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Senate | June 25, 2014 | Committee Room | Finance

Full MP3 Audio File

Folks, the meeting will come to order. We’re running a little behind schedule. Let’s get things rolling here. We’re going to try to clear the calendar before we get of here today. Housekeeping first. We have our pages. Harrison Idle from High Point. Jake Sacks from Raleigh. Zach Miller Wacksaw. Troy Billing, Ashborough. Ryan Barrett, Raleigh. Andrew Smith, Raleigh. Good thing school’s out, or there wouldn’t be anybody in school today. Chase Crawfield, High Point. Taylor Gaines, Wilmington. Michael, you need to work on your writing a little bit, I can’t read your last name from Littleton. Welcome. Glad to have everyone here. We want to thank our Sergeant in Arms staff, Ken Kirby, Kyle Roach, Charles Hoffa, and Anderson Meadows. Thank you all for what you do. We’d like to start with house bill 1067 today. Murphy de-annexation. None of the bills we had today for PCS’s are all straight up I believe. Rep. West, welcome to the east. [SPEAKER CHANGES] Thank you Mr. Chairman. This bill de-annexes about 6 ½ acres in the town of Murphy. It was requested in the town of Murphy. No opposition to the bill. [SPEAKER CHANGES] Thank you very much. Rep. West, we have a motion for a favorable report. Senator Tillman, any discussion from the committee? Hearing none. All those in favor say aye, opposed no. Motion carried. Thank you very much. Who’s going to run this on the floor? Senator Davis. Thank you. House bill 366 NC (inaudible)-2014. Rep. Senator Jackson, I believe. Members, we will be discussing only the financial aspects of these bills since this is the committee on finance. If you will hold your questions and comments to the financial portions of the bill today as we discussed. I do appreciate it. Thank you. Senator Jackson? [SPEAKER CHANGES] Thank you Mr. Chairman. Members, this bill, this part in here today only deals with Section 3. Basically what it amounts to is we are creating, allowing the industry to create their own commission and they will be charging fees to a voluntary organization. And, I would ask for your favorable support. [SPEAKER CHANGES] Members of the committee. Any? Just Senator Brock? [SPEAKER CHANGES] Thank you Mr. Chairman. This is a wonderful bill. I think I would like to move for a favorable report. [SPEAKER CHANGES] Okay. Any further discussions on the bill? Hearing none. Motion has been made. All those in favor of a favorable report say aye, opposed no. Motion carried. Bill passes. [SPEAKER CHANGES] Thank you Mr. Chairman. Thank you members. [SPEAKER CHANGES] Okay. Senator Clark? No, Senator Wade? The veterinarian practice act fees. Thank you no. While you’re coming forward I would like to say we have a host of members of the veterinarians here today in support of this bill. Welcome to all of my brothers and members and (inaudible). Mr. Chairman, yes. [SPEAKER CHANGES] Before veterinarian Dr. Wade gets started, didn’t I meet some of your veterinarian friends today at the table? [SPEAKER CHANGES] You did, but you did not buy them lunch. They remember. You did ask them to take you to go fishing. [SPEAKER CHANGES] Just one comment. I asked them to go fishing with them next Sunday. I understand they fish for money, and I fish for pleasure and eating. I don’t know if we’ll work it out or not. I don’t want them to leave before the day’s over. [SPEAKER CHANGES] Will do. Thank you sir. Bless them again. Senator Wade, you have the floor. [SPEAKER CHANGES] Thank you Mr. Chairman. Basically, what this does it allows the veterinarian medical board to increase fees not more than 15% in one calendar year for license and for inspections at veterinarian hospitals. As far as I know, I’ve practiced over 30 years, and I’ve never seen them have a few increase. I don’t know about you Mr. Chairman, since you’re a veterinarian also. Have you seen an increase in fees in the last…? [SPEAKER CHANGES] No, I haven’t. We’ve been getting our money’s worth. [SPEAKER CHANGES] We certainly have. They’ve asked for these increases. I think they’re a lot more veterinary hospitals now than there were when I started my practice. [SPEAKER CHANGES] Too many. [SPEAKER CHANGES] Right. I would agree with that too Mr. Chair (laughter). [SPEAKER CHANGES] They were right behind it. [SPEAKER CHANGES] I would ask for your support. [SPEAKER CHANGES] Thank you members of the committee.

