State Rundown 9/16: Let’s Make A Deal

Leaders in New Hampshire voted on a final budget deal this week after months of wrangling between Gov. Maggie Hassan and legislative leaders. Hassan vetoed a budget passed by the legislature in June, and lawmakers were unable to overcome her veto. The budget dispute centered on business tax cuts pursued by the legislature but opposed by the governor. The final compromise will cut taxes by the same amount as the vetoed budget over the biennium, but the second round of tax cuts will be contingent upon state revenues meeting certain targets. If lawmakers pass the compromise budget, the business profits tax (BPT) rate will decrease from 8.5 to 8.2 percent and the business enterprise tax (BET) rate will be lowered to 0.72 percent in 2016. In 2018, the BPT rate will fall to 7.9 percent and the BET rate will fall to 0.675 percent, provided the revenue trigger is met.

Alabama lawmakers also moved to resolve a longstanding budget impasse as state leaders get closer to an October 1 deadline. There, legislators and the governor disagree over how to make up a projected $200 million budget gap. This week, the legislature passed a cigarette excise tax of 25 cents per pack and approved a permanent shift of some use tax revenue from the Education Trust Fund to the General Fund. Revenue from the use tax, a sales tax on goods purchased outside the state, tends to growth with the economy, while the General Fund revenues have remained flat since 2008. The portion of revenue moved to the general fund is projected to yield $80 million. The cigarette tax increase was opposed by some conservatives, while progressive lawmakers said the transfer of funds out of the Education Trust Fund could hurt public schools. Gov. Robert Bentley is expected to sign both measures.  The state capitol was the site of dueling rallies by progressive groups and Alabama tea partiers over various tax proposals designed to close the budget gap.

West Virginians continue to urge their state legislators to exercise caution on tax reform proposals, despite Art Laffer’s encouragement. Ted Boettner of the West Virginia Center on Budget and Policy noted that “Years of austerity and tax cuts have not boosted the West Virginia’s economy,” and that previous tax cuts have not kept the state from ranking first nationally in unemployment. “Taxes pay for services businesses want and need.” Boettner echoes the advice of Commerce Secretary Keith Burdette, who said legislators should focus on other ways to make West Virginia more competitive, like workforce and infrastructure investments.

Local officials in Indiana are worried that a push from big-box retailers will spell big revenue losses for cities and towns and a higher tax bill for homeowners. The concern arises because some retailers insist that their stores should be assessed as vacant structures for sale instead of based on their value as active stores. Some retailers have successfully appealed their assessments before tax courts, forcing jurisdictions to issue millions in refunds. A legislative fix was approved by the lawmakers in Indianapolis, but the change only limits property value comparisons to vacant structures that have been up for sale for less than a year and used for similar purposes. It is unlikely the law will address the underlying dispute over property valuation, and local officials want stronger language.

State gambling revenue has been flat since the Great Recession, according to the Rockefeller Institute, thanks to a lack of interest in traditional gaming from younger consumers. Polling from the American Gaming Association finds that younger players are more attracted to table games, which bring in less casino revenue, than they are slots, which are the most lucrative form of gaming. Other studies found that younger gamers spent more on food, entertainment and drink than gambling at casinos. The studies highlight the danger of states relying on gambling revenue rather than more traditional sources not subject to industry volatility.