Taxes

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The Week in Public Finance: Battling Over Retirement, Gorsuch on Online Sales Taxes and Fiscal Irresponsiblity

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BY  | FEBRUARY 10, 2017

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.

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The Week in Public Finance: States Vulnerable to NAFTA Changes, New Amazon Taxes and a Credit Ratings Spat

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BY  | FEBRUARY 3, 2017

 

Where a Change to NAFTA Could Hurt the Most

When it comes to trade, a handful of states rely heavily on Canada. That relationship could significantly change if President Trump follows through on his intention to renegotiate the North American Free Trade Agreement (NAFTA).

In an analysis, RBC Capital Markets’ Chris Mauro looks at which states are the most exposed to changes. As it turns out, half of Canada’s exports wind up in the U.S., and 35 states have Canada as their top export destination. Michigan and Illinois are the top destinations, absorbing 16 percent and 11 percent, respectively. Meanwhile, more than two-thirds of North Dakota’s goods land in Canada and nearly half of Maine, Michigan and Ohio’s exports are sent there.

The Takeaway: Trump has called NAFTA a bad deal for the U.S. Although no specifics have been outlined, it’s safe to assume that he would promote more protectionist policies. In his analysis, Mauro warns that “the risk that Canada implements countervailing duties or that the U.S dollar appreciates significantly would severely affect the competitiveness of these U.S. states.”

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.

BY  | JANUARY 25, 2017


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.

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5 Hot Topics Hitting Public Finance in 2017

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BY  | DECEMBER 29, 2016

In what could be a tumultuous year for state and local finances, these five issues are likely to take center stage.

Tax Reform

Many Capitol Hill watchers expect federal tax reform to roll forward in some fashion in 2017 now that a Republican will be in the White House. There are two major proposals on the table that could directly result in higher costs for states.

For starters, many in Congress have been supportive of limiting the tax-exempt status of municipal bonds. Removing this tax perk for bond investors would force governments to offer higher interest rates on the debt, thus increasing their cost of paying off that debt.

It’s hard to overstate the potential impact of such a move. One estimate pegged the current tax perk savings for state and local governments at about $714 billion from 2000 to 2014. For its part, the federal government estimates it loses as much as $30 billion in potential income tax revenue each year as a result of the perk.

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The Week in Public Finance: What the Rate Hike Means, a Legal Win for Online Sales Taxes and More

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A roundup of money (and other) news governments can use.
BY  | DECEMBER 16, 2016

Movin' On Up

The Federal Reserve announced a short-term interest rate hike on Wednesday, the first one in a year and a move that was largely expected. But what wasn’t on the radar was the Fed's announcement that it plans to raise rates three more times in 2017, up from previous expectations of two rate hikes.

Given the reticence to move rates for most of the last decade, the faster pace for next year has municipal analyst Chris Mauro calling the decision a “rather splashy hawkish surprise.”

The rate hike will move the target interest rate on short-term debt up one-quarter of a percent -- to a range of 0.5 to 0.75 percent. The Fed's previous rate hike was a year ago, and that was the first one in nine years.

The Takeaway: The Fed's plan to raise rates signals that economic growth is accelerating.

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The Week in Public Finance: Federal Budget Chaos, a Bankruptcy Win and Pension Portfolios

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BY  | DECEMBER 9, 2016
Chaos on Capitol Hill ... and in Statehouses

As state lawmakers begin preparing for their fiscal 2018 budgets, their biggest challenge is in the unknown. With Donald Trump’s election, the future for key state and local funding is almost anybody’s guess.

With Trump in the White House next year, Stan Collender, author of The Guide to The Federal Budget, predicts that a Republican-controlled Congress will move quickly on making major changes before the 2018 midterm elections. But after this unpredictable election, few are willing to predict what exactly those changes will be. All we know now is what’s on the table.

