Legislative Update

The six House budget subcommittees last week approved spending proposals that would restore funds to the public schools while leaving intact many cuts to other agencies that lawmakers approved last year. The Republican-led subcommittees recommended adjustments to the second year of the two-year state budget implemented last year despite Democratic Gov. Beverly Perdue’s veto. All the proposed adjustments for the $19.9 billion plan starting July 1 will be rolled into one bill scheduled to be debated and voted on next week by the full House. The Senate will pass its own version later, and the two chambers will work out differences before a compromise is presented to Perdue.

Rep. Harold Brubaker, R-Randolph, senior chairman of the House Appropriations Committee, said budget-writers benefited from a projected revenue surplus of more than $200 million this year and unused pots of money elsewhere to help relieve public schools. Republicans in charge of the Legislature disagreed with Perdue’s budget proposal last month and won’t raise taxes by three-quarters of a penny as she sought to restore even more cuts approved last year. Perdue said in a statement the proposals didn’t go far enough to protect education. Perdue’s budget would have used the extra revenue from her tax increase to eliminate the $503 million cut entirely  a move she said would generate thousands of education positions. She said the plan also falls short on pre-kindergarten, Smart Start and military-related programs.

Other subcommittees approved plans that would spend $664,000 so that the state can tap into $4 million in federal funds for more early voting sites and voting machine maintenance, delay for one year the collection of new or higher tolls on several ferry routes and spend an additional $169 million on Medicaid to reflect higher than projected growth. Portions of the budget weren’t released Thursday. Brubaker said top budget-leaders had yet to decide whether to propose a recurring salary increase or one-time bonus to state employees or teachers. (Gary D. Robertson, THE ASSOCIATED PRESS, 5/24/12).

Transportation

With the expected drop in gas tax collections, the bulk of reductions the House subcommittee approved would come from the state’s program for paving gravel roads and improving paved secondary roads.  The House Transportation Appropriations Subcommittee scaled back a plan to cut funding for rural and urban transit programs, agreeing to cut public transit grants by $2.6 million instead of the $8.6 million originally proposed. The panel shifted the $6 million difference to the secondary road construction fund. If the full House and Senate agree, the Highway Fund secondary road construction program will be cut by $39.4 million, leaving it with an appropriation of just $14 million for the fiscal year that starts July 1. A similar program funded by the Highway Trust Fund will be cut by nearly $1 million, leaving $48.3 million for the upcoming year, according to the recommended budget.

The House transportation budget assumes that legislators will agree to cap the state gas tax at 37.5 cents a gallon, a step that would reduce revenues next year by an expected $63 million. The budget also would add $2.5 million to the state Department of Transportation ferry budget, after legislators agreed to delay a requirement for new and higher ferry tolls that had been expected to increase toll revenues by $2.5 million. The plan also authorizes the hiring of 43 new employees to help the Division of Motor Vehicles implement a new program in July 2013 that will have DMV take over collection of vehicle property taxes, linking the tax collection to vehicle registration renewals. Car owners will write a single check to DMV to pay the tax and the registration fee. (News & Observer 5/24/12)

Natural and Economic Resources

While most of the substantial reductions in this area of the budget occurred during last year’s session, there are still some notable proposals that will be included in the full House budget:

1)    While substantial reductions in the DENR regional offices have been avoided, budget provisions call for the department to centralize oversight of the regional offices, develop customer surveys, establish benchmarks and measure performance and identify best practices.

2)     Directs DENR to provide the 20% match to draw down federal funds for the Clean Water State Revolving Fund and the Drinking Water State Revolving Fund.

3)    Eliminates 4 Erosion and Sedimentation positions in DENR.

4)    Transfers the Geodetic Survey Section to the Division of Emergency Management in the Department of Public Safety

5)    Appropriates $11.25 million for the Clean Water Management Trust Fund – the same appropriation as the previous year.

