Some two decades ago, Oregon joined more than a dozen states in passing a constitutional amendment that requires a legislative supermajority to approve tax hikes. Three years ago, the state Supreme Court and a subsequent legislative counsel opinion created what some say is a loophole. In November, voters could close it, making it harder for the state to raise revenue.
Oil prices fell to a two-month low this week. Any time they tumble, oil-dependent states like Oklahoma are on edge. More than most states with economies heavily reliant on oil and natural gas, its budget is extremely vulnerable to the ebb and flow of the oil economy.
More governments are looking to expand their sales tax to services like Netflix and yoga. Already, half of states tax fitness studio classes or memberships, while places like Chicago, Florida and Pennsylvania have all started taxingonline streaming services in recent years.
But there's a growing movement in conservative states to stop that trend.
Lawmakers want to raise taxes on pharmaceutical companies to help pay for the cost of the opioid crisis. But success has been elusive.
- Minnesota's "penny a pill" bill failed in the state legislature after heavy lobbying removed a key provision. The state plans to try again in 2019.
- An additional 10 states all tried and failed to pass opioid taxes this session. Lawmakers in those states say they will try again nex year.
- Only New York has successfully passed legislation, but the new law is on hold thanks to a lawsuit.
States haven't been very successful at taxing drug companies to help pay for the opioid crisis. But that won’t stop them from trying again next year.
Minnesota State Rep. Dave Baker, a Republican who sponsored a failed “penny a pill” bill during this year's session, has said that he plans on a different focus in 2019: pharmaceutical licensing reform. Liquor stores and bars pay thousands of dollars each year for the privilege of selling alcohol, Baker noted this week at a conference on opioids in Minneapolis, but drug companies only pay a few hundred dollars in licensing fees.
Ballot measures in California and Louisiana seek to protect homeowners from huge property tax spikes.
- Voters in California and Louisiana face ballot measures that would reduce their property taxes at a time when the median U.S. home price has risen by 40 percent in five years
- California's Proposition 5 would help seniors, the disabled or people who are homeless as the result of a natural disaster.
- Louisiana's Amendment 6 would phase in homeowners’ new property taxes over four years.
Home prices have risen, but when voters in two states head to the polls in November, they could at least reduce their property taxes.
The median home price has risen by 40 percent nationwide in the past five years and is still rapidly rising. The increase is blamed largely on a housing shortage. The problem has been especially acute in California, which -- along with Louisiana -- is considering property tax reductions this fall.
North Carolina voters will weigh in on the rare policy in November.
For a summary of November's most important ballot measures, click here.
A proposed income tax cap in North Carolina survived a court challenge this week, leaving it to the voters to decide whether to lean in to what is a rare policy in state government.
The November ballot measure would lower the state’s income tax rate cap from 10 percent to 7 percent. That’s still above the state’s current flat income tax rate of just under 5.5 percent. But in the past, the rate has been as high as 8.25 percent for high-income earners.
Capping income tax rates is unusual. Georgia is the only other state that does so, with a 6 percent cap approved by voters in 2014.
Support for raising teacher pay is near historic highs, but is it enough for voters -- some in red states -- to approve tax increases?
For a summary of November's most important ballot measures, click here.
After wide-scale teacher walkouts and strikes in six states this spring, support for teacher raises is nearing an all-time high. That could be a determining factor this fall in three states where voters will be asked to approve changes to boost school funding.
Arizona, Colorado and Oklahoma all have ballot measures on education funding and saw teacher walkouts this year. According to a new poll by the journal Education Next, nearly two out of every three respondents in those states, and others with teacher strikes, favor raising teacher pay -- a 16-point jump since last year. Nationally, about half of respondents support increasing teacher pay, the second-highest it has been in the survey's 12-year history.
Republican lawmakers in Florida want voters to approve a ballot measure that theoretically would make it harder to raise taxes. But it's debatable whether supermajority requirements actually do.
In an effort to protect conservative tax policy, Florida lawmakers are hoping to make their state the 15th with a supermajority requirement to raise taxes.
The push has drawn national attention because it comes as some are predicting a wave of Democratic victories this fall that could pull state policy more to the left. Opponents of the proposed Florida constitutional amendment -- which would require 60 percent voter approval to pass -- say Republican lawmakers put this on the November ballot to “stack the deck” against any Democrats taking office after them.
“It’s very clear that they’re getting ready for when they’re out of power,” Tallahassee Mayor Andrew Gillum, a Democrat, told The Washington Post. Gillum is running for governor on a platform of enacting "Medicare for All" and putting an additional $1 billion into education -- promises that would likely take tax increases to keep. “Everything we have proposed hinges on our ability to defeat this.”
Bankruptcy Is On the Table in Hartford
Over the past several months, the shadow of a potential bankruptcy has loomed large over Connecticut’s capital city. Hartford is struggling to close a $50 million budget hole -- nearly 10 percent of its spending -- and has stagnant revenues. As a result, it has been downgraded into junk status.
