State Rundown 6/28: States Scramble to Finish Budgets Before July Deadlines

This week, several states attempt to wrap up their budget debates before new fiscal years (and holiday vacations) begin in July. Lawmakers reached at least short-term agreement on budgets in Alaska, New Hampshire, Rhode Island, and Vermont, but such resolution remains elusive in Connecticut, Delaware, Illinois, Maine, Pennsylvania, Washington, and Wisconsin.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

Budget Debates Continue in Several States…

• Delaware lawmakers continue to grapple with the state’s $350 million revenue shortfall, seeking a balance of funding cuts and tax increases to fill the gap. But they may not reach agreement before the deadline hits this Friday, which would lead the state into the new fiscal year without a budget for the first time in decades. Neither of two bills to raise income taxes — one centered on raising rates slightly across the board, creating a new bracket for people with incomes above $150,000, and repealing itemized deductions, and an alternative proposal that would reduce some rates, add two new brackets placing higher rates on higher incomes , and phase down the value of itemized deductions rather than eliminate them — has found enough support so far. Meanwhile, a corporate tax increase and estate tax repeal currently await Gov. John Carney’s signature, while increases on alcohol and tobacco taxes are being debated in the legislature as well.
• Maine lawmakers are continuing to seek the compromise needed to enact a budget bill with a 2/3 vote (to avoid a veto from Governor Paul LePage) before June 30^th, otherwise the state will go into government shutdown. Public education spending and specifically the voter-approved 3 percent surcharge on upper-income taxpayers remain at the center of the debate between House and Senate members.
• Despite a looming budget deadline and a $3b deficit, Pennsylvania lawmakers do not seem all that much closer to a budget agreement. The issues driving the debate in Harrisburg revolve around gambling expansion and revenue from tobacco company settlements.
• Connecticut‘s budget remains in gridlock. Gov. Dannel Malloy recently proposed $300m in new revenue as a temporary fix to alleviate some of the painful cuts that could be imposed as a result of no budget agreement. The recommendations include a tax amnesty program, caps on various business tax credits, an increase in a range of license and permit fees and fines, the sweeping of one-time funds and off-budget accounts, and reductions in personal income tax credits.
• Days away from the start of the new fiscal year, policymakers in Wisconsin and Washington state are still working on reaching budget deals. Having gone almost a full two years without a state budget, a new set of negotiations has been underway in Illinois, with Gov. Rauner calling for support of a package that would temporarily increase income taxes while freezing property tax rates and House Speaker Mike Madigan making his own list of demands including a new school finance formula and worker’s compensation rates.
• The Rhode Island House approved a $9.2b budget that includes cuts to the state’s car tax and an approved pilot program that would provide free community college tuition. The Senate takes up the bill this week.

As Several Others Reach Budget Agreements Just in Time…

• North Carolina’s new two-year budget, complete with another round of tax cuts, officially became law today after both Chambers voted to override Governor Roy Cooper’s veto of the plan. The governor did not support the legislature’s budget because it underinvested in public education and included close to $1 billion in corporate and personal income taxes that are phased-in meaning the consequences of those new cuts were not fully laid to bare in the spending plan.  And, these new tax cuts will bring the net total of tax cutting since 2013 up to a whopping $3.5 billion in foregone revenue.  An ITEP analysis also found that 80 percent of the net tax cuts now enacted since 2013 have gone to the top 20 percent of the state’s taxpayers.
• Alaska lawmakers, in their second special session, passed a nearly $9b operating budget. The agreed upon 1-year spending plan does not close the state’s multi-billion-dollar gap, or provide a revenue solution, but rather draws $2.4b from the state’s Constitutional Budget Reserve and sets the Permanent Fund Dividend (PDF) at $1,100. Gov. Bill Walker is encouraging lawmakers to tackle the state’s oil and gas credit system.
• Vermont legislators, also in special session, came to a compromise budget agreement. The state’s initial budget was vetoed by Gov. Phil Scott because it did not include his proposal to change how teacher health care contracts are negotiated.
• The New Hampshire Senate and House passed an $11.7b budget along mostly party line votes. The bill, which awaits Gov. Chris Sununu’s signature, phases in a range of business tax cuts and eliminates the electricity consumption tax.
• Kansas wrapped up a historic legislative session on Monday during which lawmakers reversed course on several of Brownback ‘s key tax policies and enacted a new school finance formula. The Kansas Supreme Court will have a hearing on the new funding formula in mid-July, at which point it will be clearer if lawmakers may be called back for a special session.

And Others Focus on Other Tax Policy Issues…

• New Jersey lawmakers have introduced a “Trumpcare Nullification Act” to counter potential regressive federal tax cuts and raise revenue to restore the concomitant funding cuts.
• Following a great deal of skepticism around Gov. Matt Bevin’s tax reform agenda, Kentucky lawmakers remain hesitant. While the governor’s plan remains vague, he’s expressed interest in raising revenue through economic growth and the elimination of tax breaks.
• Work to majorly reform Oregon’s corporate income tax this year failed to reach needed consensus, postponing future efforts into 2019. With the corporate reform measure no longer on the table, a transportation funding package may pick up some steam.
• Missouri policy makers are looking at paring back the state’s business tax credit programs to free up revenue for other purposes, but an audit of the programs found $3 billion of credits that have been awarded but not yet cashed in, so any revenue help from repealing the credits would take years to materialize as businesses continue to use the credits they’ve already earned.
• A last-ditch effort to save Mississippi from devastating tax cuts passed last year failed in the closing days of the session after the amendment was not found to be germane to the bill it amended. The harmful tax cuts will begin taking effect as scheduled.
• A South Dakota lawmaker is getting an early start on pushing for a tobacco tax increase in 2018 to generate funding for higher education.
• Lawmakers in Wisconsin have introduced a pair of bills to counter the increasingly popular “dark store” strategy that big-box businesses use to drastically reduce their property taxes.

What We’re Reading…

• The Boston Globe looks at studies on taxes and out migration and concludes that the proposed millionaires tax in Massachusetts would cause more complaints than relocations.
• Pew’s Stateline delves into the challenges states are facing trying to expand sales taxes to services, highlighting experiences in Oklahoma, West Virginia, and North Carolina.
• org features a proposed federal tax credit for state tax payments as a way to correct for the regressivity of state and local tax systems.
• The American Prospect contributes its own set of “lessons learned” from the failed Kansas tax experiment, calling for leaders of the federal tax debate to learn from this cautionary tale.
• Governing reports on states attempting to build up reserve funds to prepare for the next recession, federal funding cuts, federal tax reform, or all three.

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