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What We Don't Know About Trump's Carrier Deal (and Most States' Business Deals)

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BY  | DECEMBER 8, 2016

Critics and supporters of Donald Trump’s deal that kept Carrier Corp. from exporting hundreds of jobs from Indiana to Mexico have spent much of the past week arguing about how many jobs the deal actually saved.

But what the public will likely never know is how much the deal helps the air conditioning company’s annual state tax bill. It's information that's typically not released but can reveal whether a tax incentive has the potential to bring a business' state tax burden down to zero.

Last week, President-elect Trump and Vice President-elect Mike Pence, who is still serving as governor of Indiana, announced a deal with Carrier that they say will keep 1,100 jobs in the state in exchange for $7 million in tax breaks over a decade. Since the announcement, unions have refuted the jobs number and said it’s closer to 800 since Carrier still plans to export 500 jobs to Mexico.

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Facing Weak Revenues, States' Spending Growth Slows

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BY  | NOVEMBER 17, 2016

Declining tax revenues has driven a slowdown in state spending, according to a new report from the National Association of State Budget Officers (NASBO).

In fiscal 2016, state spending grew by an estimated 4 percent. That growth rate is significantly slower than the relatively sharp increase of 6.9 percent in fiscal 2015, which also marked a 10-year high in spending growth.

Spending from the general fund grew 3.1 percent from fiscal 2015, which is significantly lower than increases in prior years and is a full percentage point lower than NASBO predicted for 2016 spending. The shrinkage was largely driven by declines in personal income and sales tax revenue growth.

In total, general fund revenues increased just 1.8 percent in 2016, compared with 4.8 percent the year before. Corporate income taxes -- a smaller portion of states’ general revenues -- saw a significant decline of 5.8 percent.

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Missouri Passes Nation's First-Ever Ban on Services Sales Taxes

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As states increasingly try to tax services like Netflix and yoga, Missouri voters have decided to keep that from ever happening. How that will impact consumers is unclear.
BY  | NOVEMBER 9, 2016

As more governments look to expand their sales tax to services like Netflix and yoga, Missouri has become the first state to pass a ban on doing so.

With nearly all precincts reporting, voters approved the ban Tuesday 58 percent to 42 percent, persuaded by the argument that the measure was designed to protect the state's middle class and lower income earners.

The sales tax is generally seen by economists as regressive, meaning it places a bigger burden on low-income families because it takes a bigger chunk of change from their income.

“The time was right to make a stand," said Scott Charton, a spokesperson for the ballot measure's backers. "This is a victory for Missouri’s hard-working taxpayers and their families."

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Pleas for More Education Funding Fall Short on Election Day

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Voters in two states rejected measures that would have raised taxes -- either for consumers or corporations.
BY  | NOVEMBER 9, 2016

Voters in two financially-struggling states have struck down proposed tax increases that would have given more much-needed funding to education.

Public education was one of the biggest casualties of the Great Recession. Nearly a decade since it started, nearly half of states are still providing less general funding for schools than they were the year the economy tanked. But the rejections on election night reflect a feeling among taxpayers that governments are punting on a problem by passing on costs to them, rather than making their own difficult decisions.

In Oregon, which is facing a $1.3 billion deficit, voters shot down a proposal to impose a tax hike on corporations with more than $25 million in annual sales in the state. Opponents, largely corporations, called it a sales tax in disguise because they warned businesses would pass on the costs to consumers.

Pat McCormick, a spokesman for the campaign to defeat the tax, told the The Oregonian/OregonLive that Measure 97 "fell of its own weight when people understood what it would do."

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The Week in Public Finance: NYC's $3 Billion in Giveaways, Weak Revenues and Jacksonville's Pension Fix

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A roundup of money (and other) news governments can use.
BY  | NOVEMBER 4, 2016

Why New York City Gave Up $3 Billion in 2016

New York City is the first major government this year to release what it gives up in economic development-related tax incentives to corporations, following new financial reporting requirements. In its annual financial report, the city disclosed that it waived more than $3 billion in potential tax revenue in 2016 alone, mostly in uncollected property taxes.