Hartford officials have already cut the budget to the bone, and with one of the highest property tax rates in the state, Mayor Luke Bronin says he won't raise them more. So now the question is, will the financially beleaguered state -- which already pays for half of the city's budget -- step in with more aid? Connecticut, which is facing a two-year, $3.5 billion deficit, has yet to pass a budget more than one month into the fiscal year.
Meanwhile, the city is likely trying to restructure its debt with bondholders. But if that is unsuccessful, it could seek permission from Gov. Dannel Malloy to file for Chapter 9 bankruptcy. Either way, things are coming to a head with a $3.8 million debt payment due in September and another $26.9 million payment deadline in October.
And Then There Were Three...
It's been one month since the fiscal year began and three states still don't have a signed budget. Meanwhile, Rhode Island just enacted its budget Thursday night.
Gov. Gina Raimondo signed Rhode Island's new budget almost immediately. The $9.2 billion plan includes a $26 million cut in the car tax, free community college tuition and an increase in the minimum wage, among other policies. The agreement means the governor now has to find $25 million in savings across state government.
The three remaining states without a budget are Connecticut, Pennsylvania and Wisconsin. In Connecticut, the legislature recently approved a new collective bargaining agreement with public employees that’s projected to cover $1.5 billion of the state's estimated $5 billion budget deficit over the next two years. The deal may now help move along negotiations on how to address the rest of the budget gap.
Pennsylvania lawmakers have approved a spending plan, but have yet to address the state’s revenue problems. Key in the coming days will be whether the state’s House approves the Senate’s revenue package that includes several tax increases and expansion of legalized gambling.
Alaska Downgraded Again and Again
Just weeks after it passed yet another budget that relied on rainy day savings, Alaska was downgraded by two credit ratings agencies.
First came Moody’s Investors Service, which downgraded Alaska to Aa3, citing the state's continued inability to address structural fiscal challenges and come up with a complete fiscal plan. Just days later, S&P Global Ratings dropped its rating to AA. Like Moody’s, S&P chastised Alaska lawmakers: A reliance on reserves, S&P analyst Timothy Little said, “coupled with the state's economic contraction since 2012 and the fallout of oil prices in mid-2015, have reached an [unsustainable] level."
The Takeaway: The downgrades, while not good news, should come as no surprise. Last month, S&P outright warned officials that it would downgrade the state if the governor and legislature failed to pass a sustainable budget that fully addressed its massive decline in oil revenues.
Tax Deductions Aren’t Just for the Super-Rich
As the Trump administration promotes a tax reform agenda that would take away the state and local tax deduction, government organizations are pushing back hard against the notion that the tax perk is utilized only by the uber-wealthy. A new report this week shows that more than half of the tax filers who take the deduction earn less than $200,000 per year. In fact, the largest group of filers who deduct their state and local taxes from their federal taxable income earn between $100,000 and $200,000 per year.
“Contrary to popular opinion, the deduction of state and local taxes does not exclusively benefit the wealthy, even though that argument has been used countless times in attempts to modify or repeal the deduction,” says the report, which was prepared by the Government Finance Officers Association.
Kansas is rolling back its controversial 2012 income tax cuts after the Republican-controlled legislature this week succeeded in overriding a veto by GOP Gov. Sam Brownback.
The state is facing a $900 million budget shortfall and has struggled under budget deficits since the tax cuts went into effect. With the new legislation, the state’s income taxes will increase, although most tax rates will still be lower than they were before the 2012 cuts. The increases are expected to generate more than $1.2 billion for the state over the next two years. Opponents of the action call it a $1.2 billion take hike on Kansans.
On Thursday, the ratings agency Moody's Investors Service applauded the legislature's move, calling it "a significant step" toward achieving a sustainable budget.The action comes four months after lawmakers failed to override another Brownback veto preserving a tax loophole that lets scores of business owners pay no income tax.
The city is on the brink of making a speedy turnaround. Many worry that the tough financial decisions it took to get there could reverse some of its political progress.
After a quarter-century of being branded by the state as "fiscally distressed," Scranton, Pa., is the closest it's ever been to shedding that label. If its finances remain stable, the city is expected to exit the state’s Act 47 distressed cities program -- which it entered in 1992 -- in the next three years.
What makes the news remarkable is the tailspin that Scranton was in just a few short years ago. When Mayor Bill Courtright took office in 2014, he inherited a city that had balanced its budget for five straight years using onetime revenues and deficit financings. “In early 2014, everyone wrote us off,” says Courtright. “It was like we had a disease.”
But thanks to what observers are calling a new era of political cooperation between the mayor and council, Scranton has made considerable progress. City officials have approved several tax increases aimed at balancing the budget, including a hike in property taxes and garbage fees. Those, combined with a new commuter tax, have injected $16.2 million in new annual revenue into the $90 million general fund.
