State Rundown 1/25: Revenue Shortfalls and How to Avoid Them

This week brings more news of states facing budget crunches, a new state looking to eliminate income taxes, and plans to raise gas taxes to fund transportation projects.  Be sure to check out the What We’re Reading section for a look at how repealing federal health reform could add to those crunches and a review of what’s going right in the few states that are on sound fiscal footing (spoiler alert: they resisted tax-cut efforts and put money aside for rainy days).

— Meg Wiehe, ITEP State Policy Director, @megwiehe  

• This week, the West Virginia Senate created a select committee to examine state taxes. According to the committee’s chairman, elimination of the state’s personal income tax is under serious consideration. With a projected deficit nearing $500 million, reductions in revenue are a curious course of action.
• Tennessee Gov. Haslam has proposed the latest in a troubling trend of states using their need for a gas tax increase as an excuse to cut other taxes to benefit wealthier families, in this case calling for increases in fuel taxes and vehicle fees combined with cuts to the state’s progressive Hall Tax on investment income and a small reduction in the grocery tax.
• In South Carolina, in contrast to Tennessee, legislators have put forward a straightforward gas tax increase that raises the state’s second-lowest-in-the-nation gas tax 10 cents over 5 years and raises the maximum tax on vehicle purchases from $300 to $500, without giving in to pressure to combine it with tax cuts for the wealthy. The proposal may have a better chance at succeeding now that Gov. Haley, who had opposed this approach in the past, is moving into the Trump administration.
• Iowa‘s $110 million shortfall in its current budget is largely due to a 2013 tax cut for commercial buildings and other properties that costs the state $300 – $400 million each year.
• Wyoming lawmakers are again discussing spending cuts as the only means of addressing the state’s revenue woes. The state’s Senate president announced that he will oppose any new taxes this session despite a $400 million annual school funding shortfall and proposals by House members to fill the gap with new revenue.
• Massachusetts Gov. Baker voiced his opposition to a broad-based tax increase to address the state’s revenue shortfall.
• Another year, another massive tax-cut proposal from Florida Gov. Scott, despite $1 to $2 billion in budget cuts anticipated. This year’s version is similar to last year’s failed proposal — predominantly business tax cuts and sales tax holidays.
• North Dakota lawmakers considering a property tax levy cap might want to take a look at the trouble such a cap is causing in Nevada, as we reported in this space last week.

Budget Watch

• Maryland Gov. Hogan claimed his plan to close the state’s $750 million revenue shortfall included “no serious cuts,” but the proposed budget includes a slew of funding cuts and freezes to crucial services such as after-school programs, scholarships, parks, adult education, hospitals, care for the developmentally disabled, and pension funding. A state budget analyst has shown these cuts don’t solve the recurring structural issues in the budget, saying deficits will continue unless leaders “make harder choices.” 

Governors’ State of the State Addresses

• In the past week, Governors Walker of Alaska, Brown of California, Ige of Hawaii, Baker of Massachusetts, Dayton of Minnesota, and Bullock of Montana delivered their State of the State addresses.
• States with addresses scheduled through the end of next week are: Illinois and Utah today; Tennessee Monday; Texas Tuesday; and Maryland Wednesday. 

What We’re Reading…

• With so many states facing budget shortfalls right now, Pew asks what do the few states with surpluses have in common? The answer: policymakers in these states “have put themselves on a solid fiscal footing by avoiding deep tax cuts, enacting targeted tax increases, and diverting some surplus money into ‘rainy day’ funds to be tapped in leaner times.”
• The Sycamore Institute, a new data-based budget and tax organization in Tennessee, put out an infographic on roads funding in the state as background for the gas tax debates sure to take center stage there this year.
• Governing reports that local public employment is still below pre-recession levels in most states and down 3.5% nationwide, with non-sworn public safety employees, highways, and health among the largest cuts.
• Governing also comments on the state-level ramifications of potential repeal of the Affordable Care Act, a major but uncertain contingency that states have not been budgeting for.
• Support for raising taxes on Massachusetts’s millionaires is strong in a new poll by WBUR/MassINC Polling Group. Seventy-seven percent support increasing the state’s tax on incomes over $1 million.

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 meg@itep.org. Click here to sign up to receive the Rundown via email.