State Rundown 11/16: Election Results Clarify Agendas as Real Work Begins

State policymakers, voters, and observers have been reflecting on this year’s campaigns and looking ahead to how the policy opportunities in their states have shifted as a result. For example, Arkansas’s governor sees a fresh chance to slash income taxes on the state’s wealthiest residents, while the governor-elect of Illinois will be doing just the opposite, launching into a promised effort to shore up the state’s budget by asking the wealthy to pay more. New York and Virginia residents may end up with buyers’ remorse after Amazon accepted their combined $2 billion tax subsidy offers for its HQ2 project. And even more states are considering legalizing medical and recreational cannabis as the early-adopting states continue to see handsome revenue returns. The Rundown will be taking next week off but we’ll be back in a couple of weeks to keep you posted on these and more state fiscal developments!

— MEG WIEHE, ITEP Deputy Director, @megwiehe

Major State Tax Developments and Proposals

• Now that Amazon has finally announced its decision to split its HQ2 facility between VIRGINIA and NEW YORK, lawmakers and observers are reviewing the bidding war the company incited between possible locations, including the more than $2 billion in tax subsidies those two states agreed to as well as other locations’ competing offers that ultimately lost out. Those concerned about service provision, housing affordability, and sound tax policy in the “winning” states have their doubts about whether they will get a good return on their investment.
• ARKANSAS Gov. Asa Hutchinson outlined his budget priorities for the coming legislative session earlier this week, which includes a substantial tax cut for the highest-income earners by consolidating existing tax tables and lowering the top marginal rate from 6.5% to 5.9%.
• ILLINOIS will welcome a new governor in the new year, but Governor-Elect J.B. Pritzker will likely have a short honeymoon period given the state’s difficult fiscal position. Despite the tough terrain ahead, House Speaker Madigan’s public support for Pritzker’s stated tax priorities – including adopting a graduated income tax and taxing recreational cannabis and – signal a welcome path forward.

State Roundup

• Communities across ALASKA are considering an online sales tax. Given the state’s extreme revenue volatility—tied to the price of oil and gas—and a firm commitment from Governor-Elect Mike Dunleavy to avoid diversifying the state’s tax base, it’s probably a good call for localities to take matters into their own hands.
• In CALIFORNIA, proponents of investing in public priorities won big at the ballot. About three-fourths of almost 400 local tax measures were approved by voters. This includes sales tax increases in 11 cities in Los Angeles County and three new taxes on large tech firms.
• Similarly, voters in MINNESOTA “resoundingly” approved tax increases to raise school funding across the state.
• Incoming MINNESOTA Gov. Tim Walz is still piecing together his priorities for the coming year, but among them is addressing the state’s gas tax to improve infrastructure investments.
• Remember how costly the failed Brownback tax experiment was in KANSAS? It turns out that those costs were underestimated, which means the recent repeals will provide a bigger than expected boost to the state’s bottom line.

• Another month, another record for recreational cannabis sales and taxes in NEVADA. Meanwhile, in CALIFORNIA, while tax revenues from cannabis sales are growing, overall numbers are still falling below expectations.
• VERMONT’s subcommittee on taxation and regulation will be recommending to the full committee in December that the state adopt a 26 or 27 percent tax rate on cannabis sales. This includes a 20 percent cannabis retail excise tax, the state’s current 6 percent state sales tax, and the option for a 1 percent local option sales tax.
• A cannabis legalization report was recently released in NEW HAMPSHIRE by the state’s commission studying the issue. The report lays out a potential blueprint for legislation and taxing authority.
• After a bipartisan effort to pass a needed gas tax update failed on the MISSOURI ballot last week, lawmakers and residents are “scrambling” and “dumbfounded” as they look for other ways to raise the money needed to repair and maintain the state’s transportation infrastructure.
• NEW JERSEY sports betting revenues are coming in in line with projections so far, raising about $4 million since June.
• COLORADO’s Gov. John Hickenlooper is calling on state agencies and lawmakers to tax e-cigarettes to discourage young people from consuming them.
• In NEW MEXICO, the state is trying to make it easier for taxpayers who owe back taxes to get right with the law, and localities are suing the state for withholding gross receipts tax dollars from local governments.
• TEXAS lawmakers are looking ahead to the new year with hundreds of bills already filed for the legislative session which starts January 8. Top tax issues include cannabis and paid sick leave, with the largest issue being yet again property taxes and school finance. On a related noted, schools districts in the state like Austin are facing budget deficits and looking to program cuts to close the gap.
• WISCONSIN lawmakers don’t have enough support yet to pass a $100 million tax incentive bill for the Kimberly-Clark paper products corporation. The company claims it needs the tax incentives to keep open a plant in the state that employs 400 workers. Meanwhile, voters in 23 localities voted to close the “dark store loophole” that allows large retailers to shift their property taxes onto residential owners; despite this overwhelming support on these advisory questions, it’s unclear if any legislative or regulatory action will follow.

What We’re Reading

• There is a lot of good reading available about the fallout of last week’s elections and what to expect going forward: The Economic Policy Institute observes that minimum wage increases just passed in ARKANSAS and MISSOURI will raise pay for 1 million workers. Governing and Stateline note the strong success of ballot measures to reform campaign finance, ethics, and redistricting policies. And Route Fifty summarizes some of the less publicized decisions voters made last week. Looking ahead to 2019 legislative sessions, Governing looks at how health policy may be affected in multiple states, and Route Fifty’s legislative preview foresees school funding, cannabis legalization, and pension funding debates, among others.
• Inequality.org cites data from the Center for Responsive Politics showing that campaign donations of $10,000 or more were made by only 0.001 percent of American adults, but made up nearly 40 percent of all dollars contributed in the recent election season.
• In LOUISIANA, the Advocate’s editorial board uses ITEP’s Who Pays? report to weigh in on the harm done to the state due to its regressive tax system.
• A new report from the OREGON Center for Public Policy shows that the state should close a $376 million loophole by clamping down on offshore corporate tax avoidance.
• The DISTRICT OF COLUMBIA Fiscal Policy Institute makes the case for using new revenue from online sales tax to benefit residents rather than slash taxes for businesses.

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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