State Rundown 7/11: Some Legislatures Get Long Holiday Weekends, Others Work Overtime

Illinois and New Jersey made national news earlier this month after resolving their contentious budget stalemates. But they weren’t the only states working through (and in some cases after) the holiday weekend to resolve budget issues. Most states operate on fiscal years that end June 30, but this year many missed that deadline to pass balanced budgets. Some have since wrapped up their budget and tax negotiations, but others are still working. It’s widely known that Illinois lawmakers ended a two-year impasse by overriding a gubernatorial veto to enact the state’s first budget in two years, and that New Jersey (as well as Maine) services were partially shut down over the holiday weekend as those states missed their deadlines, but have since been restored. Delaware‘s negotiations went into overtime but concluded a few days later with a mixed bag including minor tax increases and smaller funding cuts than some feared. Meanwhile, legislators in Alaska, Connecticut, Pennsylvania, Rhode Island, and Wisconsin continue to negotiate.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

 

Some States Passed Budgets Close to July 1 Deadline…

• Illinois lawmakers ended a two-year budget stalemate this past week as they garnered the bipartisan supermajority support required in both chambers to override the governor’s veto on a spending plan and tax reforms. Tax changes include permanent increases to the personal income tax rate from 3.75 to 4.95 percent and the corporate income tax rate from 5.25 to 7 percent, eliminating loopholes for offshore drilling and domestic activities production, restoring the state’s research and development tax credit, and increasing the state’s EITC from 10 to 18 percent of the federal. While the state still has a long way to go toward achieving financial health, these tax reforms are a significant and necessary first step.
• As the result of a budget stalemate, Mainers kicked of their fiscal year in a partial shutdown. However, last week Gov. Paul LePage signed a $7.1 billion deal to reopen the government. The state’s budget agreement eliminated a voter-approved surtax on high earners in exchange for a $162 million increase in school funding.
• New Jersey public services are back online after being shut down for the first few days of July due to a budget negotiation impasse centered on health insurance changes.
• After missing the state’s June 30 budget deadline for the first time since 1977, Delaware lawmakers finally agreed to a balanced budget last Monday. An income tax component that would have raised significant revenue and made the tax code more progressive failed by one vote, but lawmakers enacted a host of other changes. The 3 percent real estate transfer tax will increase to 4 percent. The measures increased tobacco and alcohol taxes, and restored funding for grants-in-aid to nonprofits after having been removed from the budget entirely.
• Late last week Massachusetts lawmakers approved a $40.2 billion state budget that relies heavily on spending cuts. Until then, a temporary budget kept the state operating past its fiscal year deadline as a newly announced revenue shortfall complicated budget negotiations. The budget now moves to Gov. Charlie Baker.
• Following budget vetoes (by Gov. John Kasich) and overrides (by the Legislature), Ohio has come to a budget agreement, pending the state Senate’s sign off. The most contentious of the governor’s vetoes was to not allow a freeze on Medicaid expansion. The legislature ultimately declined to override that particular veto. Among other things, the budget bill eliminated two of the state’s bottom personal income tax brackets and extended the sales tax holiday for an additional year.
• Policymakers averted a shutdown in Washington state by passing and getting gubernatorial sign off on a two-year budget that included property tax increases to provide more funding for public education (though probably not enough to satisfy court requirements for adequacy). Also included in bills passed at the final hour—a significant reduction in the Business & Occupation tax rates paid by manufacturers.

 

While Budget Fights Drag On in Some States…

• After agreeing upon an annual operating budget, Alaska lawmakers return to continue their work to find a compromise fiscal plan before their special session ends on July 15. The state’s spending plan, signed by Gov. Bill Walker, reduced the Permanent Fund Dividend (PDF) to $1,100 and relied heavily on savings from the Constitutional Budget Reserve.
• Without a budget in place, Connecticut remains at least a week away from any type of agreement. On July 18, lawmakers will come back for a vote. In the meantime, Gov. Dannel Malloy has signed an executive order to allow the state to operate without a budget.
• Pennsylvania budget discussions continue, but there seems to be an end in sight. Gov. Tom Wolf allowed the $32 billion spending plan to become law without his signature. However, options to pay for parts of that plan are still being explored and seem to hinge upon gambling legislation and possibly some sales tax base expansion.
• Post-deadline, Rhode Island’s budget remains in limbo as legislative leaders disagree over changes to the state’s car tax. In the meantime, a contingency plan is being developed for state operations in the absence of a budget.

 

And Other Matters Make Headlines in Still More States…

• California Brown signed the state’s $183 billion state budget July 2, including an expansion of the state’s EITC to include self-employment income and families with minimum wage-level incomes. The California Budget & Policy Center provides an overview of the 2017-2018 enacted budget, highlighting improvements and lingering uncertainty pending federal policy changes.
• Iowa‘s revenue picture has worsened yet again, with final numbers for FY 2017 increasing the shortfall another $104 million to about $350 million total. The shortfall will likely force the legislature into a special session before all the books are closed at the end of September.
• A proposal to tax incomes over $250,000 ($500,000 if married) in Seattle passed the City Council yesterday. The measure marks a strong interest in diminishing the regressivity of Washington’s state and local taxes and paves the way for legal challenges that will establish cities rights to expand their tax bases to include income.
• South Carolina‘s new “unnecessarily complicated” law that raises the gas tax and creates a complicated credit that requires drivers to track all their gas and maintenance expenses every year for an average of $10 per vehicle is explained in greater depth here.
• Missouri Eric Greitens created a tax study committee in January with a deadline to submit recommendations on improving the state’s tax code by the end of June. But after a draft report included a broad set of recommendations – such as taxing internet sales, raising the gas tax for infrastructure improvements, modernizing income tax brackets, creating a working family tax credit, repealing the state’s regressive and costly deduction for federal income taxes, and avoiding the tax-cutting fate of neighboring Kansas, among others – meetings were quickly held and most of those recommendations were cut out entirely. The final report was whittled down to a few suggestions about reforming business tax credits.
• The same week, it was announced that Missouri‘s misguided tax cuts enacted in 2014 will be triggered, reducing the top income tax rate from 6 percent to 5.9 percent for 2018.
• Hawaii‘s Gov. David Ige signed HB 209 into law this week, formally enacting a 20 percent nonrefundable state-level EITC in the Aloha state. The Tax Fairness package also reinstated high-income tax brackets that had been repealed in 2015.

 

What We’re Reading…

• The Washington Post reports that major budget troubles are a common theme in many states this year, not just the ones making the major headlines.
• A special report on “scholarship tax programs” that are unfortunately multiplying among the states despite high costs and dubious effects features ITEP’s Carl Davis sharing information on how in several states, wealthy families can profit from the credits at the expense of public schools and other priorities.
• Pew has released helpful new data on state tax revenue volatility, pointing out steps states can take to mitigate and prepare for inevitable ebbs and flows in state revenue.
• In the wake of the Kansas tax-cutting debacle, a former lawmaker writes in the Grand Forks Herald about the “misplaced faith that low taxes create a business-friendly climate” and the need to re-think what it means to have a healthy business climate.
• A new report from the Wisconsin Budget Project using ITEP data shows that tax cuts enacted since 2011 have disproportionately benefited the wealthy.
• Bloomberg BNA reviews its own recent reporting on the “dark store” strategy some big-box chains have been using to dramatically decrease their property tax contributions to local schools and other services.

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