State Rundown 6/2: Austerity Budgets By Choice

Thanks for reading the State Rundown! Here’s a sneak peek: West Virginia lawmakers reject cigarette tax increase but still negotiating. Alaska legislature passes compromise budget, punts on oil and gas credits. Louisiana legislature will enter second special session to discuss tax reform. Oklahoma lawmakers gut EITC, use budget cuts, and one-time gimmicks to close budget gap. Progressive policy advocates win expansion of working family tax credit in Minnesota.

— Meg Wiehe, ITEP State Policy Director, @megwiehe

West Virginia lawmakers resumed budget talks this week after a failure to reach a deal before Memorial Day weekend. Previous efforts to pass a budget stalled when House lawmakers rejected Gov. Earl Ray Tomblin’s proposed increase of the cigarette tax. The 45-cent-per-pack increase, along with similar percentage increases on other tobacco products, would have raised $76 million in new revenue. The House instead passed a budget bill with no new tax increases but $143 million taken from the state’s rainy day fund, an amount that Gov. Tomblin is unlikely to approve. The Senate will now take up the House measure in addition to a proposal to increase the sales tax. Lawmakers need to close a $270 million budget gap, the result of ill-advised tax cuts and low energy prices. If they do not pass a budget by July 1, the state government will shut down. Some political observers believe the cigarette tax hike is not yet dead, and business groups lent their support in a letter to lawmakers.

Oklahoma lawmakers finalized a budget last week, closing a $1.3 billion gap also caused by plummeting energy prices and big tax cuts enacted in better times. The legislature managed to pass a budget with limited tax increases by slashing spending on core programs and instituting a number of one-time revenue-raising gimmicks. Lawmakers made up a small portion of the budget deficit by eliminating the refundabability of the state’s EITC, saving just $29 million but reducing aid to 200,000 working families. This move has rightly been described as an “empathy gap” and a move that “makes the poor poorer.” Efforts to increase the gas tax for transportation spending, the sales tax for teacher salaries, and the cigarette tax for healthcare expansion all failed. Legislative leaders acknowledged that the state’s structural budget gap will remain next year. One positive outcome was the state’s elimination of its nonsensical “double deduction,” a law that primarily benefits wealthy taxpayers who itemize their deductions. For more details on tax and budget policy in Oklahoma, check out Aidan’s recent blog post.

The Alaska Legislature passed a compromise budget this week in an attempt to prevent layoffs for state government workers. Lawmakers broke an impasse by postponing decisions to cut tax credits for oil and gas producers and a range of revenue raising options. Instead, they agreed to restore budget cuts to senior benefits and K-12 and higher education, and to draw $3 billion (more than 40 percent of the fund) from the state’s Constitutional Budget Reserve to cover FY 2017 expenditures. The $8.8 billion compromise budget is still significantly below last year’s spending levels of $9.3 billion, largely due to overhauls of criminal justice and Medicaid spending. It is unclear how Gov. Bill Walker will respond to the spending plan. The legislature will remain in session to continue to address the state’s structural deficit.

Legislators in Louisiana will begin a second special session next week to address tax reform and the remaining budget deficit. Gov. John Bel Edwards issued the call for an extraordinary session from June 6th to June 23rd  to close a $600 million shortfall for FY 2017 and to resolve the state’s structural deficit. The governor also issued a plan for the session that includes possible changes in corporate and personal income tax rates, taxes on healthcare entities and reforming tax credits.

Progressive advocates in Minnesota won a big victory last week when legislators passed a significant expansion of the Working Family Credit, Minnesota’s version of the EITC. Under the changes, the size of the credit will grow for most eligible families and individuals, and the income cutoff for eligibility will be raised for some families and individuals. Moreover, the age requirement for childless workers to qualify for the credit will be lowered from 25 years old to 21 years old. Minnesota is the first state (after Washington, DC) to expand the portion of the state EITC granted to childless workers. About 386,000 Minnesota families and individuals will benefit from the credit expansion, which will reduce taxes by $49 million. The Minnesota Budget Project, which led the effort to expand the Working Family Credit, notes that the credit promotes work, helps kids succeed, and reduces racial income disparities.

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