Sen. Warren? [SPEAKER CHANGES] Thank you Mr. Chairman, Sen. Wade. So would this allow them to increase 15% year after year after year or is there some- I haven't read the details of the bill, but... [SPEAKER CHANGES] Until- Mr. Chairman? [SPEAKER CHANGES] You certainly may speak. [SPEAKER CHANGES] Until the maximum reached in them all. [SPEAKER CHANGES] Any further questions or comments from the committee? We have a motion for a favorable report by Sen. Ron Rabin, all those in favor please say "aye?" [SPEAKER CHANGES] Aye. [SPEAKER CHANGES] Opposed, "no"? Motion carried. Thank you, Senator, for waiting. [SPEAKER CHANGES] Thank you Mr. Chairman and committee. [SPEAKER CHANGES] House bill 1052 - May I back up, do any members of the veterinary community, would any members of the veterinary community care to speak after the fact? Post mortem, we might say in the business? Okay, good. House bill 1052, Rep. Hager, [??] [SPEAKER CHANGES] Thank you Mr. Chairman. I knew I'd be in the presence of Sen. Clark and Sen. Ford today so I tried to step up my dress so thank you for the inspiration guys. This bill ammends the regulatory fees paid to the utility commission over the last 20 years. The utility commision and due to some legislation from this body and the House has gotten out of the regulating certain telecom industry. As we have deregulated, finished that deregulation, the fees are going away that used to accompany that deregulation. And the agreement is in this bill that other regulated utilities- the gas companies, the other utility companies, will make up the difference. So it would really be no degradation to the fees paid to the utility commission. And with that Mr. Chairman, I'll be happy to answer any questions. [SPEAKER CHANGES] Mr. Chairman. Mr. Chairman, we have heard this same bill on the Senate side and debated it already. It just kind of crossed over from the House before we got ours over so I move for a favorable report. [SPEAKER CHANGES] This bill is nonappropriated capital projects for the UNC system. These are projects that are not academic, not part of what we fund in the university system but that are necessary to the conduct of a university. It will include things like dormitories, cafeterias, in the case of NC state it is some upfits to Reynolds Colliseum. In no case is any state money, any taxpayer money used to pay for these bonds. This wll also build facilities that are completely out of student fees or meal costs or room rentals charged to the students. There will be no state liablity for maintenance, for staffing, we will not be asking the state to pay for the soap the janitor uses for cleaning the floors. I have Jonathan Prewitt, who is a senior associate vice president of finance for the UNC general administration, Mr. Prewitt would you please stand up and state for the record there'll be no costs accruing to the taxpayers. [SPEAKER CHANGES] [??] [SPEAKER CHANGES] I apologize Senator, I am so anxious to satisfy the questions of this body that I just cannot restrain myself. [SPEAKER CHANGES] Rep. [??], I'm so anxious to see you satisfied I'm going to allow the gentleman to speak. [SPEAKER CHANGES] I appreciate it sir. [SPEAKER CHANGES] If you would please state your name. [SPEAKER CHANGES] Yes sir. I'm- [SPEAKER CHANGES] Please state your name and etc. [SPEAKER CHANGES] My name is Jonathan Prewitt, senior associate VP for finance [SPEAKER CHANGES] Is your mic on sir? Thank you. [SPEAKER CHANGES] Jonathan Prewitt, University of North Carolina general administration. The answer is correct, there will be no additional costs to the state of North Carolina for the maintenance or operations of these facilitites, these are nonappropriated projects, and their operations will be funded from non state resources. [SPEAKER CHANGES] Thank you sir. Do you have a question for him Sen. Tillman, or- [SPEAKER CHANGES] No sir, I do not have a question for him, I have a comment about this bill. [SPEAKER CHANGES] Alright sir, please. [SPEAKER CHANGES] Rep. Brawley, we believed you to start with. These are projects that the UNC system does that are funded out of their own self-generated receipt. Had they not or did they not do this over the years, guess where they'd be coming to for the money. They'd be coming here for taxpayer money. Although some people may quibble about the project, I don't care what they build, they build it with their money, their self generated funds, and these are all board of governor projects that they have picked as necessary for their needs, and I don't care to micromange the list or question anything on it