Courtright credits a team that stubbornly adhered to a financial recovery plan devised with the help of a financial consultant. The mayor, also a former councilmember, says he and the current council have communicated better and worked to move beyond the infighting that dominated public meetings in previous years. “We knew we had to change the image between past mayor and past council,” he says. “We knew we wouldn’t get the financial community to go along with us if we couldn’t cooperate amongst ourselves.”
Puerto Rico (Sort of) Declares Bankruptcy
Puerto Rico declared a form of bankruptcy protection this week that puts it in uncharted territory for U.S. governments and municipal finance.
As a territory, Puerto Rico is not eligible to file for Chapter 9 protection. But thanks to the Puerto Rico Oversight, Management and Economic Stability Act, it has a similar option available to it: Title III protection.
The act, which was passed by Congress and went into effect last July, put a temporary moratorium on litigation regarding Puerto Rico’s more than $70 billion in bond debt and created a seven-member financial oversight board with final say over the commonwealth’s finance decisions. The litigation moratorium was lifted on May 1, and with creditor negotiations going nowhere, the government is allowed to file debt restructuring petitions in federal court.
The Takeaway: Puerto Rico has been in a financial downward spiral for years. When it first started defaulting on debt, there were concerns that it could have a negative ripple effect on the municipal market. As it turns out, those concerns have not been justified. So, while this latest move by the commonwealth is a great concern for anyone with money tied up in Puerto Rico, there have been few concerns that the event will cast a shadow over other U.S. governments now issuing bonds.
Trump Sort of Unveils His Tax Plan
President Trump unveiled his tax reform plan this week, and the massive cuts it proposes have left many wondering how the government would pay for the plan.
Much of the single-page, bullet-pointed statement, which The New York Times called “less a plan than a wish list,” contained promises Trump made on the campaign trail: a much lower corporate tax rate, the elimination of the U.S. tax on foreign profits, a reduction in the number of individual income tax brackets from seven to three, a lower tax rate, and the scrapping of most itemized deductions, including one that lets taxpayers deduct their state and local taxes from their declared federal income.
Treasury Secretary Steven Mnuchin said Wednesday that economic growth, combined with eliminating deductions, would pay for the cuts. Meanwhile, a Tax Foundation analysis of some of these key ideas shows that the plan would ultimately result in more tax revenue for state governments.
| MARCH 31, 2017
Race to the Bottom?
New Jersey’s pension problems and Illinois’ lack of a budget continue to dog their reputation in the eyes of creditors.
In New Jersey, Moody's downgraded the Garden State one-notch this week to A3, citing the state’s “significant pension underfunding, including growth in the state's large long-term liabilities, a persistent structural imbalance and weak fund balances.”
It’s the 11th downgrade by a credit rating agency during Gov. Chris Christie’s more than seven years in office. Overall, New Jersey’s credit rating has fallen four notches under Christie’s watch, from what’s considered high investment grade to borderline medium grade. Meanwhile, the state's unfunded pension liability has climbed to $136 billion, which mean it has less than half of what it needs to pay its retirees down the road.
For its part, Illinois is the only state rated lower than New Jersey.
The Cost of 'RepubliCare'
Congressional Republicans this week revealed their replacement plan for the Affordable Care Act. Fiscally, the plan does what the GOP promised: If passed, it is expected to make health-care spending less expensive for the federal government (pending the assessment from the Congressional Budget Office.) States, on the other hand, will have some tough decisions to make regarding Medicaid.
Under the proposed plan, Medicaid allotments would be capped based on the program's per-capita enrollment in that state. Currently, Medicaid has an open-ended funding structure based on matching whatever a state spends.
While the plan doesn't repeal the Medicaid expansion, it starts to ramp down that population beginning in 2020 by discontinuing the federal subsidy for any new expansion enrollee. It also works to pare down the population by disqualifying any participant who lets their enrollment lapse and requiring states to redetermine enrollee eligibility every six months.
| FEBRUARY 24, 2017
Pension Funds Mess With Texas
The country’s largest public pension systems and investors are pressuring Texas officials not to approve a so-called bathroom bill introduced in January. The legislation targets transgender individuals by requiring them to use the public restroom that aligns with the gender on their birth certificate.
Pointing to North Carolina, which lost hundreds of millions in business from canceled sporting events, concerts and conventions after its bathroom bill became law last year, the group warned in a letter that Texas could meet the same fate. Already, the National Football League and the NCAA have said that the siting of future events in Texas would be jeopardized if lawmakers move forward.
The more than 30 signatories on the letter include comptrollers, controllers and treasurers of California, Connecticut, New York, Oregon, Rhode Island and Vermont, as well as major firms such as BlackRock and T. Rowe Price. Collectively, the group represents more than $11 trillion in assets.
The Takeaway: Threats like these aren't new. Called social divesting, stewards of major pensions have increasingly urged corporate boards in recent years to make policy changes, such as pressuring energy companies to move away from fossil fuels.