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.
The Week in Public Finance: Most States' Tax Systems Worsen Income Inequality
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: 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: 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: 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: Bad Balancing Acts, Best Taxpayer ROI and Double Taxation
| MARCH 31, 2017
Race to the Bottom?
New Jersey’s pension problems and Illinois’ lack of a budget continue to dog their reputation in the eyes of creditors.
In New Jersey, Moody's downgraded the Garden State one-notch this week to A3, citing the state’s “significant pension underfunding, including growth in the state's large long-term liabilities, a persistent structural imbalance and weak fund balances.”
It’s the 11th downgrade by a credit rating agency during Gov. Chris Christie’s more than seven years in office. Overall, New Jersey’s credit rating has fallen four notches under Christie’s watch, from what’s considered high investment grade to borderline medium grade. Meanwhile, the state's unfunded pension liability has climbed to $136 billion, which mean it has less than half of what it needs to pay its retirees down the road.
For its part, Illinois is the only state rated lower than New Jersey.
The Week in Public Finance: Oil State Woes, Why 401(k)s Might Not Be For All and More
| MARCH 3, 2017
Oil State Woes
Oklahoma's credit rating was downgraded this week, making it the third oil state in just one month to suffer such a blow. S&P Global Ratings pushed Oklahoma's rating down to AA, citing the state's chronically weak revenue. The downgrade comes as news broke this week that the state is facing a nearly $900 million shortfall.
"Collectively the state's financial position has deteriorated to a point that further precludes the state from building up reserves in subsequent fiscal years,” says S&P credit analyst Oscar Padilla, who adds the state is now more vulnerable to regional or national economic weakness.
This is Oklahoma's third consecutive year with a deficit, and the second straight year of a so-called revenue failure, when collections fall more than 5 percent below estimates.
The action follows downgrades in two other oil states last month: Moody’s Investors Service downgraded West Virginia and Louisiana one notch each. States that rely on oil and energy for significant portions of their economy have had to grapple with revenue shortfalls since the price of oil dropped drastically a year and a half ago.
The Week in Public Finance: Pensions Protest Bathroom Bills, a Billion-Dollar Showdown in Kansas and More
| FEBRUARY 24, 2017
Pension Funds Mess With Texas
The country’s largest public pension systems and investors are pressuring Texas officials not to approve a so-called bathroom bill introduced in January. The legislation targets transgender individuals by requiring them to use the public restroom that aligns with the gender on their birth certificate.
Pointing to North Carolina, which lost hundreds of millions in business from canceled sporting events, concerts and conventions after its bathroom bill became law last year, the group warned in a letter that Texas could meet the same fate. Already, the National Football League and the NCAA have said that the siting of future events in Texas would be jeopardized if lawmakers move forward.
The more than 30 signatories on the letter include comptrollers, controllers and treasurers of California, Connecticut, New York, Oregon, Rhode Island and Vermont, as well as major firms such as BlackRock and T. Rowe Price. Collectively, the group represents more than $11 trillion in assets.
The Takeaway: Threats like these aren't new. Called social divesting, stewards of major pensions have increasingly urged corporate boards in recent years to make policy changes, such as pressuring energy companies to move away from fossil fuels.
The Real Price of College
The Week in Public Finance: Battling Over Retirement, Gorsuch on Online Sales Taxes and Fiscal Irresponsiblity
A Curious Battle Over Retirement Security
Congressional Republicans this week made a move to block states’ efforts to expand access to retirement savings to all citizens. Michigan Rep. Tim Walberg and Florida Rep. Francis Rooney have introduced a resolution that would overturn a Department of Labor (DOL) rule last year that reaffirmed states’ legal right to help support private-sector savings programs for small businesses.
Walberg, chairman of the Subcommittee on Health, Employment, Labor, and Pensions, said the DOL rule created a “loophole” that undermined the retirement security of working families because it could discourage small businesses from setting up their own retirement program. “Our nation faces difficult retirement challenges," he said, "but more government isn’t the solution."
The resolution comes as seven states are in the midst of and more than a dozen states -- and even some cities -- are considering establishing such programs. Called Secure Choice, the programs require most employers that don’t currently offer a pre-tax retirement savings program to automatically enroll employees into one. The programs are run independently from the state and employees can opt out at any time.
The AARP issued a swift and harsh rebuke of the resolution, noting that 529 college savings programs give states precedent for creating independently managed, pre-tax savings accounts. Overturning “this rulemaking will have a significant chilling effect on states, sending the political message that state flexibility is not a priority,” wrote AARP Executive Vice President Nancy A. LeaMond.
The Takeaway: The facts upon which this political gamesmanship are based are, well, weak.
Despite Budget Shortfalls, Some Governors Call for Tax Cuts
In addition to new tax breaks, some states are also considering raising gas and sin taxes.
Nebraska Gov. Pete Ricketts speaks during a news conference. (AP/Nati Harnik)
About half of the states are facing budget shortfalls this fiscal year, but many governors are still pushing to cut taxes in their proposed 2018 budgets.
The proposals vary in scope but generally fall within two categories: comprehensive and targeted.
Nebraska Gov. Pete Ricketts' proposal is of the comprehensive variety and may be the most aggressive call for tax cuts so far. He is asking for property and personal income tax cuts to be phased in beginning in 2019 -- even as the state faces a $900 million budget gap. Property taxes would be reduced via a new valuation formula and income tax breaks would kick in incrementally and only in years when state revenue grows by more than 3.5 percent.
On the whole, most of the comprehensive proposals are part of ongoing efforts.
Missouri Passes Nation's First-Ever Ban on Services Sales Taxes
The Week in Public Finance: Unbalanced Budgets, Alaska's Tax Battle and Creditor Complaints
The Week in Public Finance: Defending Wall Street Fees, Ranking Property Tax Rates and More
A roundup of money (and other) news governments can use.
Defending Wall Street Fees
The performance fees that public pension plans pay private equity and hedge fund managers are coming under scrutiny. Some say the high fees aren’t worth the returns on investment and complain that many costs remain hidden. Those two points were part of a critical report last month by the right-leaning Maryland Public Policy Institute on Maryland’s hidden Wall Street fees.
Now, the Maryland State Retirement Agency has issued a lengthy response questioning the institute’s conclusions. In a letter published this month by Executive Director R. Dean Kenderdine and Chief Investment Officer Andrew C. Palmer, the system’s officials attack the institute’s methodology while defending its own financials.
Maryland reported paying $85 million in performance fees in 2014, but according to the report it may have actually paid more than $250 million. The policy institute made that estimate by comparing Maryland’s disclosed performance fee rate against the rate of performance fees disclosed by New Jersey, which has a similarly sized alternative investment portfolio and fairly comprehensive fee disclosure policy.
But Kenderdine and Palmer say Maryland's $85 million in reported fees are accurate because New Jersey has been “much more aggressive in its pacing of investments.” In other words, the private equity funds New Jersey invests in are designed to start producing returns soon after the pension puts money in the fund. Maryland’s private equity funds, however, haven’t hit that so-called harvesting period when investments are sold and managers receive performance fees from that profit, said Kenderdine and Palmer. So the performance fees are smaller but could theoretically be larger in the coming years.