I move for a favorable report. [SPEAKER CHANGES] Thank you sir. We have a few more comments. Senator Rucho? [SPEAKER CHANGES] Thank you Mr. Chairman. Senator Tillman, I don’t think there is anyone questioning the projects. What we’re questioning is making sure that there is no long term liability for the state of North Carolina. You know, too many of the times we get buildings built, and all of the sudden we find out that there is some appropriations that are required to staff buildings and the like. What we’re trying to do is be totally sure that these kind of projects require no future appropriations. It does us no good. It does us no good to wait and find a building built and then we get sent the bill. My question, Mr. Chairman, if I may? There is no misunderstanding. You will not come to us on this projects or with any other projects dealing with this non-appropriated capital project list that requires any state money for operating or insuring or doing anything for these buildings that you are requesting. [SPEAKER CHANGES] That’s correct sir. [SPEAKER CHANGES] Thank you sir. We have Senator Jenkins is next. [SPEAKER CHANGES] This question is for the bill best for Rep. Rawling. Many years I have heard of former Senator John Call would run this bill. He explained the source of revenue as the kind money that comes out of the drink box or the add machine. Is that basically what we’re talking about here? [SPEAKER CHANGES] Well, some it does. Unfortunately, Senator, some of this, particularly the projects for UNCC, is coming out of the back pocket of the bill’s sponsor. But, it is not state money. If you’re student is living in the dorm, they’ll pay for it. [SPEAKER CHANGES] Any follow up? Senator Hise? [SPEAKER CHANGES] Just give me a sense of…there is a new fee that’s here. I was looking particularly at east carolina’s. This $425? Is that just in addition to each student’s fee for the year in order to pay for a student union? [SPEAKER CHANGES] Senator, I appreciate the question. Actually, they have a fee that’s expiring this year. They’re putting in a starting fee that I believe is $132. Then it will increase again the following year and the following year. It reaches the maximum you describe. That, interestingly enough, is just about the middle of the fees that are charged students in the university system. There are actually several of the universities that have higher fees. This, I’m going to ask the east carolina people to correct me on this. If memory serves correctly, there was a student referendum over these new student centers where the students voted and the fee was disclosed in the ballot referendum and it passed. [SPEAKER CHANGES] Is that correct? That’s correct. Thank you. Follow up. [SPEAKER CHANGES] Follow up. Just for clarification, and I know there are several fees on here. When the fees go up in an institution, what is our impact on our financial aid pool in the state? Is someone who receives full financial aid, are we going to cover that fee and reduce the scholarship funds, those type of things we have available in the state? [SPEAKER CHANGES] I believe that would happen sir. [SPEAKER CHANGES] Anything else, Senator Hise? Okay. Senator Wade? [SPEAKER CHANGES] Thank you Mr. Chairman. [SPEAKER CHANGES] I also have a question on the fees. After the capital improvements are made, or whatever buildings built, do the fees go back down? [SPEAKER CHANGES] Yes. [SPEAKER CHANGES] They do? You revert them back? This $425, sorry Mr. Chair, follow up. [SPEAKER CHANGES] Go ahead. [SPEAKER CHANGES] This $425, and you said it was going to increase? [SPEAKER CHANGES] No, ma’am. The $425 is the maximum that it will be. That will phase in over 3 years. [SPEAKER CHANGES] Follow up? So, when the building is finished, or capital improvements, so that, it will revert back to what? [SPEAKER CHANGES] Unless a new fee for another project comes in, when that building is paid off, it goes to zero. [SPEAKER CHANGES] If we may, Mart Mundy, from fiscal can weigh in here. Mart? [SPEAKER CHANGES] Yes sir. Senator Wade. This is a debt service fee. This will be used to pay for the cost of servicing the debt related to this project. So, once that debt service is paid off, which I believe is usually a maximum of 30 years, then that fee would go away. So, depending on the term of the debt, how many years it would be, it would be how many years would that fee would be in place. [SPEAKER CHANGES] So, follow up? [SPEAKER CHANGES] Yes, ma’am. I tell you in the absence of Senator McKissick today… [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Oh my, good gravy, Senator McKissick, I’m sorry, I wouldn’t have talked about you if I’d known you were in the room! [SPEAKER CHANGES] Representative…

