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.
The Week in Public Finance: Most States' Tax Systems Worsen Income Inequality
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: States Intent on Taxing Big Pharma Over the Opioid Crisis
Lawmakers want to raise taxes on pharmaceutical companies to help pay for the cost of the opioid crisis. But success has been elusive.
(Shutterstock)
SPEED READ:
- Minnesota's "penny a pill" bill failed in the state legislature after heavy lobbying removed a key provision. The state plans to try again in 2019.
- An additional 10 states all tried and failed to pass opioid taxes this session. Lawmakers in those states say they will try again nex year.
- Only New York has successfully passed legislation, but the new law is on hold thanks to a lawsuit.
States haven't been very successful at taxing drug companies to help pay for the opioid crisis. But that won’t stop them from trying again next year.
Minnesota State Rep. Dave Baker, a Republican who sponsored a failed “penny a pill” bill during this year's session, has said that he plans on a different focus in 2019: pharmaceutical licensing reform. Liquor stores and bars pay thousands of dollars each year for the privilege of selling alcohol, Baker noted this week at a conference on opioids in Minneapolis, but drug companies only pay a few hundred dollars in licensing fees.
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.
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.”
The Week in Public Finance: Bankruptcy Looms in Hartford, Worries About the Sales Tax and Puerto Rico's Many Defaults
Hartford Mayor Luke Bronin (AP/Jessica Hill)
Bankruptcy Is On the Table in Hartford
Over the past several months, the shadow of a potential bankruptcy has loomed large over Connecticut’s capital city. Hartford is struggling to close a $50 million budget hole -- nearly 10 percent of its spending -- and has stagnant revenues. As a result, it has been downgraded into junk status.
Hartford officials have already cut the budget to the bone, and with one of the highest property tax rates in the state, Mayor Luke Bronin says he won't raise them more. So now the question is, will the financially beleaguered state -- which already pays for half of the city's budget -- step in with more aid? Connecticut, which is facing a two-year, $3.5 billion deficit, has yet to pass a budget more than one month into the fiscal year.
Meanwhile, the city is likely trying to restructure its debt with bondholders. But if that is unsuccessful, it could seek permission from Gov. Dannel Malloy to file for Chapter 9 bankruptcy. Either way, things are coming to a head with a $3.8 million debt payment due in September and another $26.9 million payment deadline in October.
The Week in Public Finance: Tardy State Budgets, Philly's Soda Tax Sputters and Raising the Debt Ceiling
Connecticut state Sen. Majority Leader Bob Duff, left, holds a GOP budget alongside state Democratic President Pro Tempore Martin M. Looney. (AP/Jessica Hill)
And Then There Were Three...
It's been one month since the fiscal year began and three states still don't have a signed budget. Meanwhile, Rhode Island just enacted its budget Thursday night.
Gov. Gina Raimondo signed Rhode Island's new budget almost immediately. The $9.2 billion plan includes a $26 million cut in the car tax, free community college tuition and an increase in the minimum wage, among other policies. The agreement means the governor now has to find $25 million in savings across state government.
The three remaining states without a budget are Connecticut, Pennsylvania and Wisconsin. In Connecticut, the legislature recently approved a new collective bargaining agreement with public employees that’s projected to cover $1.5 billion of the state's estimated $5 billion budget deficit over the next two years. The deal may now help move along negotiations on how to address the rest of the budget gap.
Pennsylvania lawmakers have approved a spending plan, but have yet to address the state’s revenue problems. Key in the coming days will be whether the state’s House approves the Senate’s revenue package that includes several tax increases and expansion of legalized gambling.
The Week in Public Finance: Alaska Downgraded, Low Income-Tax Revenues and Congress Meddles in Online Sales Taxes Again
The U.S. Capitol (FlickrCC/Geoff Livingston)
Alaska Downgraded Again and Again
Just weeks after it passed yet another budget that relied on rainy day savings, Alaska was downgraded by two credit ratings agencies.
First came Moody’s Investors Service, which downgraded Alaska to Aa3, citing the state's continued inability to address structural fiscal challenges and come up with a complete fiscal plan. Just days later, S&P Global Ratings dropped its rating to AA. Like Moody’s, S&P chastised Alaska lawmakers: A reliance on reserves, S&P analyst Timothy Little said, “coupled with the state's economic contraction since 2012 and the fallout of oil prices in mid-2015, have reached an [unsustainable] level."