6)    No changes to the Biotechnology Center – continues appropriation of $17.5 million

7)    No changes to the Rural Center – continues appropriation of $25.3 million

8)    Appropriates $50 million in Commerce for One NC Fund for economic development projects

Proposed Legislation

Regulatory Reform Act of 2012 – Senate Bill 810, sponsored by Senators David Rouzer, Harry Brown and Jim Davis passed the Senate Commerce Committee last week and is scheduled to be heard on the Senate floor this week.  The bill accomplishes several regulatory reform goals including clarifications to the Administrative Procedures Act; requirements for agencies to provide private businesses advanced notice on audits; clarification that state Air Quality regulations cannot be superimposed with state Water Quality regulations and lengthens the term for a solid waste permit from 5 to 10 years. 

State Air Toxics Program Reforms – House Bill 952 sponsored by Representatives Mitch Gillespie and Ruth Samuelson was approved by the NC House Environment Committee last week and is expected to be heard on the House floor this week.  The bill would exempt some emission control sources from regulation under the state Air Toxics Program if those sources are subject to regulation under the federal Clean Air Act. 

Shale Gas Development and Clean Energy – Senate Bill 820 – Clean Energy and Economic Security Act was introduced by Senators Rucho, Black and Walters the first week of session and is scheduled to be heard in Senate Commerce.  As reported in a previous update, it was expected that the House version of this bill – which deals primarily with shale gas development – would differ in some key areas.  Last week, the House version was introduced by Representative Mitch Gillespie (HB 1064).  Unlike the Senate bill which calls for rules and regulations to be developed by a newly created Oil and Gas Board, HB 1064 authorizes the NC Department of Environment and Natural Resources to study and recommend needed regulations for hydraulic fracturing.  The bill also differs from the Senate in that it establishes a Joint Legislative Commission on Energy Policy which would provide oversight on all energy related issues within the state including oil and gas exploration. 

Mechanics Liens – A legislative study commission charged with studying NC lien and bond laws met over the winter and developed several recommendations to be incorporated into legislation this year.  However, the most significant item, the issue of how to determine hidden liens was recommended for further study and no legislation was expected on this issue until 2013.

Title insurers and lenders were not satisfied that no substantive, immediate action was taken to remedy their concerns over hidden liens and that this issue would be delayed until next year.  The most recent development came earlier this month when Fidelity Insurance announced they will stop selling lien coverage for NC commercial and residential properties.  Other title insurers are expected to follow suit if prompt legislation action is not taken.

Insurance Coverage for Hidden Mechanics’ and Materialmen’s Lien Claims in North Carolina is Disappearing

Interested stakeholders met with legislators last week to consider a new bill draft that would require persons filing claims of lien give a written notice to a designated lien agent to ensure that their lien rights are protected.  Engineers, architects and contractors are opposed to the current draft due to the additional administrative filing requirement that would put on our industry and the cost of compliance.  Further negotiations are expected and PENC and AIA are requesting that architects and engineers that do work before a building permit is issued not be required to file a written notice but enjoy the same protections that the current law provides.  

Other bills of interest that are scheduled for committee hearings this week include:

HB 261 – Allow DOT to Use Recycled Asphalt

SB 886 – Strengthen Board of Transportation Ethics Policy

SB 890 – Secretary of Transportation Project Approval

SB 891 – Update Chapter 136 with Term “Chief Engineer”

SB 892 – Require DOT Strategic Prioritization Process

SB 893 – Privacy of Turnpike Authority Toll Date

SB 444 – UNC Nonappropriated Capital Projects 

Gubernatorial Candidate Pat McCrory Addresses Engineers PAC

GOP Gubernatorial Candidate Pat McCrory addressed the Engineers PAC of NC last week during the group’s luncheon at the Cardinal Club in downtown Raleigh.  McCrory joked that although his father was an excellent mechanical engineer, he definitely did not follow in his father’s footsteps. 

McCrory’s three major areas of emphasis were Energy, Water and Transportation – stressing that critical investments in infrastructure were needed in all of these areas.  He added that as Mayor of Charlotte he has dealt with major issues in all these areas and that this experience has given him keen insight into the needs of our state and how to position ourselves to be competitive yet cooperative with our neighboring states.