If so... [speaker changes] [laughter] [speaker changes] ... if there's, other capital improvements, will the fee increase? [speaker changes] The fee will increase if this body allows it. The part of the reason that it's here today is these projects, even though they do not have a state obligation, the universities do not have the authority to implement these projects without legislative approval. And that's really all this bill does, is give us the chance to make sure they're acting responsibly. I will tell you that I spent quite a bit of time in my office grilling people to the point that I was afraid I had perhaps been rude to the representatives of east Carolina, but the answers I got were full and complete, and I'm confident that I can represent this to you as a good project for us to approve and not regret having said that to you. [speaker changes] Thank you. Senator Hunt? [speaker changes] Thank you, Mr. Chairman. Representative Brawley, in my reading of this bill, it appears that these projects can borrow 95% of the costs, is that a correct reading? [speaker changes] I'm gonna defer that to staff, please, because... [speaker changes] Who needs to answer that? ?? Thank you. [speaker changes] Yes, sir. It's not 95% of the costs, it depends on the project. So each project, for example, east Carolina project looked at using a portion of their cash reserves to finance that, I believe, up to about $11 million. But each project can borrow 100% plus and they can add, they have the ability to borrow up to, I think, 5% additional to that, to cover necessary costs, such as law and council fees and that sort of item, but also, I think, probably to give 'em some leeway just in case what happens in this bill and what happens in the future's cost increase. [speaker changes] I have a follow-up. [speaker changes] Yes, sir. [speaker changes] Well, I see it's even worse than I thought [cough]. As an old real estate developer, I can tell you ?? money, I don't care what the source of revenue is, is a risky proposition. And I'd love to see that loan-to-value ratio, loan-to-cost ratio reduced. I mean, using reserves is absolutely appropriate as opposed to borrowing money. So that's my two cents worth. [speaker changes] Thank you, sir. Senator Curtis? [speaker changes] One of the major drivers of increasing the costs of getting an education at U.N.C. is increasing room and board and fees. Will this continue that trend of room and board and fees continuing to increase for students? [speaker changes] Yes, sir. Senator Curtis, the increases to room and board and fees do play into the financing of these projects, particularly the housing projects, but they're part of the campus' master plan for student housing and they have planned within their revenue streams, over many years, to accommodate the construction of these facilities. [speaker changes] Thank you. [speaker changes] If Senator Curtis would be willing, I'd be more than happy to run a bill with him next year where we begin to use taxpayer money to build these dorms and cut the costs to the students. [speaker changes] ?? Senator McKissick. [speaker changes] This question might be best answered by somebody with the university system, but I was wondering to what extent there was a larger list that this group of projects came from, and what the system was for prioritizing which of the projects within our university system would actually move forward as I ponder this particular bill, because I think we got six different campuses and many more constituent institutions with a great deal of needs, so I'm trying to understand what the priorities system was and what they went through to identify which ones would be included. [speaker changes] Thank you, Senator. [speaker changes] Thank you, Senator. The constituent institutions made their applications to the Board of Governors for their projects, there was one other institution, Winston-Salem State, that had put in a request. Their bond rating counsel advised them that that would harm their credit status, and Winston-Salem State withdrew their request. So, that, these were actually, these came out of the individual institutions and were submitted to the General Administration. [speaker changes] Follow-up. [speaker changes] Follow-up, sir? [speaker changes] Yeah. So, obviously, there's only a certain amount of capacity out there, so among all the requests that came in, it looks like six of them were honored and I don't see any of the other, any H.B.C.U.s represented, any of the historically black colleges and universities, and I was wondering other

