson county 170 million dollar investment. Both of these entities chose our region over all other opportunities on the East Coast Why did they do that? Why are we seeing impressive resurgence to the Asheville economy and water dependent, water dependent industries in particular choosing to locate within this system? One, SPEAKER CHANGES you are gonna need to be able to wind this up its about 15 seconds left so. SPEAKER CHANGES Mr. Chair let's let the gentlemen speak. SPEAKER CHANGES Excuse me Senator Edmonds? SPEAKER CHANGES Let's let the gentlemen speak. We've went over before and it works. We've got the rules chair here he can let us go in five minutes late and let the man be heard. SPEAKER CHANGES You have another minute. SPEAKER CHANGES Thank you very much I was prepared to wrap up within your 15 seconds but I do have more detail I think which would be helpful for you to receive. The sound public stewardship and ownership of this water shed is the reason. It's the visionary leadership that guaranteed ample supply of water for this generation and generations in the future. Can you say the same thing about all the water systems in North Carolina? It's exceptional, finanacial management that's been recognized by independent council and a thorough inspection by a third party. In addition there aren't differential rates in addition, Henderson county does have water supply today that it did not have in 2004. I will tell you that Sierra Nevada gets the same service, the same rates as New Belgium. We don't differentiate between Bunkum county and Henderson county last thing I would like to say wrapping up, I know you dont have time to look at this study, this was a study that was commissioned by the metropolitan steward district that was done by arcadis. It concludes, after you pour through the hundreds of pages that 5.8 million dollars will be spent on the start up of this new metropolitan authority. After nine years looking at just the operation and the economies, nine years,it is 6.8 million dollars still in the red I would be happy to go into that detail with you and show you how those numbers are arrived at. SPEAKER CHANGES Thank you sir, we appreciate you coming and we do our best to try to welcome all of our guests to have a chance to speak. SPEAKER CHANGES Thank you very much happy to answer any questions you may have. SPEAKER CHANGES Very good, thank you. Okay, I have a, Representative Moffet do you have any quick comments before we SPEAKER CHANGES Yes thank you Mr. chai, I certainly appreciate the discussion my home town and Henderson county but I would like to restate that this is a public Bill and it contemplates that and other issues statewide and it does call for the creation of the metropolitan water and sewer district and I appreciate your support. SPEAKER CHANGES Thank you sir, alright we have a motion from Senator Brock for a favor report on the pcs of House Bill 488 as amended and rolled in together into a new pcs unfavorable to the original bill. We've had plenty of discussion. All in favor please say Aye GROUP Aye, all opposed Nay GROUP Nay Ayes have it, we will see Senator Tucker's Bill next week, thank you. SPEAKER CHANGES Thank you Senator SPEAKER CHANGES Meeting is adjourned.