What Should Interest Engineers about the 2012 General Assembly Session

In preparation for the short session of the legislature, media outlets from around the state have been reporting on where legislators will focus most of their attention during this short session.   While many of these issues will affect some more than others, there are a few that have the potential to significantly impact the engineering industry in our state. 

The State Budget – The short session of the general assembly is primarily used to make adjustments to the state budget.  Money for transportation, economic development or environmental projects and any capital expenditures (including the University system), all used to fund engineering projects at the state and local level, will be adjusted up or down from what was approved in the 2011-12 state budget   The Republican led legislature, heavily criticized for cuts to public schools made in the last budget, will look to restore some of these reductions as education stimulus money runs out and solve the Medicaid funding crisis.  They will also be looking for positive ways to position themselves before the November elections.  It’s unlikely there will be more state money allocated to areas that will benefit the engineering industry and, in fact, there may be less.

This session is expected be even shorter than the typical short session with legislators aiming to adjourn before July 1 so they can begin campaigning for the elections in November.  However Rep. Harold Brubaker, R-Randolph, the chief budget writer in the House, said Wednesday that plans to try to roll out a House budget bill by next week have been put on hold. Brubaker said that the House’s proposed revisions to the two-year state budget will likely instead be before budget-writing subcommittees and the full House Appropriations Committee the following week.  From there it will go to the House floor for a vote and then to the Senate for consideration.  The Senate will draft and approve their own budget after which the two sides will meet to conference and work out their differences for a final budget.  

Regulatory Reform – Senate President Pro Tempore, Phil Berger said in a news conference last week that legislators will be looking at rolling back even more regulations as part of the effort to make the state more business friendly.  Last year, most of the reforms enacted were in the environmental area and it’s likely that that’s where the focus will be again this year.  One specific area to watch – changes to the state law regulating air toxins.  Legislators contend that many of our state environmental laws go beyond or overlap federal requirements such as our regulations governing how much pollution factories can emit.   

Fracking – Legalizing fracking in NC was one of the first items taken up on a committee agenda yesterday with the advance of a bill that would legalize the natural gas drilling method within two years.  While the Senate version of the fracking bill easily passed through committee, the House version is expected to be much different – forcing a compromise between the two.  Rep. Mitch Gillespie, a McDowell County Republican, said he will push for his own version of fracking legislation as early as today (committee meeting was canceled), inserting scores of public safeguards and environmental protections that are not specified in the Senate version.  The two sides also disagree on the proper oversight of this new industry with the Senate favoring the creation of an Oil and Gas Board and the House bill likely favoring oversight by NCDENR.  The aggressive schedule proposed by the Senate may be out of reach according to industry observers.  “New York has taken more than three years to develop a draft set of comprehensive conditions for high-volume drilling and fracturing” says Hannah Wiseman, a law professor at Florida State University (as reported by John Murawski of the N&O).  Expect to see some form of “fracking” legislation this session but it’s much too early to know what compromises will be reached between the House and Senate.

Cap on Gas Tax – Governor Perdue and lawmakers already seem to agree on capping the state’s gas tax at 37.5 cents per gallon – drivers currently pay 38.9 cents per gallon based on a variable rate formula that is adjusted every six months and is expected to go down anyway July 1.  There is some concern among transportation stakeholders that a House bill that passed in that chamber in the special legislative session last November – capping the tax at 35.5 cents – could gain traction as it is eligible for consideration by the Senate during this session.  Debate on this bill was expected in the Senate finance committee yesterday but the bill was pulled from the calendar. 

NCDOT has already been adjusting its budget in anticipation of the July 1 forecast and is expected to be able to manage a 37.5 cent cap as long as it is not permanent.  “We’ll need to look at what the various scenarios will do in terms of funding for projects that are out there,” said Senator Berger.  “I couldn’t say right now where we are other than I’m certain that the gas tax, as a result of the upcoming budget, will be lower than the gas tax is now.”  (Mark Binker – WRAL).

Certificate of Merit for Civil Actions Against Design Professionals – SB 435. – Last session, the Senate passed SB 435 – a bill requiring a certification from a third-party licensed professional engineer or licensed architect that a civil action filed against a design professional has merit.  Because the bill was never taken up in the House, it is eligible for consideration during the short session. 