The one from Winston Salem State. Were there any other requests that were somehow deemed for one reason or another, that they would not be meritorious enough to be included in this particular bill? [SPEAKER CHANGES] Senator, Mr. Pruitt was shaking his head. Mr. Chairman if Mr. Pruitt could address that. [SPEAKER CHANGES] Mr. Pruitt, would you care to answer that for us please? [SPEAKER CHANGES] Yes sir. The Winston Salem State University projects were the only projects that did not move forward for legislative approval this year. [SPEAKER CHANGES] Thank you sir. Do you have a follow up? [SPEAKER CHANGES] Yes and I take it that was as a result of bond council, is that what I’m hearing? [SPEAKER CHANGES] Yes, it was based on an evaluation of the impact of the additional debt on their credit rating, their campus credit rating. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] You’re welcome. Senator Blue. [SPEAKER CHANGES] Thank you, Mr. Chairman. This is frankly a modest list and since time immemorial these self-liquidating projects have pretty much taken care of themselves in a responsible way. These are our university campuses and we’re going to have to support them or either decide that they can go into dilapidation. Look at the UNC project, there’s $32 million for chill water plant, yet we decided a long time ago that we were going to air condition buildings on these campuses. And if they can pay for that, through fees or other kinds of offset from direct appropriations, it makes sense to me. And I check all of the other projects on this list including the East Carolina project, which is the biggest one. They’ve got to have parking, got 25, 26 thousand students down there. And again, it’s our campuses so even if at some point, if these buildings are essential to their meeting their core mission, that is education students, kids and others, then we have to have some sense of supporting them in that regard. I think that we’re fortunate that they’ve got the credit capacity and they have identified ways to pay for these facilities or these projects. But I want us to keep in mind that if we’re going to have campuses that serve the needs of the people of this state, we’ve got to figure out a way to pay for it and we ought to be glad that they’ve identified these. This is a great bill. [SPEAKER CHANGES] Thank you. Senator Rucho. [SPEAKER CHANGES] Thank you, Mr. Chairman. And Senator Blue, yes we’re all concerned about it but we do need to understand what we’re voting on, and I think that’s an important part of educating the members of the finance committee. Mr. Brawley, you did state the fact that the 425 was a cap, and when the project is built out you say the fee will drop back to its zero level but if it does, how do you maintain and operate your facility without any revenue stream? [SPEAKER CHANGES] The revenue streams on most of these buildings they also generate revenue from their operations, from food service, in a student center a lot of times there may be game rentals. For UNC Charlotte I know a big generator is the candy counter, which I spent quite a bit of money as an undergraduate, and my daughter as an undergraduate continues that tradition. So they do have sources of funds. I believe that responsible management if the fee can’t go to zero and maintain the buildings, that they would not request a cut to zero, because they know they can’t use any state money to maintain these buildings or operate. [SPEAKER CHANGES] And or repair them. [SPEAKER CHANGES] Or repair them. [SPEAKER CHANGES] Thank you. Mr. ?? do you need to add to that at anywhere, please? [SPEAKER CHANGES] Yes sir. Representative Brawley’s correct for example for the East Carolina project, the new student union. With the closure of the existing student union which is primarily supported by things such as cafeteria receipts or the parking garage which is supported by parking receipts, those will be used to support the operation and maintenance of those facilities. Normally with respect to repair and renovation of buildings, in order to be eligible for funds appropriated to the reserve for repair and renovations the General Assembly makes, the building must be constructed