State Rundown 7/1: Happy New Year?

As ITEP analyst Kamolika Das wrote today, July 1 is typically the beginning of state fiscal years and “a point when one can take a step back and reflect on the wins and disappointments of the past state legislative sessions.” Not so in 2020, she writes, as uncertainty surrounding the virus, state revenues, and potential federal action give state lawmakers no such time to relax and reflect. Although most recent state actions, such as those covered below in California, Mississippi, and West Virginia, have focused on funding cuts and temporary measures to bring budgets into short-term balance, the need for revenue solutions to the revenue crisis “has become increasingly clear.” Read more about the types of options lawmakers can turn to for immediate relief and long-term reform in Kamolika’s blog post and catch up on other related tax activity in the states below!

Major State Tax Proposals and Developments

• For the first time, CALIFORNIA lawmakers have included workers with Individual Tax Identification Numbers (ITINs) who have children under age 6 in the state’s Earned Income Tax Credit (EITC) and Young Child Tax Credit, extending these poverty-fighting credits to noncitizen immigrant families who have been largely left out of federal payments and unemployment benefits. This came as a bright spot in the state’s now-final budget deal, which addresses its $54 billion revenue shortfall through a combination of emergency Rainy Day Fund withdrawals, funding cuts to areas such as public employee pay and higher education, temporary business tax increases, and delayed payments to schools. – DYLAN GRUNDMAN
• The U.S. Supreme Court upheld MONTANA‘s state tax credit for taxpayers who donate to organizations that provide scholarship funds for students who go to private schools, including religious schools. – MARCO GUZMAN
• WEST VIRGINIA Gov. Jim Justice issued executive orders late Tuesday afternoon to close the state’s $255 million budget shortfall. The executive orders allowed him to use $186 million in unspent Dept. of Health and Human Resources appropriations, $150 million in unappropriated Medicaid funds, and a loan from the state rainy day fund to cover the gap. – KAMOLIKA DAS

State Roundup

• A bipartisan group of lawmakers in the COLORADO House of Representatives penned a letter to Congress urging lawmakers to preserve tax breaks for wine, craft beer, and liquor.
• Also, a proposal from the COLORADO Oil and Gas Conservation Commission would increase the mill levy on companies from 1.1 mills to 1.7 mills to maintain the budget at current levels in the face of shortfalls brought on by the coronavirus pandemic.
• DELAWARE lawmakers enacted a state budget on time for the first time in several years, agreeing to a compromise that does not include all of Gov. John Carney’s proposals but represents an overall 2.1 percent increase in funding with no major cuts or tax changes.
• FLORIDA Gov. Ron DeSantis announced over $1 billion in vetoes to the state budget. The budget retained $543 million in refunds to large corporations and $117 million for controversial toll road projects.
• IDAHO is projecting that it will see a $575 million reduction in state revenues in fiscal year 2021–which began July 1.
• KENTUCKY’s Gov. Andy Beshear announced that, without additional federal funding, the state will face a $1.1 billion revenue shortfall, which could lead to cuts of 16 to 29 percent.
• LOUISIANA lawmakers approved a $34 billion spending plan an hour before the end of the special session. The budget includes $230 million in business tax cuts over the next five years. It does not include nearly $60 million in planned pay raises for state workers.
• MARYLAND State Comptroller Peter Franchot plans to reject Gov. Larry Hogan’s proposal to eliminate state employees’ cost-of-living wage increases and reductions in state contributions to workers’ health insurance and retirement plans.
• A MICHIGAN bill that would allow taxpayers to defer summer 2020 property taxes to March 1, 2021, has been sent to the governor.
• MISSISSIPPI Gov. Tate Reeves signed the Mississippi Hemp Cultivation Act, which authorizes the cultivation, processing and transportation of hemp for excise tax purposes.
• On a separate note, MISSISSIPPI lawmakers cut its K-12 public education budget by 2.7 percent; this cut includes eliminating a promised pay raise for teachers.
• NEBRASKA lawmakers plan to dive right back into property tax and school funding debates when they return on July 20.
• NEVADA’s gambling taxes raised only $56,000 in May, less than one percent of the prior year’s haul, due to casino closures and the pandemic, indicating the scale of the problems facing the state’s heavily tourism- and consumption-reliant revenue system.
• NEW MEXICO Gov. Michelle Lujan Grisham signed a coronavirus relief bill that waives certain interest and penalties for individuals and corporations and conforms to net operating loss deduction changes made by the CARES Act.
• The TEXAS Workforce Commission postponed reinstating a work-search requirement for Texans receiving unemployment benefits.
• New tax increases passed by the VIRGINIA General Assembly will take effect today, including an initial statewide 5 cent per gallon gas increase, a 30 cent per cigarette pack increase, and a monthly $1,200 tax per machine for distributors of slot-machine-like “skill games.”

What We’re Reading

• ProPublica explains how NORTH CAROLINA’s unemployment system has slowly collapsed over time.
• Governing lays out the “grim budget picture” facing states and cities as the new fiscal year begins in most states.
• The National Governors Association is one of more than 170 organizations and businesses to have signed a letter explaining the fiscal threat faced by state and local governments and urging Congress to enact much more relief. For further context, the Center on Budget and Policy Priorities explains how harmful state-level funding cuts could be without the aid, while also explaining why states have not spent all the funds distributed so far.
• The Washington Post reports on where state and local leaders are looking for revenue to get through the crisis, and Stateline elaborates on the limited role of “sin taxes” in these efforts.

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.

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