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.       

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!

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. 

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.”

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.

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!

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.        

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.