State Rundown 7/8: Many State Legislatures Reconvene for Special or Resumed Sessions

Local leaders in the District of Columbia and Seattle, Washington, approved progressive tax changes to raise needed funding this week for priorities such as coronavirus relief, affordable housing, and mental health. Arizona advocates submitted signatures to place a high-income surcharge on the ballot for November. And as a number of states made decisions on how to use federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funds, North Carolina decoupled from costly business tax cuts contained in the act and Nebraska started discussing doing the same.

Major State Tax Proposals and Developments

• The DISTRICT OF COLUMBIA (DC) Council voted on a number of amendments to the proposed FY21 budget yesterday. In an 8-5 vote, the Council rejected modest personal income tax increases on households earning $250,000 and over. On the plus side, the Council lowered the estate tax threshold from $5.6 million to $4 million, delayed a tax break for corporations, and ended an ineffective tax break for technology companies. The funds were reallocated to affordable housing, assistance for undocumented workers, and student mental health programs. The Council also increased the gas tax by 10 cents per gallon and adopted a 3 percent tax on advertising sales. These changes must go through a second budget vote on July 21st before the Council submits the budget to Mayor Muriel Bowser. – KAMOLIKA DAS
• The Seattle, WASHINGTON, City Council has approved a new tax on large corporations with very highly paid employees, specifically those with payrolls of more than $7 million and employees paid more than $150,000. The tax will raise an estimated $200 million per year for coronavirus relief, affordable housing, and other needs. – DYLAN GRUNDMAN

State Roundup

• Leaders of ARIZONA‘s Invest in Ed initiative have submitted signatures in hopes of making it onto the November ballot. The initiative would impose a 3.5 percent surcharge on wealthy taxpayers and the revenue would be used to help fund K-12 education.
• ARKANSAS Gov. Asa Hutchinson announced that better-than-expected tax revenue will allow him to authorize a 2.2% merit pay increase for state employees. On a separate note, this November, voters will vote on a ballot initiative that would issue casino gaming licenses in several counties and allow sports betting.
• San Francisco, CALIFORNIA, leaders are urging state lawmakers to tax millionaires, specifically through a tax on home sales valued over $10 million, to raise short-term funds for pandemic costs and also improve the tax code in the longer run.
• HAWAII Gov. David Ige warned that the state workforce will suffer pay cuts or furloughs if additional federal aid does not come through.
• IDAHO Gov. Brad Little announced that he will be cutting $200 million from the budget as the state faces declining tax revenue.
• IOWA Gov. Kim Reynolds is directing $490 million of federal CARES Act funds (about 40 percent of the state’s total) to shore up the state’s unemployment fund.
• Unemployment compensation in MICHIGAN has fallen below $2.5 billion, which will trigger a tax increase that raises the cap on employer unemployment contributions from $9,000 to $9,500 in the next calendar year.
• MISSISSIPPI Gov. Tate Reeves signed legislation to extend and expand tax credits including a 25% credit for historic restoration extended through 2030. LOUISIANA also extended a 20% tax credit for historic restoration through 2026.
• Ahead of NEBRASKA’s legislative session reconvening next week, advocates are encouraging lawmakers to de-couple from federal CARES Act business tax cuts that would cost the state $230 million of needed funding over three years.
• Signatures have been submitted to put three measures on the November ballot to expand gambling in NEBRASKA.
• NEVADA Gov. Steve Sisolak has proposed to address about half of the state’s $1.2 billion revenue shortfall for the new fiscal year through funding cuts, with most of the other half coming from transfers between funds and timing shifts. Gov. Sisolak is open to “stopgap” revenue increases as well, but no substantive discussion of plans to overhaul the state’s inadequate and upside-down tax system is anticipated during the special session that began today.
• NEW HAMPSHIRE state revenues for FY20 are projected to be $142.5 million below the initial revenue plan, or 6 percent of the total general and education fund. If the shortfall ends up being $157.6 million or higher, the shortfall will trigger an increase in business taxes.
• In other NEW HAMPSHIRE news, the Hospital Association stated that hospitals have lost more than $530 million in revenue since March, and that they need additional state funds to cover the shortfall. Gov. Chris Sununu announced that $25 million in CARES Act funding will be allocated to eight hospitals.
• With Gov. Roy Cooper’s signature, NORTH CAROLINA has officially opted out of costly business tax cuts included in the federal CARES Act.
• OHIO Gov. Mike DeWine anticipates using all of the state’s $2.7 billion Rainy Day Fund for pandemic-related needs.
• A surge of coronavirus infections in TEXAS has forced state leaders to reclose businesses, which led to a $650 million drop in tax revenue last month.

What We’re Reading

• The Center on Budget and Policy Priorities’ (CBPP) latest estimates project a $555 billion total pandemic-induced state revenue shortfall through fiscal year 2022. Marketscreener explores the damaging spending cuts that could result, while Governing looks into the impact on public employee retirement plans.
• CBPP also explains that proposals to expand state borrowing authority are not as effective as direct federal aid, and that such federal aid is key to advancing racial equity.
• Jeffrey D. Sachs writes in Project Syndicate that the pandemic has been worsened by high levels of inequality. And former National Governors Association Executive Director Raymond Scheppach writes for Governing that states have an opportunity now to take action to rein in that inequality.
• Pew’s State Fiscal Health initiative explains three steps for states to help local entities like cities and counties improve their fiscal health.

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