The bill is being championed by ACEC/NC with support from PENC and NC AIA.  Although there is strong opposition from the NC Association of General Contractors and the NC Homebuilders, ACEC is committed to seeing that the bill is given a fair hearing in the House and is hopeful of a favorable outcome.   Many other states already have these protections in place for design professionals and the bill has been drafted to mirror the NC statutes that provide liability protections for physicians.       

PENC Annual Conference – Focus on Energy Engineering

One of the focus areas at this year’s PENC annual conference will be on energy – renewable energy, energy efficiency and energy technology – where the industry is creating much needed projects for engineers.  Much of this growth in the energy sector can be attributed to federal programs and projects like smart grid and development of alternative energy sources.  However, a considerable amount of these new energy projects are being created as a result of NC’s Energy Portfolio Standard, introduced in 2007, that mandates that we generate 12.5% of our electricity from renewable resources by 2020.  These actions are creating opportunities for the engineering profession as we transition from a state that has been heavily reliant on coal fired and nuclear plants to one that is more heavily invested in renewable energy.

NC is quickly becoming a leader in renewable energy production as participants at our conference will learn.  The NC Offshore Wind Coalition’s website states that offshore wind, “has the potential to be a realistic and abundant energy source for our state. The U.S. Department of Energy, in its “20% Wind by 2030” report, states that North Carolina could install 10 GW of offshore wind capacity in the next 20 years — enough to power over 2 million homes” and  “ better shallow-water wind resources than any other state on the Atlantic Coast”.   Brian O’Hare, President of Offshore Wind NC will talk about what’s already going in the state with respect to the use of wind as an energy resource. Although this is not an offshore project, the Desert Wind Power Project, already in progress, will use private agricultural land near Elizabeth City in Pasquotank and Perquimans Counties in northeastern North Carolina to begin the state’s first large-scale wind operation.

Solar energy production is also making a big mark in NC.  FLS Energy in Asheville, NC recently completed the largest solar thermal farm at Prestage Foods in St. Pauls, NC (Robeson County).  The solar energy system, six-times larger than any solar thermal system currently in operation, will produce an average 100,000 gallons of hot water a day for use in the turkey processor’s operations.  FLS Energy can also be credited with completing a 250kW photovoltaic solar energy system above the Green Square Complex parking garage in downtown Raleigh.  FLS Energy designed a custom racking system that is integrated into the structure of the parking garage positioning the 960 solar modules nine stories above street level.  Engineers from the NC Solar Center at NC State will be discussing these projects and the state’s development and use of solar energy during another segment of the PENC conference.

And, finally, leave it to engineers in NC to find a way to turn hog waste – in large abundance here – into energy.   Cavanaugh and Associate’s Lloyd Ray Farm project, sponsored by Duke Energy, Duke University and Google, was the first swine waste to energy project in NC to create and transfer renewable energy credits to an electric utility.  The project is also only one of two swine waste projects permitted in NC under the Innovative Swine Waste Treatment System requirements and the only one utilizing digester technology and renewable energy generation.  Gus Simmons, PE at Cavanaugh will also be a featured speaker at the PENC summer conference in June.

The Energy Track at the PENC conference is always one of the most popular as it highlights “Energy Engineering” in NC.  Other seminar session in the track include Alternative Fuel Development, Smartgrid and Energy Efficiency in Buildings.  Click here for the full conference brochure!

Capping the Tax on Motor Fuel – Bad for NC

For the past several months, many of us in the transportation industry have been preparing for what we believed would be a very difficult legislative session coming up in May.  One of the last actions of the special session in December ended with a bill passed by the House that the Senate failed to enact capping the gas tax and reducing it to a level that could have significantly reduced funding for our state transportation program.  Returning in May, the Senate would be forced to take action on this bill – one that is likely popular with the average voter – during a major election year.  All indications were that we would not succeed again in avoiding a cap/reduction on the motor fuels tax, the major source of transportation revenue in NC.