The Takeaway: The downgrades, while not good news, should come as no surprise. Last month, S&P outright warned officials that it would downgrade the state if the governor and legislature failed to pass a sustainable budget that fully addressed its massive decline in oil revenues.
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.
The Week in Public Finance: Bleak Pension Forecasts, Down on Stadium Debt and More
The 49ers stadium. (Flickr/Travis Wise)
Pensions: Best Case, Worst Case
In the best-case scenario, governments' pension costs will significantly increase over the next two years, concludes a new report by Moody's Investors Service. The report, which analyzes 56 state and local pension plans with liabilities totaling more than $778 billion, finds that under the best circumstances governments' pension bills would increase by 17 percent assuming investment returns totaling about 25 percent over three years.
Meanwhile, total unfunded liabilities would remain relatively flat, shrinking by about 1 percent. The paltry progress is in part due to some major pension plans changing their accounting assumptions which have increased their reported liabilities.
In the worst-case scenario, pension plan returns would continue to look a lot like they have in the past two years. That is, eking out a little more than a 2 percent return between 2016 and 2019. If that were the case, Moody's predicts unfunded liabilities could go up by nearly 60 percent and governments' bills would swell by roughly half.
The Week in Public Finance: A Rate Hike, Unpredictable Taxpayers and Stress-Testing Budgets
The Federal Reserve headquarters in Washington, D.C. (Shutterstock)
A Rate Hike
The Federal Reserve announced this week that it's raising interest rates by one quarter of a percentage point, which is its second short-term increase of the year. The move was widely expected but comes amid expectations that inflation is running well below the central bank’s 2 percent target for 2017.
The Fed also released more details on how it plans to unwind its $4.5 trillion portfolio of bonds that includes Treasurys, mortgage-backed securities and state and local government debt. Each month, the Fed receives billions in principal payments from its various holdings, and much of that repayment is then reinvested in more bonds and other securities. Now, the Federal Open Market Committee -- which is part of the Federal Reserve -- said it intends to gradually reduce the Fed’s securities holdings by decreasing its reinvestment of its monthly principal payments it receives.
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.
The Week in Public Finance: Pension Reform in Texas, Fitch Lowers Expectations and Illinois Downgraded Again
Even the Pension Deals are Big in Texas
There has been a big break in Houston's and Dallas' pension crises over the past week: The Texas Legislature approved reforms that require all sides to pony up big.
In Houston, the changes will cut the city’s $8 billion unfunded liability in half. Municipal and public safety unions agreed to $2.8 billion in benefits cuts. Meanwhile, Houston will issue $1 billion in pension bonds to boost the system’s balance. It will also stick to a payment plan -- that includes capping the city's future pension costs -- to pay off the remaining unfunded liability over 30 years.
Similarly, Dallas’ police and fire workers will shoulder $1.4 billion in benefit cuts over the next 30 years and more than $1 billion in additional contributions from their pay. For its part, the city will be required to significantly boost its annual payments into the fund, starting with more than $150 million next year. Mayor Mike Rawlings will also get to pick six of the 11 trustees on the currently union-dominated pension board, whose poor investments contributed to more than $1 billion in losses.
The Takeaway: The common theme to these reforms is shared sacrifice. While unions and officials are happy to have a plan in place, no one is pleased about what comes next. "This is not a time to high-five," Dallas Police Association Vice President Frederick Frazier told the Dallas Morning News. "This is a time to pull the boots up and get back to work."
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: Recalculating Pension Debt, Hartford Discusses the 'B' Word and Prudent Rainy Day Policies
A new analysis by Josh Rauh at Stanford University's Hoover Institution says state and local governments’ collective unfunded pension liabilities are actually about three times the amount they claim. Rauh, a finance professor who has long been a critic of public pension accounting, arrived at his figure by assigning pension plans a much lower assumed investment rate of return.
Pension plans in 2015 collectively reported about $1.3 trillion in unfunded liabilities. In other words, they have about 72 percent of the assets they need to meet their estimated total liabilities. That figure assumes plans will earn an average of 7.4 percent each year on their investments.
Rauh, pointing to the wild swings of the stock market and the fact that pensions are putting more of their assets into volatile, alternative investments, says that assumption is too risky. He argues it's more responsible to consider a rate of return closer to what long-term bonds earn: slightly less than 3 percent. Under those assumptions, Rauh says unfunded U.S. public pension liabilities would roughly triple to $3.8 trillion, or less than half-funded.