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One of the most senior Republicans in North Carolina’s General Assembly said the GOP speaker of the House ordered her to advance a bill she didn’t support. The bill would financially benefit the speaker and dozens of other lawmakers.
If passed, House Bill 334 would exempt some federal coronavirus relief loans from state taxes. Records show some of the bill’s strongest backers would likely save thousands of dollars, including one lawmaker whose businesses could gain some $20,000. House Speaker Tim Moore’s law firm could stand to benefit a more modest amount, as much as $1,300. Moore said, however, that amount would be just $600.
Rep. Julia Howard, a senior finance committee chair and Republican from Mocksville, said she told fellow Republicans in a private meeting that the bill presents an ethical conflict for the lawmakers backing the bill who stand to benefit from the legislation because they accepted loans from the federal government’s Paycheck Protection Program.
The majority of Howard’s fellow House Republicans disagreed, however, which she made known in a recent committee hearing.
“I was given orders from the speaker that we would hear this PPP bill today,” Howard said when she reluctantly moved the bill in a committee hearing Tuesday.
Moore denied the claim, saying he never had a conversation with Howard about the legislation.
The dispute over an obscure tax bill is an unusually public rift between Republican leadership in the state House.
“I told the boys in the caucus meeting, ‘I am concerned that you should not be filing bills if you took the money,’” Howard said in an interview with The News & Observer on Friday.
Rep. John Bradford, a Republican from Cornelius and a supporter of the bill, for example, could see his businesses’ taxes owed reduced by up to $20,000. Bradford is the CEO of a software company and sole owner of a property management company.
In a press conference Thursday, lawmakers denied they promoted the bill for personal reasons and said a legislative attorney OK’d their being involved in pushing it forward because of the large number of North Carolinians who could benefit from the legislation’s passage.
“It’s not a favor for a legislator — one or two — or anything like that,” said Republican Rep. Jason Saine, one sponsor of the bill, in a press conference Thursday. “Just simply as being business owners who were eligible to take the PPP loans.”
A review of the ethics opinion issued shows the attorney indicated it would be ethical for lawmakers who received PPP loans to take action on a tax change as long as it applies equally to all PPP recipients. It stops short of formally approving lawmakers’ involvement, saying her viewpoint would not provide them immunity.
“This means that you should always be assessing your independence of judgement in a matter in which you, or someone with which you are associated, have a financial interest,” the opinion letter said.
When a bill impacts a broad group of people, it’s not necessarily a conflict of interest for lawmakers to vote for the legislation if it also benefits them. Tax cuts, for example, mean more money for citizens and lawmakers alike. But this tax bill is unlike others because it has sparked a behind-the-scenes pressure campaign that has spilled into public view.
Howard first heard of the bill several weeks ago and immediately had concerns, saying the legislation would create major issues with the state’s tax code, she said.
The Paycheck Protection Program loans, which largely end up being forgiven, are meant to help business owners bring their employees back to work and assist with related expenses.
The federal government recently indicated those loans were not meant to be taxed on the front end, when individuals receive the loan, or on the back end, when they file their taxes. So lawmakers set out to make sure North Carolina would do the same.
In 2020, lawmakers said around 200,000 North Carolina businesses received PPP loans. The Republican-sponsored bill would give tax breaks to many of those companies, with the IRS filing deadline quickly approaching.
Howard said their legislation, though, leaves out business owners who receive PPP loans after 2020. She also said she would like to see North Carolinians receiving unemployment insurance get tax breaks.
“The rich white man that got the PPP loan forgiveness of not only the loan amount but also are able to expense it, but you’re going to tax the unemployment recipient,” Howard said.
Speaker Moore said he requested an opinion on the ethics of voting on the legislation Monday and received a response Tuesday — the same day Howard heard the bill in the finance committee. He said the opinion indicates it’s ethical for any lawmakers to vote on the bill, whether or not they’ll receive tax breaks should the legislation be signed into law.
In an interview Friday, however, Moore said he plans to request a formal opinion from the legislature’s ethics commission.
As a senior finance committee chair, Howard’s distaste for the bill held it up for around two weeks while she worked to write her own version of the legislation.
Then, Howard started facing pressure. She said Republican lawmakers told her she had a choice: amend her legislation to include the tax breaks for PPP loans, or pass their bill in committee. She chose the latter, so as not to muddy up her version, which she said would not blow up the tax code.
The behind-the-scenes pressure is not uncommon in the legislature, but Howard’s public reaction to their efforts is.
She presented the bill as told but announced publicly that she was doing so under duress, or her version of the legislation would be “threatened.”
“Let’s see if we can comply with the wishes of others,” Howard said Tuesday in the committee.
Criticism from ex-lawmaker
Two days later, Moore and more than a dozen other lawmakers responded with a press conference — an unusually public move for such an obscure bit of tax legislation — the same day the legislation championed by Moore was scheduled to come up for a vote on the House floor.
Lawmakers backing that bill played defense during the presser, arguing the ethics of backing the legislation. Until then, the tiff between Howard and other Republicans had largely played out behind the scenes.
Bob Rucho was a top tax writer in the state Senate before he stepped down in 2016, and co-authored legislation that reduced corporate and individual tax rates. He said in an interview with The News & Observer lawmakers who would benefit from the PPP legislation should not be involved in it.
“Anybody that received that money should not be voting themselves a big tax break at the expense of the working people of North Carolina,” said Rucho, a Republican who was a member of the Mecklenburg County delegation.
Howard said that if legislation creates a perception of something, lawmakers shouldn’t be backing it.
“Law school 101: Don’t have a perception,” Howard said.
But lawmakers say because a legislative attorney concluded it would ultimately be ethical to be a part of discussion, debate and votes on the bill, they’re holding firm.
“It’s not only not unusual, but actually a requirement under the ethics act,” Moore’s general counsel, Sam Hayes, said in an interview Friday. “Every member of the General Assembly has a duty to assist in the enactment of laws.”
Howard and one other Republican legislator, Rep. George Cleveland, voted against the legislation when it came to a vote on the House floor Thursday. Three others recused themselves from the vote.
House members must vote in favor of the bill again, expected to take place early next week, before it is sent to the Senate. The House is likely to pass the legislation, but Senate leader Phil Berger said it’s too early to predict the fate of the bill in his chamber.
Until then, Howard will keep plugging away at her own “clean” bill, which she said has a better chance of passing in the Senate.
Danielle Battaglia and Dan Kane contributed to this report.
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