However, in the interim, legislators have been listening, learning and, perhaps changing their minds about capping the tax and potentially reducing the amount of revenue that supports our transportation system.  Many have come to realize that while capping or cutting the fuel tax “sounds” good reducing the major source of funding for our transportation program is not only bad for NC’s roads but bad for the economy.  One startling statistic that supports the “transportation investment = jobs” argument is that 84 cents of every $1 spent in transportation is spent in the private sector.  So that 84 cents is directly supporting design, construction and other industry related jobs.   NCDOT’s Highway Administrator, Terry Gibson, PE, in making his report to the House Transportation Appropriations Committee last week reported that over 90% of the contract resurfacing and bridge work funded in the biennial budget is being contracted out to the private sector.

Legislators are also listening and learning that it is unfair and misleading to simply compare our gas tax rate to that of other neighboring states.  Yes, we have the sixth highest state tax on motor fuels coming in at 38.9 cents compared, for example, to South Carolina at 16.8 or Virginia at 19.8 but in these states as in most others, local property taxes play a much more significant role in transportation funding than they do in North Carolina. 

NC recently surpassed Texas as having the largest network of state-maintained roads in the country.  This doesn’t mean we have more roads.  Unlike other states we have no county road systems so our large system of state-maintained roads is almost solely funded with state revenues such as the tax on fuel, other highway related taxes and fees.  A recent article by John Hood of the John Locke Foundation – known for its fiscal conservatism – correctly points out that “if you combine state and local spending together, we (NC) rank below the national average in highway investment, both in per capita terms and as a share of personal income… that also means that NC ranks below the national average in highway-related taxes and fees”. 

Revenue from the motor fuels tax is already eroding due to a decrease in consumption and better vehicle fuel efficiency.  Capping and potentially reducing the motor fuels tax will only make our transportation revenue problem worse and there’s no evidence to support the assumption by many that fuel prices will drop a corresponding amount.  The price of gas at the pump is almost solely determined by market forces outside of our control.   Yes, the average price of gas in NC is higher than in Virginia but, it’s also higher out in Apex, where I live than in downtown Raleigh by about 10 cents. 

As recently as yesterday, legislative budget writers indicated that there would be a cap on the gas tax but, the cap would likely be close to the expected rate adjustment in July (meaning very little loss of revenue to NCDOT) and the cap would sunset at the end of the year.  Future discussions on this issue, including the method of computing the gas tax rate and other transportation related taxes and fees will be included in broader tax reform policy debates that will be a major focus of next year’s long legislative session. 

One Step Closer to “Fracking” In NC

Continuing our story from last week, the issue of hydraulic fracturing (fracking) in North Carolina has moved one step closer to reality with the release today of the final report of the Legislative Research Commission’s Committee on Energy Policy.  

The Chair of the Committee – Senator Bob Rucho, started the meeting by saying he had met with the Governor earlier today and that she was willing to work with members of the General Assembly this session on legislation that would allow “fracking”.  Further, Senator Rucho commended the draft report by NCDENR – the summary of which is contained in last week’s blog. 

The committee’s recommendations have been drafted into three separate bills as follows:

Draft Bill 1 – a Resolution expressing the opinion of the General Assembly that there should be a national energy policy that supports the responsible exploration for and development of domestic energy resources.  The resolution is essentially the committee’s show of displeasure with the President’s energy policy and, if enacted by the full legislature, would be sent to the NC Congressional delegation, the U.S. Secretary of Energy, the U.S. Secretary of the Interior the EPA Administrator, the President and all other state legislatures. 