The tax abatements represent a little under 4 percent of the city’s nearly $80 billion in general fund revenue in fiscal 2016, which ended on June 30.

The most expensive abatement was for the commercial conversion program, which cost nearly $1.3 billion in forgone revenue last year. The program encourages new housing in the city by offering a property tax discount on new construction or on commercial space that was converted into residential housing. Developments have to meet certain requirements, like reserving one-fifth of the units for affordable housing.

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The Week in Public Finance: Petitioning for Bankruptcy, Lost Airbnb Revenue and Downgrading New Mexico

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BY  | OCTOBER 28, 2016

'Put Bankruptcy on the Ballot!'

Activists in financially beleaguered Scranton, Pa., are petitioning for a ballot initiativethat would let residents decide if the city should file for bankruptcy. It’s a first-of-its-kind petition and reflects the ongoing frustrations of a city that's been "fiscally distressed" for two decades.

Scranton is one of Pennsylvania’s Act 47 cities, which designates it as fiscally distressed and opens it up to aid and other resources from the state. The designation also means that the city must comply with certain fiscal requirements, such as developing a recovery plan.

But Act 47 has had its problems, the biggest being that it doesn’t seem to provide enough oversight.

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In Need of Education Funding, States Look to Customers and Corporations

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Tax-raising ballot measures this fall showcase the political power of corporations.
BY  | OCTOBER 21, 2016

Public education was one of the biggest casualties of the Great Recession. Nearly a decade since it started, nearly half of states are still providing less general funding for schools than they were the year the economy tanked.

Two states, however, are asking voters to boost education funding this fall -- but they differ on who should pay for it: customers or corporations.

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The Week in Public Finance: New Jersey's Tax Plan, Online Lending Myths and Cities' Recovery

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BY  | OCTOBER 14, 2016

New Jersey: Between a Rock and a Hard Place

Moody’s Investors Service has panned New Jersey’s plan to beef up its transportation funding, mainly because it does so at the expense of other state programs. The legislature this month approved a 23-cent gas tax increase, which will raise approximately $1.2 billion.

But to offset the tax increase, the legislature also approved tax reductions.

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City Revenues Expected to Finally Recover From Recession

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But cities are still dealing with slow revenue growth and rising costs, according to a new report.

BY  | OCTOBER 14, 2016

 

City revenues have struggled to get back to pre-recession levels. But things may finally be looking up.

On Thursday, officials announced that they expect city incomes to fully recover by next year -- a decade after the start of the Great Recession.

It’s by far the longest revenue recovery period in more than a generation as the bounce back period after the previous two recessions was done in half the amount of time. Currently, officials estimate that city revenues (accounting for inflation) have reached 96 percent of what they were in 2006, the year before the recession started.

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Would Eliminating Taxes on Services Help or Hurt the Poor?

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As states increasingly look to tax services, Missouri voters can be the first to keep that from ever happening. How that would impact consumers is unclear.
BY  | AUGUST 31, 2016

States have struggled to keep up the same revenue growth as they experienced before the recession. One big reason is that their earnings from sales taxes are declining. That's because these days, consumers are spending far more on services -- most of which aren’t taxed -- than goods, which are.

To remedy the situation, lawmakers have tried and had varying degrees of success expanding the sales tax to services. Massachusetts passed a tax on the cloud and quickly repealed it after the tech industry complained. Pennsylvania enacted the so-called "Netflix tax" on streaming video services. Washington, D.C., added a long list of services to be taxed: yoga, tanning and bowling, to name a few.

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The Week in Public Finance: Pensions' Funding Gap, An Assault on Fees and More

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BY  | AUGUST 26, 2016

Most Pensions Falling Behind

A new analysis of state public pension plans this week shows that only one in three states are actually on a path to reduce their unfunded liabilities.

