Just Taxes Blog by ITEP

State Rundown 6/26: States Take Varying Fiscal Approaches While Awaiting Federal Action

June 26, 2020

.ITEP Staff

State policymakers this week took a variety of approaches to their fiscal situations amid the COVID-19 pandemic. Tennessee lawmakers chose to balance their budget through $1.5 billion in cuts to public services, but not before adding to those cuts by going forward with planned tax cuts. California legislators also passed a budget but relied on a number of temporary measures and delays to do so. Their counterparts in Massachusetts, New Jersey, and Rhode Island opted for interim budgets to tide them over for a few months while they continue to look for lasting solutions. Meanwhile, many states are debating whether to couple to tax cuts in the federal response bills and how to use the aid approved so far, while making the case to Congress that major additional aid is needed.

Major State Tax Proposals and Developments

  • IDAHO Gov. Brad Little and Secretary of State Lawerence Denny will appeal a federal judge’s decision to allow supporters of a $170 million education funding initiative — which increases corporate and personal income tax rates — the chance to get their measure on the November ballot. – MARCO GUZMAN
  • TENNESSEE lawmakers passed a FY20-21 budget that cuts $1.5 billion over two years, finalizes the elimination of the Hall Income Tax, allocates $210 million in grants for cities and counties, and forgoes any tax increases. – KAMOLIKA DAS