Draft Bill 2 – The Clean Energy and Economic Security Act – This bill contains the meat of the proposed legislation dealing with hydraulic fracturing.  Most notably, the bill establishes an Oil and Gas Board (similar to EMC) with jurisdiction and authority over matters related to oil and gas exploration, including hydraulic fracturing and authorizes the board to create the regulatory program for these processes.  Additionally, the statute would require that one professional engineer with oil and gas exploration experience be appointed to this board.  The bill also:

1. officially authorizes the processes of hydraulic fracturing but places a moratorium on any “fracking” until July , 2014, giving the new board time to put the regulatory program in place;
2. establishes the Joint Legislative Commission on Energy Policy;
3. directs the Department of Public Instruction to purchase CNG school buses;
4. directs the DOT to purchase trucks that operate on both CNG and gasoline;
5. creates an  interagency task force to establish a public-private partnership for the construction and development of CNG fueling infrastructure;
6. establishes the criteria for the operation of electric vehicle charging stations located at state-owned rest stops along the highways;
7. ensures the use of fuel efficient and cost efficient retread tires on state vehicles;

Draft Bill 3 – The Energy Crop Pilot Project – directs the Department of Agriculture and others to administer a pilot project for the application of swine waste to certain energy crops in NC.

The clear objective of the Committee as voiced by the Chair and several members is to move NC towards energy self sufficiency.  Although not discussed in this meeting, this will require some up-front investment to put the infrastructure in place to do this i.e., conversion of school buses, electric charging stations, etc.  This funding will have to be found somewhere in the state budget. 

Because the committee’s membership only consisted of Senate appointees, it is unknown whether the House leadership agrees with these recommendations.  Representative Mitch Gillespie, the author of the original bill that called for the NCDENR study on shale gas exploration, has recently expressed his desire to “slow down” with respect to putting the framework in place that would allow hydraulic fracturing.  It’s unclear whether his House colleagues agree with him but, nevertheless, there is likely to be a showdown between the House and Senate this session regarding how quickly NC embraces “fracking.”

Will we ever find “Fracking” in NC?

NCDENR recently released their draft summary report on hydraulic fracturing for natural gas production. “Fracking” involves drilling a well vertically and then horizontally into the shale formation to produce natural gas. The natural gas production company perforates the well and then pumps fracturing fluid into the well under pressure to fracture the shale.

The NC General Assembly gave NCDENR, the Department of Commerce and the Department of Justice the charge of studying this process and its potential impacts on infrastructure, the environment, the economy and the social well-being of our citizens.

The biggest criticism of “fracking” comes from those who are concerned over the impact on the environment. Fluids, mostly a mix of sand and water, used to fracture the shale, contain chemicals that gas producing companies are not required to disclose. It is feared that these chemicals could prove harmful to the public if they find their way into the drinking water supply. There’s also the issue of “flowback” as the fluid pumped into a well returns to the surface shortly after fracturing. Other states dispose of this by underground injection which is currently prohibited in NC. And, hydraulic fracturing takes a significant amount of water – between 3 and 5 million gallons of water per well. While water supplies in the shale areas are adequate, water withdrawals would have to be carefully managed.

Significant investments would have to be made in NC’s infrastructure – primarily roads in and around the production areas. A recent presentation from NCDOT expressed concern that these secondary roads could not handle the increase in heavy equipment loads and traffic. Louisiana DOT stated that “damages far exceed our ability to fund new roads and bridges”. Many of these states did not anticipate the wear and tear on their roads and did not adequately plan ahead.

Economic impacts are promising but hard to predict. Natural gas production will most certainly create jobs. The Department of Commerce estimates 858 jobs over a one-year period in the peak year and 387 jobs per year thereafter. However, because NC does not currently have a gas production industry, some of these dollars will be spent outside the state economy. Drilling activities are estimated to positively affect the state’s GDP by $292 million by year 2019. The low price for natural gas right now makes it unlikely, in the near term that the industry will move from areas already in production to a new and unproven area like NC. Right now, NC does not appear on U.S. Geological Survey maps of North American shale plays.

The NCDENR report concludes that hydraulic fracturing can be done safely as long as the right protections are in place and lists 20 recommendations for various rules and regulations to be put into place before any permits are issued. Many state legislators see this as the green light to move forward. However, one legislator that sponsored the original study and visited Pennsylvania to get a first-hand look at their process, recently expressed caution over moving too quickly. Given these concerns and the tremendous amount of time and effort it will take to develop a new regulatory program for a new industry, it is not likely hydraulic fracturing will begin anytime soon.

Eye Witness Wednesday Is Here!

As blogs are rapidly gaining steam these days with the availability of RSS feeds and such on mobile devices, we are looking to show up in your feed on Wednesdays.

