An emboldened Democratic Gov. Roy Cooper fulfilled his commitment Friday to veto key Republican-sponsored funding bills that did not address his three main priorities for the 2019-20 state budget.

Cooper vetoed on June 28 the Republican state budget compromise because of three primary factors:

  • It did not contain funding for a Medicaid expansion initiative that key GOP legislative leaders staunchly oppose.
  • It did not provide public school teacher pay raise at the 8.5% level he recommended.
  • And it contained corporate franchise tax rate cuts estimated to be worth $1.12 billion over five years, cutting the rate by one-third by 2021.

Republican leaders attempted to circumvent the veto of House Bill 966 through a mini-budget initiative that would provide a 3.9% raise over two years to public teachers in Senate Bill 354, and the corporate franchise tax rate, along with an extension of state film grants, in Senate Bill 578.

Cooper said in Friday’s veto statement that SB578 “prioritizes corporate tax cuts over investments in education and would further erode state revenue at the same time the General Assembly is under-investing in schools.”

“Cutting taxes for corporations at more than $1 billion over five years will hurt North Carolina’s future.”

Cooper said that while SB578 “does create some language around economically advantageous film industry incentives, it does not make needed funding provisions for the grant program.”

Sen. Paul Newton, R-Cabarrus, said in a statement that “Cooper reaps the benefits of Republican-led tax policies that make North Carolina the No. 1 state in the nation in which to do business.”

“He has no problem attending ribbon cuttings and doling out incentives to individual companies, but he won’t sign a bill reducing the burden on businesses already creating jobs in our state.”

Newton criticized Cooper for vetoing SB578 just weeks after establishing an advisory council to bolster the state’s film industry.

“Gov. Cooper vetoes legislation to allow more movies and television shows to qualify for grants to film in the state,” Newton said. “He can’t have it both ways.”

Cybersecurity controversy

Among the four bills that Cooper vetoed Friday is House Bill 398, the state information technology mini-budget bill.

The bill became controversial with the inclusion of $10 million in each of the 2019-20 and 2020-21 state budgets dedicated to private Montreat College in Black Mountain.

The Republican-controlled legislature, along party lines, approved the passage of HB398 even though it bypassed four Triad higher-education institutions for the cybersecurity development funding.

Critics questioned why taxpayer money is going to a private college when there are public higher-education institutions more established. Montreat is affiliated with the Association of Presbyterian Colleges and Universities.

Sen. Ralph Hise, R-McDowell, and primary sponsor of the legislation, squashed Democrat attempts at amendments that would provided funding to the combination of Forsyth Technical Community College and Salem College, and the combination of N.C. A&T University and Guilford Technical Community College, as well as other university-community college partnerships.

“This legislation fails to adequately fund state cybersecurity and data analytics needs, while sending a substantial capital earmark outside the state’s proven university system,” Cooper said.

Hise responded to the veto by saying “it puts the state’s most critical information at risk and signals to hackers that the state is vulnerable.”

“Gov. Cooper seems to have put our information in danger just because he doesn’t like the religious choices of some of the administrators at a college.”

Montreat began offering a cybersecurity major in 2014. It has five full-time faculty members dedicated to its regional cybersecurity training center.

By comparison, Forsyth Tech offers a two-year associate’s degree in cybersecurity, along with various industry certifications. The program has 14 full-time faculty and more than 300 students.

There have been several articles in the religious media sector, foremost by The Gospel Coalition, that show how the cybersecurity center has played a pivotal role in the college’s educational and financial survival after it received an anonymous $6 million donation in 2014 that became known as “the Montreat Miracle.”

Montreat administrative officials have met with federal defense officials, financial and energy professionals in Charlotte, and technology leaders in Seattle, according to the reports.

In fall 2017, Montreat became the fourth school in North Carolina to earn recognition from the National Security Agency and Department of Homeland Security for excellence in cyber defense education. It has hosted four RETR3AT Cybersecurity conferences on its campus.

In September 2017, Montreat President Paul Maurer was appointed to serve on the National CyberWatch Center’s Curriculum Standards panel.

Rep. Chuck McGrady, R-Henderson, is co-chairman of the House Appropriations Committee.

He told Carolina Public Press that the cybersecurity funding for Montreat “is a little unusual in that it is a private college, but ... the program they were trying to put into place is something that had national and state implications.”

“It’s not like we chose Montreat over UNC. The only proposal that was on the table was Montreat’s.”

Film grant extension

The placement of film grants in SB578 appears to be aimed at getting Democrats on board with the controversial Republican-backed corporate franchise tax-rate cut.

SB578 takes language in the Republican state budget for the film-grants program.

Both bills would lower the amount of money a film production company would need to spend to receive state film and entertainment grant money.

The amount would reduce expenditures from $3 million to $1.5 million for a feature film, as well as from $1 million to $500,000 for a made-for-television movie.

For a television series, the requirement drops from $1 million to $500,000 per episode. A commercial production would remain at $250,000.

No more than $7 million in grants can be provided to a feature-length film, as well as no more than $15 million for a single season of a television series, and no more than $250,000 for a commercial for theatrical or television viewing or on-line distribution.

Franchise tax-rate cuts

With three Democratic senators, including Sen. Paul Lowe of Forsyth County, voting for SB578 on third reading, Cooper may not have the 21 votes to sustain a veto in the Senate.

The House will need the support of at least seven House Democrats to override a veto.

Republican supporters claim franchise taxes “are essentially duplicative property taxes on business,” and also claim that cutting the franchise tax will lead to more business investment and job creation — which has been disputed by several Democrats during bill debate.

The bill would reduce the franchise tax from $1.50 per $1,000 in corporations’ net assets worth to $1 per $1,000 by 2021. The Senate budget proposal reduces the tax rate to 96 cents by 2021.

The office of Senate leader Phil Berger, R-Rockingham, said North Carolina is one of 16 states with a franchise tax. Berger officials said the franchise tax “discourages in-state investment and the accumulation of assets, such as new plants or equipment.”

According to a legislative staff paper, the bill would reduce state franchise-tax revenue by $101.9 million in year one and by a combined $1.12 billion over five fiscal years. The bill also would introduce a cap of $150,000 on tax liability and eliminate the 55% of appraised value base for taxes.

Krawiec said that Cooper “doesn’t seem to understand the impact of the franchise tax. ... It’s very onerous and unfair and we have lost large companies because of this franchise tax.”

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