and supported by the general fund. So for example, most of these projects would probably not be allowed to draw down from that. The one exception is each and every year the General Assembly allows for the purpose of fire sprinklers, that dormitories can draw from that fund to sprinkle their buildings. A new building obviously would have fire sprinklers in it but an older building might be eligible for those sources of funds. [SPEAKER CHANGES] Thank you. Senator Brock. [SPEAKER CHANGES] Thank you, Mr. Chairman. And this may be a question for Mr. Pruitt. Mr. Pruitt, could you give us the current list of or just a total figure of how much we need to repair and renovations for our university system? [SPEAKER CHANGES] Yes sir, and this may be a ballpark

[Speaker Changes] For state appropriated buildings I believe it’s around 2.3 billion dollars 2.4 billions dollars. Mr. Bondo I may have a more accurate figure. [Speaker Changes] Going to follow up there? [Speaker Changes] I was just going to say if we’re looking at trying to keep education as low cost as possible and senator Heiss brought it up, when you’re saying whose paying for it, a lot of people think moms and dads out there are sacrificing to try to pay for college. I think they need to keep in mind about trying to keep college cost affordable to state, our state students and you know we do have a big price tag on repair renovations over 2 billion dollars so. [Speaker Changes] Thank you, senator Ron Raven. [Speaker Changes] It’s not that I didn’t position anything in the bill but I got to thinking about we just spend a lot of time talking about colash is it proper inside this build to make comment in regard to that parking lot and began looking at that, I hate to look at matrix solutions or things that pan together. Wouldn’t it be proper for us to say there somewhere inside… [Speaker Changes] Senator I don’t know if ??, but we respect you so much we’ll let you make comment. [Speaker Changes] Well it’s a comment or a question, but it in the bill at least investigate and probably we ought’ve be doing that in a lot of bills. [Speaker Changes] Senator Bobby will you please address that [Speaker Changes] Senator as you may recall, I was the primary sponsor of HBH17 which was the strategic transportations investments bill. We’re actually discussing now how do we encourage the use of the colash or concrete products pavement products as part of that going forward. So I think that’s something appropriate to address, but we’re not going to do that in a short session because the technical problems might mess it up. And I would respectfully request that we let this bill go forward as it is and try to address that not only for the projects here, but projects of an even broader scope. [Speaker Changes] I don’t disagree that’s why I made the comment. To me, I could fall of saying in here, but in our future processes, that including both kinds of things that make us look like we’re integrating solutions really costing the taxpayers money if you don’t do it. [Speaker Changes] Senator Wayne [Speaker Changes] Thank you Mr. Chairman. You mentioned, representative, that sometimes the students are allowed to vote on whether these buildings appearance. Can you elaborate on that? If it’s alright I’m going to let the university respond to that. [Speaker Changes] Yes Mr.Chairman, as part of the committee, the University’s tuition and fee setting process beginning with the campus and students and faculty and staff in the fall of a year these projects and fees associated with them goes through a student approval process and there is a student referendum in many cases for approving fees and that was the case with the east Carolina debt service fee. [Speaker Changes] That’s only for East Carolina or do other universities also allow that? [Speaker Changes] Other universities allow that as well and follow that process. [Speaker Changes] Ladies and gentlemen will you have comments please? [Speaker Changes] Just gonna say that I knew from my own undergraduates that ?? does referendum for there basketball arena for these dorms and I thought I saw one for West Carolina on new dining halls. So that it would be easier to get a place at the table. [Speaker Changes] Thank you rep. We’ve been around the room pretty well. Thank you, are there any other members of universities that care to speak? If not, thank you. Senator Tillman for a favorite report. All those in favor please say aye, oppose no, motion carried thank you all for coming meeting is adjourned.