We are also looking for guest bloggers to post on our Eye Witness Engineer blog. If you are familiar with blogs at all, you know a post doesn’t have to be long and it doesn’t even have to be original information that you came up with.

A post can be a link to someone else’s blog, a news article, a website that you find informative or anything of the like. 

So, if you are interested in being a guest blogger, just let us know! And in the spirit of showing how its a great way to share information, when you get a chance, hop on over to our presenter’s blog from our webinar last week “7 Critical Mistakes Designers Make That Could Sabotage Their Projects” by clicking here.

Her blog is a great resource and even already garnishes several blog awards.

See you next Wednesday!

It’s National Engineer’s Week

It’s National Engineers Week.–  a time set aside to recognize and thank all those engineers that make our lives safer, healthier, easier and more enjoyable.       

In North Carolina, thousands of engineers are working for the citizens of NC every day.  Electrical engineers in the energy industry are safely bringing power to your home and business.   Environmental engineers are making sure you have access to clean water and that your environment is free of contaminants.  Transportation engineers are building and maintaining your roads and bridges so you and your family can travel without worry.  Structural engineers ensure the integrity of our buildings and mechanical engineers design the systems that keep them comfortable to work and live in.  There are telecommunications engineers that design our sleek and modern mobile devices and computer and software engineers that are essential to both our work and home life.   Agricultural and chemical engineers are vital to  food and pharmaceutical production and biomedical engineers can be credited with the design of life-saving medical devices and advances in health care delivery systems. 

The complexities and challenges in our society today will demand more from this profession than ever before and will require some of our best and brightest to pursue a career in one of its varied disciplines.  This has been recognized at the national level recently as attention has been focused on “STEM”- science, technology, engineering and math education as an educational innovation.  At the state level, education leaders and the engineering profession are going one step further and are already working to integrate engineering standards into the core K-12 curriculum in NC as a way not only to better prepare our students to solve “real world” problems but also as a means to meet  North Carolina’s future workforce demands. 

As our educational resources are challenged, it is more important than ever for business and industry to partner with our schools to bring relevancy and rigor to the classroom.   Engineers understand more than many professions the responsibility they have to the public to ensure a strong legacy of future engineers.  Perhaps the best way to recognize and thank an engineer this week is by encouraging a student to consider a career in engineering.        

Engineers Oppose Changes to Lien Laws

Recently, the Legislative Review Commission Subcommittee on Mechanics Liens on Real Property asked for PENC’s opinion on proposed changes to NC lien and bond laws set out in HB 489 and proposed during the 2011 legislative session.  Title companies and lenders are seeking this legislation as a “fix” to the issue of hidden liens, which allegedly result in millions of dollars in losses to their industries, by proposing that a “Notice of Commencement” be filed for every project to serve as the general default date upon which all lien claims would relate back.  Under the current law, design professionals have the strongest lien position allowing our lien rights to “relate back” to the first furnishing of labor of service.  HB 489 would change this by forcing architects and engineers to file a pre-notice early in the project in order to protect priority position.    

In responding to the LRC subcommittee, PENC stated its strong opposition to the requirement of a filing of a Notice of Commencement.  This provision would add significantly to an engineering firm’s cost of doing business likely requiring the use of outside legal counsel to appropriately prepare and file the required documentation.  Additionally, a very low percentage of liens of an engineering firm’s total number of projects are filed by engineering firms (projected at less than 5%) causing these firms to spend a disproportionate amount of money to protect their lien rights compared to the number of liens that are actually filed.  Under the existing lien statute, engineering firms are only required to spend money enforcing liens on those projects where an actual lien is filed. 

There are also many instances where an owner may wish to keep a project confidential while proceeding with the design phase as often the design work will determine the fesibility of the project.  A Notice of Commencement requirement would either force the designer/engineer to “go public” with the project possibly against the wishes of the owner, or result in non-compliance with the filing of the Notice of Commencement thereby foregoing the designer/engineer’s priority of lien rights in favor of abiding by the wishes of the client.

