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.
The Week in Public Finance: Will Oklahoma Finally Wean Its Budget Off Oil?
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.
A Second State Could Ban Service Taxes
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.
The Week in Public Finance: How the New NAFTA Deal Impacts States
After President Trump threatened for more than a year to withdraw from NAFTA, auto-manufacturing states breathed a sigh of relief when he announced a renegotiated trade agreement earlier this month with Canada and Mexico.
A U.S. withdrawal from the 1994 pact would have resulted in the reimposition of tariffs on specific goods between the U.S., Canada and Mexico. The impact would have been felt most acutely by states such as Michigan that do a lot of business with the two countries.
The Week in Public Finance: Amid Rising Home Prices, 2 States Take Property Tax Proposals to Voters
Ballot measures in California and Louisiana seek to protect homeowners from huge property tax spikes.
(Shutterstock)
SPEED READ:
- 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.
The Week in Public Finance: Do Income Tax Caps Only Benefit the Wealthy?
North Carolina voters will weigh in on the rare policy in November.
The North Carolina Capitol (David Kidd)
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.
While Feds Loosen Payday Loan Regulations, Colorado Voters Could Clamp Down
In a year when the federal government is dialing back financial regulations, Colorado could become the 16th state to limit the notoriously high interest rates on payday loans.
(Shutterstock)
For a summary of November's most important ballot measures, click here.
As the federal government walks back historic regulations on payday lending, Colorado voters this fall will be asked to tighten them -- a sign that strong consumer protections are increasingly being left to the states.
Short-term loans, often called payday loans because they’re due on the borrower’s next payday, have average interest rates of 129 percent in Colorado. Nationally, rates average between 150 percent and more than 600 percent a year. A ballot proposal, which was certified as Initiative 126 by the secretary of state on Tuesday, would cap those rates at 36 percent. If passed, Colorado would be the 16th state, plus the District of Columbia, to limit payday loan rates.
The Week in Public Finance: After Teacher Strikes, Voters Will Get a Say on Education Funding
Support for raising teacher pay is near historic highs, but is it enough for voters -- some in red states -- to approve tax increases?
Teachers protested outside the Colorado state Capitol in Denver this spring. (AP/David Zalubowski)
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.
The Week in Public Finance: Do Supermajorities Really Stop Tax Hikes?
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.
A November ballot initiative would require the Florida legislature to have a supermajority to raise taxes. (TNS/Joe Burbank)
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.”
States Get Creative on Pension Funding
The latest plans in California and New Jersey have observers asking: creative solution or accounting gimmick?
Gov. Chris Christie has hailed the lottery legislation as a foolproof way to immediately boost the health of the pension fund. (AP/Seth Wenig)
Most states have enacted some type of reform over the past decade to shore up their pension funds for the future. But such changes have typically done little to make a dent in the liabilities that governments already have on the books.
As those liabilities increase, states and localities are turning to more creative solutions to ease the burden.
California and New Jersey are moving forward with plans that would boost respective pension assets, dramatically decrease unfunded liabilities and reduce payouts for the immediate future. But critics of the plans say the two states are doing nothing more than moving numbers around on paper.
In New Jersey, the state is pledging its lottery -- which an outside analysis determined was valued at $13.5 billion -- as an asset to state pension funds. The action would reduce the pension system's $49 billion unfunded liability and improve its funded ratio from 45 percent to about 60 percent, according to State Treasurer Ford Scudder. The roughly $1 billion in annual lottery proceeds, which currently go to education and human services, among other programs, will now be divvied up among state pension funds. The largest share -- nearly 78 percent -- will go to the teachers' pension fund.
Although unions grumbled about the plan, it passed with little public debate as lawmakers were preoccupied by budget negotiations. Gov. Chris Christie and Scudder have hailed the lottery legislation as a foolproof way to immediately boost the health of the pension fund. But others have been less enthusiastic about the plan.
Municipal Market Analytics' Matt Fabian dubbed it an accounting scheme, noting it also places a roughly $970 million burden on New Jersey's general fund budget to pay for the programs formerly covered by the annual lottery proceeds. "We believe that, at best," Fabian wrote, "this transaction delays honestly confronting the pension liability problem."
The Week in Public Finance: Lobbying Congress on the 'Tax Perk,' Chronic Deficits and the Credit Threat in Illinois
Illinois Gov. Bruce Rauner speaks during a news conference. (AP/G-Jun Yam)
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.
The Week in Public Finance: Late Budgets, Illinois' First in Years and Risky Pension Investments
New Jersey Gov. Chris Christie walks from the podium following a news conference about the government shutdown that had closed state parks and beaches to the public. (AP/Mel Evans)
Better Late Than Never
They may be late, but both Maine and New Jersey finally have budgets for fiscal 2018 after shutting down their respective governments for three days.
