State Rundown 5/23: Special Sessions Abound Amid Budget Vetoes, Stalemates, Federal Tax Bill

This week the governors of Louisiana and Minnesota both vetoed budget bills, leading to another special session in Louisiana and unanswered questions in Minnesota, and Missouri legislators managed to push through a tax shift bill just before adjourning their regular session and heading right into a special session to impeach their governor. Wisconsin and Wyoming localities are both looking at ways to raise revenues as state funding drops. And our What We’re Reading section contains helpful pieces on changing demographics, the effects of wealth inequality on families with children, and the impacts of the Supreme Court sports gambling and online sales tax cases.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

Major State Tax Proposals/Developments:

• After earlier attempts this year to slash Missouri taxes proved too expensive (one version would have eventually eliminated the entire personal income tax to the tune of $6 billion in annual revenue loss), lawmakers passed a last-minute compromise that shifts taxes around by cutting the top personal income tax rate while trimming back existing and scheduled deductions for federal income taxes paid and pass-through income. A separate bill cuts the corporate tax rate from 6.25 percent to 4 percent and partially offsets the budget impact by requiring businesses to allocate their profits using the “single sales factor” method. They also agreed to send a 10-cent gas tax increase to voters in November. A special session to impeach Gov. Eric Greitens is next.
• Louisiana lawmakers sent Gov. John Bel Edwards a budget he vetoed—one that deeply cuts spending across non-health agencies and establishes the spending gap lawmakers are now convening to try to fill in the second special session this year. Lawmakers will have two weeks to try to fix the state’s budget crisis. The focus is on the sales tax; the governor is urging lawmakers to extend half of the sales tax rate increase permanently in addition to eliminating certain sales tax exemptions and the deduction for state income taxes paid. The House has sent 22 proposals to committee, many proposing different tax increases. Will any of them advance? Not everyone is feeling optimistic.
• Minnesota Mark Dayton has vetoed the second set of tax conformity and spending bills lawmakers sent to him as legislative session wrapped up on Monday. The Minnesota Budget Project highlights some of the shortcomings of the second tax conformity bill. The governor has vowed not to call a special session, which means more complicated tax filing for Minnesotan residents in tax year 2018.
• Oregon lawmakers met for a single-day special session where they approved Gov. Kate Brown’s proposal to extend the state’s preferential business tax rates to sole proprietorships. The change is expected to cost the state $11.3 million in tax year 2018.
• Utah‘s Tax Commission Chairman is recommending that state lawmakers return in July for a special session to address several Utah tax deductions that absent additional state legislative action would raise taxes on families with dependents due to federal tax changes.
• South Carolina legislators changed their minds about returning to their budget debate in May, opting to delay their return until June 27, the day after primaries will be finished. That means they will almost certainly start the new budget year on July 1 without a budget, but a shutdown is not expected. Teacher pay and federal tax conformity are among the issues they will debate when they return.

Further State Fiscal News:

• Continuing to explore the state’s tax structure, Wyoming’s Joint Revenue Committee is considering local governments’ ability to impose new, voter-approved taxes in place of current state funding.
• A new report shows that more and more localities in Wisconsin have turned to vehicle registration fees (“wheel taxes”) as state funding for transportation projects has stagnated over the past decade.
• In a continued race to the bottom, states are now vying over Apple’s relocation. In North Carolina, a possible frontrunner, a first order of business during the state’s new session was to develop an enhanced package of business tax subsidies.
• The Massachusetts Senate rejected revenue-cutting measures: a proposal that would enact an August sales tax holiday and a budget amendment to reduce the state’s sales tax to 5 percent (down from 6.25 percent).
• A Pennsylvania coalition of twenty-plus organizations recently launched the We the People campaign. The aim of the initiative is to support middle- and working-class Pennsylvanians by encouraging investment in the Commonwealth’s communities.
• Virginia’s government could shut down if a budget is not approved by July 1, and the Senate just decided to delay their Medicaid expansion debate another week. The House reconvened today.
• Michigan lawmakers are pleasantly facing higher than expected revenues and determining whether the $250-$340 million will go towards savings, paying down debt, or spending priorities.
• With Iowa lawmakers having just passed a major tax cut that will undermine funding for many priorities, the state’s universities are delaying pay increases and tuition decisions as they await final budget numbers from the legislature.
• Some Florida lawmakers are pushing for a special session this year to address school funding issues.
• A California proposal to extend property tax protections has been approved for the November ballot. Current protections prevent property taxes from increasing sharply despite growing home values—the proposal would allow homeowners 55 and older and those who are severely disabled to maintain their lower property tax obligations even when they move.
• In Colorado, the Denver Chamber of Commerce has decided to pursue a petition to increase the statewide sales tax to fund transportation projects.
• Advocates in Mississippi are promoting their idea to raise the state’s cigarette tax by $1.50 per pack to fill about one-third of the state’s $400 million infrastructure funding gap.
• South Dakota teacher salaries have increased from the worst in the nation to the third-worst thanks to a sales tax increase passed in 2016.

What We’re Reading…

• Stateline reports that states are unlikely to see major revenue gains from legalized sports gambling, and points out that history shows funding for gambling addiction services is unlikely to keep up with needs.
• Bloomberg lays out four possible ways the Supreme Court case on online sales taxes could go.
• According to Route Fifty, states are experimenting with “stress testing” their pension systems to improve their ability to fund them under a multitude of economic conditions.
• Governing warns that states are inadequately prepared for the implications of declining birth rates and aging populations: “Absent actions now to address this demographic tidal wave, state and local leaders will need to brace themselves to address poverty rates for senior citizens not seen since the Great Depression.”
• Gaps in wealth hit families with children the hardest, a recent paper reported on in the New York Times The authors conclude that U.S. public policy priorities need a fundamental rethinking to improve the lives of the next generation of kids.
• The North Carolina Budget and Tax Center recently released work on both Governor Cooper’s tax policy proposal to freeze corporate income tax rate cuts and stop personal income tax rate cuts on high-income earners and on the impact of corporate tax cuts in the Tar Heel State.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Meg Wiehe at [email protected]. Click here to sign up to receive the Rundown via email.

---

---