The Administrative Office of the Courts would also incur significant costs at a time when they are overwhelmed with existing caseloads and insufficient budgets.

Design Professionals should hope that the legislative subcommittee studying this issue realizes that while this notice provision may mitigate some of the financial losses to the title insurers and lenders, the trade-off would be a heavy administrative and legal burden on the design and construction industry that could lead to even more job losses as our industry continues to struggle in this economy.

The LRC subcommittee will begin meeting this winter and spring to determine whether this legislation will move forward in its current form in the legislative short session which begins in May.  And, PENC will continue to voice our opposition to tje Notice of Commencement provision unless alternatives are proposed that adequately address our priority rights in filing liens.         

Senate Leaders Talk of Bonds for Infrastructure

The Jobs Recovery Coalition, comprised of representatives from PENC, ACEC, AIA, NC Surveyors, NC Association of General Contractors and the NC Association of Landscape Architects has been meeting with legislators to discuss ways to get support for creating and retaining jobs in our industries.  Most recently, we have heard from Senator Basnight’s office that bonds, COPS (Certificates of Participation), and other debt financing options are being talked about this year but probably not General obligation bonds which would require voter approval.  Senator Stevens, in his remarks at the E-PAC luncheon also reiterated that there is Senate support (obviously bipartisan as well) for bonds that could be included as part of the current year budget.  

I have my reservations. Even Senator Basnight’s power and influence may not be enough to overcome the resistance of the state treasurer to take on additional debt.  Several legislative oversight and appropriations committees have recently heard from the Debt Affordability Advisory Committee that NC is in danger of bumping up against the 4% guideline of debt service as a percentage of revenues.  Actually if both general fund and transportation fund debt is combined, the result is projected to be above the guideline – at 4.3% in 2012, leaving no room for borrowing.  The state treasurer maintains that our state is being “watched” to see if we make any financial decisions that could threaten the state’s Triple A bond rating.  Only 7 states maintain a triple A bond rating which saves the state money when it borrows (somewhere between 5 and 20 points depending on interest rates at the time). 

However, the ceiling of debt service, as established by the Advisory Committee, as a percentage of revenues is actually 4.75% leaving at least a quarter of a point available in debt capacity before reaching the ceiling.  This quarter of a percent translates into another $200 million in availability each year – enough for a $2 billion bond program.  A $2 billion bond program could be used to fund higher education, transportation and other state construction projects which could generate jobs in the construction and design industries, in turn, producing more tax revenue for the state. 

Our Jobs Recovery Coalition has plans to meet with noted economists such as Mike Walden at NC State and the Treasurer’s office to gather additional information before refining a legislative agenda that will focus on infrastructure investment that will lead to jobs growth.  In addition, we will continue to compile compelling statistics to demonstrate the number of jobs that can be retained or created with additional investment, the unemployment data for each of our industries, and the tax revenue that is produced from our respective industries.  

An interesting presentation made this week, related to the argument for increased investment in infrastructure, was the result of a study of NC’s economic development incentives programs. This study found that economic development incentives, particularly statutory tax credits, are limited in their effectiveness in job creation.  In fact, if these tax credits were eliminated, the savings could be used over a phased in time period, to reduce the corporate income tax, the highest in the southeast, from 6.9% down to 6.5%. 

State	Corporate Tax Rate
North Carolina	6.90%
Alabama	6.50%
Tennessee	6.50%
Georgia	6.00%
Virginia	6.00%
Florida	5.50%
South Carolina	5.00%

“Such corporate tax rate reduction would bring North Carolina in line with our competitor states. At 6.9%, North Carolina’s corporate tax rate is 0.4% higher than Alabama and Tennessee (6.5%). A reduction to 6.5% would still leave the North Carolina rate substantially higher than South Carolina’s rate of 5.0%, but it would at least neutralize the corporate tax rate as a regional competitive disadvantage.”
(An Evaluation of NC’s Economic Incentive Programs, UNC Center for Competitive Economies)

The study also found the primary reasons most companies choose to relocate are based on the strength of the workforce and existing infrastructure (to include schools) – not tax incentives. 

What are your thoughts?