Early Tuesday, New Jersey Gov. Chris Christie signed a $34.7 billion budget agreement and ended a shutdown. That same day, Maine’s shutdown wrapped up when Gov. Paul LePage signed a $7.1 billion budget. The deal eliminated a lodging tax increase opposed by LePage in exchange for allocating an additional $162 million to public education.
Delaware also reached a budget deal early Sunday morning. Gov. John Carney signed a $4.1 billion budget that preserved funding for nonprofits, public health programs and schools by raising taxes on real estate transfers, tobacco and alcohol.
The Takeaway: A whopping 11 states started their fiscal 2018 this month without a budget deal, an unusually high number that reflects the growing divisiveness of tax and fiscal policy. Be it dealing with budget deficits or juggling a demand to bring funding for services back to pre-recession levels, more and more of these conflicts are resulting in statehouse stalemates.
The Week in Public Finance: Alaska Avoids Its Problems, More Health-Care Pain and Municipal Defaults Are Up
| JUNE 30, 2017
The Alaska State Capitol, right, sits near the water in Juneau. (Flickr/Jasperdo)
Alaska Avoids Fixing Its Budget Problem (Again)
Facing a $2.5 billion budget gap, Alaska lawmakers have sent Gov. Bill Walker a budget that once again relies on one-time fixes and a massive withdrawal from the state’s rainy day fund.
Walker had proposed a compromise fiscal package that included a combination of revenue-raising measures and spending cuts, reforms to the state’s oil and gas tax credit program, modifications to the income tax, and reductions to residents’ annual dividend payments from the state's Permanent Fund. Instead, the $4.1 billion general fund spending plan passed by lawmakers caps Permanent Fund payments to $1,100 and relies on a $2.4 billion withdrawal from the state’s once-robust rainy day fund.
Walker has repeatedly warned lawmakers that they can't keep relying on the state’s reserves to fund its annual spending plans. But lawmakers have consistently done so anyway, making multibillion-dollar withdrawals for the past three budgets.
Is Illinois on the Brink of a Financial Armageddon?
The state's lawmakers have until the end of the week to pass a budget -- something they haven't been able to do in years. If they don't, the consequences are dire.
“Doomsday is right around the corner,” says Illinois State Comptroller Susana Mendoza. (AP/G-Jun Yam)
For two years, Illinois has managed to operate without a budget. Unless lawmakers pass one by the end of the week, the state is likely staring at an unprecedented credit rating downgrade to junk status. But that's just the beginning of its financial Armageddon: Illinois is also projected to not have enough cash this summer to fund all of its basic services like schools.
According to State Comptroller Susana Mendoza, Illinois' flagging revenues and shrinking liquidity likely mean the state will soon be $185 million short on meeting even its basic, court-ordered obligations. “Doomsday is right around the corner,” she says. “It means any number of things: road projects stopping, pension [payments] being skipped, employees not getting paid -- which will likely make people not show up to work.”
Mendoza is not alone in voicing her concerns.
The Week in Public Finance: Kansas' Experiment Ends, Alaska Still Has No Budget and Keeping Track of Debt
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.
In Scranton, Pa., Fiscal Progress Comes With Political Costs
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.
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Bill Courtright, the mayor of Scranton, Pa. (Photos by David Kidd)
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.”
The Week in Public Finance: The Trump Budget Edition
Someone holds a copy of President Trump's fiscal 2018 budget at the U.S. Government Publishing Office's plant. (AP/Carolyn Kaster)
Hysteria Over Cuts
President Trump unveiled his budget this week, and while it merely expanded upon an outline he submitted in March, it was still met with near-immediate outcry from state and local government groups.
In the budget, the president proposes diverting more than $54 billion from various federal agencies to boost defense spending. He also cuts $260 billion over 10 years in expected discretionary spending, a move that critics say drastically reduces federal funding and grants for vital state and local programs that create jobs, raise wages and protect low-income Americans. In total, Trump’s proposal would cut federal spending by more than $3.6 trillion over the next decade.
U.S. Conference of Mayors CEO Tom Cochran issued a statement saying that mayors across the country were "deeply troubled by President Trump’s brazen attack on the very people he promised to protect."
The Takeaway: Trump’s budget included so many drastic changes that even Republicans in Congress were uncomfortable with parts of it. It’s unlikely to pass as is, but it still has state and local governments worried.
The Week in Public Finance: Puerto Rico's Quasi-Bankruptcy, Congress Meddles With State Retirement Plans and More
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.
The Week in Public Finance: Trump's Tax Plan, the Tampon Tax and Calling Out the SEC
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.
