State Rundown 6/21: Crunch Time for Many States with New Fiscal Year on Horizon

This week several states rush to finalize their budget and tax debates before the start of most state fiscal years on July 1. West Virginia lawmakers considered tax increases as part of a balanced approach to closing the state’s budget gap but took a funding-cuts-only approach in the end. Delaware legislators face a similar choice, with both good and bad tax and budget policies still on the table. North Carolina policymakers ultimately worsened their state’s budget outlook (though kicked the can down the road) with another round of tax cuts. And Alaska’s budget debate will drag on into a second special session to avoid a government shutdown.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

• West Virginia‘s tumultuous session is nearing its end. The House and Senate agreed on a $4.23 billion budget last week that includes deep cuts but no tax changes (although, a separate transportation plan includes increased revenue). Gov. Jim Justice announced this morning that he will not sign the budget but will allow it to go into effect. The Mountain State’s income tax remains intact after months of debate focused on eliminating or reducing reliance on the tax.
• North Carolina legislators settled on a budget that will slash state revenues by $530 million in the next two years, but will amount to a more than $1 billion tax cut once the changes fully kick-in. The cuts to personal and corporate income rates and increase to the standard deduction will take effect in 2019, meaning that lawmakers were able to cut taxes largely without paying for them this round. All the while legislators also failed to make key investments in areas such as K-12 and higher education, and the investments they did make will be in jeopardy in future years.
• Maine lawmakers are having a tough time coming up with a budget deal that will pass Gov. LePage’s muster or have enough bi-partisan support to override his veto setting the state up for a likely government shutdown. At the center of the disagreement is the voter-approved surcharge on upper-income taxpayers that boosts funding for public education.  Some lawmakers want to eliminate the new funding source altogether, some want to replace the progressive revenue with higher consumption taxes, and other lawmakers want to keep the surcharge in place.
• Alaska‘s Gov. Bill Walker initiated a second special session to avert a state government shutdown. Tax bills, which have resulted in deadlock, have been put aside so that lawmakers can focus on the state’s operating budget.
• Louisiana lawmakers passed a budget last Friday, agreeing to a spending plan very similar to the one voted down at the close of the regular session, allocating all forecasted revenue instead of enacting preliminary cuts of $100 million. Difficulties in passing a budget this session along with lawmaker inaction on tax reform doesn’t bode well for addressing the fiscal cliff coming July 1, 2018 when the temporary sales tax increase expires. Gov. Bel Edwards has expressed reluctance to call a second special session to address tax reform without greater signs of willingness by lawmakers to seriously act on these issues.
• It’s a busy time for tax policy in Oregon. A few weeks ago, lawmakers passed a law requiring W-2 employees to receive notice about the federal and state Earned Income Tax Credits, encouraging families who qualify to claim the credit. Last week the House passed a plan for increased taxes on hospitals and a new tax on health insurance plans to shore up the state’s Medicaid program. In the final weeks of session, lawmakers have been grappling with business tax reform, considering proposals to replace the corporate income tax with a gross receipts tax. Given opposition, that proposal may ultimately have to yield to increasing corporate income tax rates.
• Lawmakers in Delaware have introduced a plan to raise needed revenue to address the state’s budget gap through minor income tax rate increases of 0.15 to 0.4 percentage points, including a new 6.95 percent bracket on taxable income in excess of $150,000. Many moving parts remain as the legislative session nears its end, including a bill to raise corporate taxes while repealing the state estate tax that currently awaits Gov. John Carney’s decision.
• With stronger than expected revenues reported in the month of May, Connecticut‘s deficit has shrunk. The state is opting to close the remaining $107.2 million shortfall with money from the state’s Rainy Day Fund.
• Ohio‘s budget debate plays out as Gov. John Kasich pushes back against lawmaker’s efforts to repeal the state’s business income deduction. Democratic leaders argue that those tax cuts, and others, lead to higher local taxes across the state.
• Over the past week in Pennsylvania a bill was sent to Gov. Tom Wolf that would prohibit local governments from banning or taxing plastic bags and a group of lawmakers reintroduced legislation (SB 76) to replace school property taxes with hikes in the state’s personal income and sales taxes.
• New Jersey lawmakers have prepared a proposal to improve the state’s regressive tax code and generate funding for local schools through a “millionaire’s tax” on very-high-income households, but it may have to wait until after Gov. Chris Christie’s term ends, as he has vetoed similar proposals in the past. Christie’s veto pen will also determine this week whether or not the state will begin taxing Airbnb rentals.
• Beginning July 1, Oklahoma will become the 21^st state where Airbnb will collect taxes.
• Nevada Brian Sandoval has vetoed a bill that would have created a “Medicaid for all” public health care option in the state.
• After growing concerns about mismanagement, California lawmakers voted to strip the Board of Equalization of its two core constitutional powers—administrating various taxes and fees (including sales, tobacco, and marijuana taxes) and hearing and deciding tax appeals cases. These functions of the board will be replaced with two new tax departments that are required to be up and running by July 1.
• The Speaker of the House in South Dakota is proposing a cigarette tax increase to improve funding for the state’s technical institutes.

What We’re Reading…

• A new working paper by economists at Oklahoma State University provides evidence that the supply-side tax cuts in Kansas not only did not bring about promised economic boom, they actually created economic harm. The Wonkblog has more.
• Pew shares news of a perfect storm likely to cause budget problems in many states: the combination of increasingly frequent natural disasters and a pull-back of federal aid for recovery from such disasters.
• An editorial in Maine‘s Bangor Daily News explains how the elimination of the state’s education surtax is nothing more than a tax cut for the wealthy.
• Urging lawmakers to take the long view into consideration, a Nobel prize-winning economist makes the case for why Connecticut should not cut taxes to keep corporations in the state.

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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