State Roundup

  • Given the state’s bleak fiscal outlook—with May revenue figures coming in lower than April’s—ALASKA lawmakers are not confident funds will be available to pay a Permanent Fund dividend to Alaskans in 2021. However, pumping the dividend into the state’s economy could be more important than ever given the potential for a slow and uneven economic recovery.
  • CALIFORNIA lawmakers and Gov. Gavin Newsom agreed to a package of funding reductions, pay cuts, delayed school payments, and temporary tax increases to address the state’s $54 billion shortfall, which will allow them to avoid permanent cuts to education and health care for now, but without significant federal aid will not be enough to stave off even more difficult decisions down the road.
  • FLORIDA Gov. Ron DeSantis stated that he will hold off on approving a state budget in the hopes of another federal stimulus package, but to expect drastic cuts. Healthcare advocates have expressed concern that health and human services funding totaling $100 million may not make it into the final budget.
  • GEORGIA has received over $4 billion in federal CARES Act funding but has not yet disbursed any funds to cities and counties. The state’s largest counties received their shares directly from the federal government, but smaller local governments are concerned about receiving the funds before the start of the new fiscal year.
  • On a separate note, GEORGIA lawmakers voted to regulate and tax vaping products in the same way as tobacco but declined to increase cigarette taxes. The current tax for a pack of cigarettes is $0.37, the third-lowest in the nation.
  • Lawmakers in HAWAII reconvened this week to determine how to allocate federal coronavirus relief funds and to discuss options for closing the state’s revenue shortfall. Their session is expected to last until July 10th, at which point they will adjourn for the year.
  • KANSAS expects to see a $653 million budget shortfall in FY 2021. The state government will disburse federal CARES Act funds in three phases from June to October. Counties must use the funds by the end of the year for coronavirus-related expenses.
  • The LOUISIANA Senate Tax Committee extended a $75 million tax credit for investors who restore historic buildings. The Committee also narrowed down the scope and cost of several remaining House-approved tax break bills. Some legislators oppose the scaled-down bills since they would force spending cuts for public services. At the same time, the House approved an $11.2 million tax break to support the casino industry and advanced a fantasy sports tax bill.
  • As they await clarity on the scope of revenue losses and the possibility of additional federal funds, lawmakers in MASSACHUSETTS are working to finalize an interim budget  — now passed by the House and on to the Senate. Tough decisions remain. Lawmakers are revisiting previously proposed tax policies, including a gas tax increase and the elimination of existing tax breaks, and some are exploring a one-time surtax on corporate profits.
  • Despite uncertainty and a multi-billion revenue shortfall, MASSACHUSETTS Gov. Charlie Baker and his administration announced the dates of this summer’s annual sales tax-free weekend. The state has also announced additional tax relief for businesses impacted by COVID19.
  • MICHIGAN‘s Republican-controlled Senate approved a six-bill package that would impose an 18 percent tax on liquid e-cigarette solution and raise the age to legally buy cigarettes and vaping products from 18 to 21 years old.
  • NEVADA will hold a special legislative session in early July to start addressing its $1.3 billion projected shortfall for the fiscal year that begins then.
  • The NEW HAMPSHIRE Senate approved a slew of bills last week including a proposal to grant local governments greater flexibility in spending CARES Act funds. Another bill directs some CARES Act funds towards long-term care and childcare scholarships.
  • A $7.7 billion three-month budget is making its way through the NEW JERSEY legislature to hold the state over until October, focusing for now on funding cuts and delayed payments.
  • The NEW MEXICO Legislature sent the governor a $7 billion coronavirus relief bill that includes a measure that would temporarily waive penalties associated with personal, corporate, and gross receipts taxes and send revenues from online sales taxes to municipalities.
  • In response to the state’s multi-billion revenue shortfall, NEW YORK lawmakers continue to explore options to raise taxes on the wealthy. A recent poll found that New Yorkers overwhelmingly favor taxing the rich over cutting public services.
  • NORTH CAROLINA House members voted to decouple from a handful of federal CARES Act provisions that would have resulted in revenue loss, including the provision that would limit deductions for business interest payments. The Senate will now consider the bill.
  • While overall total sales tax revenue was down 35 percent in April, NORTH DAKOTA saw a 500 percent increase in online sales tax revenue as taxpayers shopped from home due to the coronavirus pandemic.
  • The OKLAHOMA Supreme Court ruled that an initiative to legalize marijuana and impose a 15 percent tax on sales could continue to the signature-gathering stage.
  • Some lawmakers in PENNSYLVANIA are pushing for sweeping gambling legislation that would allow slot machine-like devices in businesses across the state.
  • Last week, the RHODE ISLAND legislature passed a supplemental budget that includes no cuts or tax increases. Lawmakers are expected to reconvene late this summer to address the nearly $600 million revenue shortfall the state faces for the coming fiscal year. Legislation was also passed to comply with the Streamlined Sales and Use Tax Agreement; it expands the state’s tax base to include computer software and streaming entertainment
  • The TENNESSEE General Assembly passed a new sales tax holiday for restaurants and made the existing “back to school” sales tax holiday more generous by doubling the price limits on eligible items. In more local news, the Nashville Metro Council approved a controversial 34% property tax increase that community groups are already petitioning.
  • This week, the VERMONT legislature plans to approve a first quarter budget for the state’s fiscal year that begins July 1. Lawmakers then anticipate a return to the capitol in August.
  • WEST VIRGINIA Gov. Jim Justice claimed that the state does not need to hold a special session to address an anticipated $300 million budget hole. The governor created a committee to discuss revenues prior to the new fiscal year.
  • A new report out of WISCONSIN has found that the state is unable to use online sales tax collections to help recover from the budget crisis brought on by the coronavirus because of a 2013 law signed by then-governor, Scott Walker, that requires that those revenues go to income tax relief.

What We’re Reading

  • Regarding the fiscal fallout from the COVID-19 pandemic, the Center on Budget and Policy Priorities provides updated numbers on the revenue shortfalls facing states, explains why states should use their Rainy Day Funds now, and makes the case for federal fiscal relief. The Economist describes the situation as a “state-budget train crash.” And Route Fifty reports on how local governments are handling their pandemic-induced budget issues and how public employees’ finances are affected.
  • Stateline points out how property taxes unfairly affect Black homeowners.
  • Paul Constant argues in Business Insider that state and local funding cuts cause disproportionate harm to families of color and may worsen the depth and length of the recession.
  • The MONTANA Budget & Policy Center published a report highlighting the need for state investment in Indian Country and recommend that lawmakers give tribal nations the authority the assess certain taxes.
  • The New York Times reports on the positive impact of federal aid on poverty rates.
  • ProPublica highlights how wealthy timber corporations have successfully lobbied for generous tax cuts, benefiting Wall Street investment funds while harming rural communities.

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