State Rundown 8/20: Summertime Sadness

Budget gridlock continues in a few states across the country, including North Carolina where lawmakers are dragging through one of the longest sessions in 40 years, and taxpayers have already spent an extra $1 million to keep the legislature in session. House and Senate leaders agreed on a $21.74 billion budget, or roughly the mid-point between the two chambers’ spending packages passed earlier this summer.  However, lawmakers now need to agree on how to spend the money.  As a News and Observer editorial notes, such a restrictive level of spending keeps the state’s budget “suspended in the recession’s gloomy economic period.” A proposed change to local sales tax revenue also caused deadlock. Rural legislators would like to redistribute local sales tax revenue from urban areas and tourist destinations to their jurisdictions, while legislators from those places say the change would require a tax hike on their constituents. Last week legislators passed a stopgap funding measure through Aug. 31.

The Michigan House this week again debated road funding but adjourned Wednesday without a deal, the latest move in a long debate that has already defeated a ballot measure and threatened the state’s EITC. After voters torpedoed a sales tax increase at the polls that would have paid for transportation improvements, both chambers of the legislature passed alternative funding plans. The compromise package called for $600 million in new fuel tax and vehicle registration tax increases as well as a transfer of $600 million in income tax revenue from the general fund. Gov. Rick Snyder and Democratic legislators balked at the general fund transfer, while Republicans in the House were slow to rally around the new taxes. Both houses of the legislature will return after Labor Day.

A controversial education tax credit in Kansas is drawing fire from critics who say it directs public money to religious schools. Created in 2014, the Kansas Low-Income Students Scholarship Program allows non-profit organizations to collect donations from businesses to pay private school tuition for low-income students who attend public schools with low test scores. In return, businesses are allowed a state income tax credit equal to 70 percent of their donation. More than 50 private schools, many of which offer religious education, have signed up for the program. Opponents of the scholarships say the program is unconstitutional, as Article 6 of the State Constitution states “No religious sect or sects shall control any part of the public educational funds.”

New Jersey lawmakers are trading proposals to cut taxes on yacht owners with Gov. Chris Christie. Lawmakers sent a budget to the governor that capped the 7 percent sales tax on yachts at $20,000, a windfall for boats costing more than $286,000. Christie vetoed that measure and responded with a plan that would halve the yacht sales tax from 7 percent to 3.5 percent. Marinas and boat retailers favor the governor’s plan. The vetoed plan would have cost between $3 million and $4 million; estimates on the governor’s alternative are not available but are expected to be higher. Legislators will consider Christie’s proposal when the legislature reconvenes, perhaps as soon as September.

As West Virginia legislators continue to consider changes to the state’s income tax structure to draw more businesses, state Commerce Secretary Keith Burdette questioned whether such an effort was necessary. Burdette pointed out that location was the number one reason that companies chose not to expand in the Mountain State:  “We don’t lose prospects over taxes; I’m not sure we lose them over regulations any more. We lose them over site.” Burdette also pointed out that the state’s lack of an educated workforce hurts business recruitment efforts. “Simply making us the lowest cost state without acknowledging and focusing attention and resources on other factors which make an attractive business climate would be a mistake,” Burdette acknowledged.