The report, by the Pew Charitable Trusts, used a new metric called net amortization, which essentially measures whether a pension plan’s accounting assumptions and payment schedule are holding up over time. Only 15 states are achieving positive amortization, according to Pew. In other words, they're following contribution policies that are sufficient to pay down pension debt. The remaining 35 states are facing negative amortization, or are following contribution policies that allow the funding gap to continue to grow.

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The Week in Public Finance: Demanding Better Government Disclosure, Uneven Recoveries and a Party at the Pump

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A roundup of money (and other) news governments can use.
BY  | AUGUST 19, 2016

More Disclosure Pressure on Munis

Investors in the municipal market have long demanded better access to governments’ financial information, particularly since the 2008 financial crisis. But tired of waiting, an industry group stepped up its calls for federal regulators to intervene this week in a letter to the Securities and Exchange Commission (SEC).

“The failure to publicly disclose bank loans to all market participants can lead to unexpected rating changes that negatively impact bond pricing,” said Lisa Washburn, chair of the National Federation of Municipal Analysts (NFMA). The group is calling for governments to disclose all interim but relevant information, such as an approved fiscal year budget and tax receipts, as well as clearly report any long-term debt obligations.

The letter also suggests that the SEC adopt the authority to ensure that municipalities file their financial disclosures in a timely manner. Currently, there is no enforced deadline, and governments typically file annual reports anywhere from six months to a year after the close of a fiscal year.

The Takeaway: The problem from an investor point of view is that the more troubled an issuer is, the more likely it will delay releasing relevant financial information. Take Puerto Rico, which is essentially out of cash and only recently issued its annual financial report for the 2014 fiscal year.

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The Week in Public Finance: The Netflix Tax, Another Atlantic City Rescue and More

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A roundup of money (and other) news governments can use.
BY  | AUGUST 5, 2016

Taxing Netflix

Pennsylvania this week became one of a few states that taxes online streaming video services like Netflix and and Hulu, a development that has consumers complaining but other governments watching closely.

The expansion of the state’s 6 percent sales tax was part of a revenue package passed earlier this year to fill a $1.3 billion hole in the state’s new $31.5 billion budget. Pennsylvania also extended the sales tax to digital downloads like music and ebooks. Sixteen other states already do that, but it has proven difficult to tax streaming services.

Last year, Alabama lawmakers tabled a study that would have expanded its 4 percent digital downloads tax to streaming services. Vermont looked at the issue but then the technology was more akin to a service than a tangible good. Massachusetts passed a wide-ranging technology tax in 2013 that was quickly repealed after the tech industry complained of the difficulties of complying to it. (For the record, Florida does apply a small communications tax to streaming services.)

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The Week in Public Finance: Hot Munis, Cooling Off Creditors and Warming Up to Facebook

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A roundup of money (and other) news governments can use.
BY  | JULY 22, 2016

It’s July and Muni Bonds Are Hot

The municipal bond market could be off to its best start since 2010, when federal policies helped fuel new issuance. During the first six months of this year, a total of $221 billion in bonds have been brought to market by state and local governments, according to data from the Securities Industry and Financial Markets Association (SIFMA). The total includes new bonds and refinanced ones.

Most of that activity has come from the second quarter of the year, specifically in May and June when the volume of new bonds in each month was the highest since 2008, according to an analysis by RBC Capital Markets’ Chris Mauro. Even Puerto Rico’s recent default on a $2 billion debt payment has not appeared to phase investors or hurt interest rates.

The market is currently on pace to finish the year with over $430 billion in issuance. But with more than five months to go before the end of the year, anything could happen -- particularly with a volatile presidential contest underway. Last year, the pace cooled in the second half of the year, with the value of total bonds issued finishing just shy of $400 billion. Still, Mauro said he is increasing his original prediction of new bond volume to somewhere between $400 billion and $425 billion.