The Two Biggest Issues Facing 32 States in 2017

by John Haughey // Jan 04, 2017 State & Local

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We gave you a sneak peek just before the holidays with our Seven State Policy Issues to Watch in 2017 but that’s just scratching the surface. Literally.

Today, we’re diving a little deeper into the number one and two priorities based on pre-filing in 36 states.

As multiple state legislatures start to convene this week and next, they’ve been slightly overshadowed (what’s new they’d probably say) by a new administration and Congress taking over in Washington, D.C. But those in the government relations and advocacy business know that some of the fastest and most far-reaching legislation for their industry gets passed in the states.

Already, thousands of proposed bills – more than 500 in Texas alone – have been pre-filed by sponsors hoping to get their initiatives assigned a number and placed into appropriate committees.

Forty-four states allow lawmakers and, in some cases others, to pre-file bills in advance of legislative sessions.

Six states – Delaware, Hawaii, Idaho, Massachusetts, Michigan, Minnesota – do not permit pre-filing bills, or strictly limit it, before the first year of a biennium session, such as the upcoming 2017 legislative year. Six states – California, Nebraska, North Carolina, Ohio, Pennsylvania and Wisconsin – do not permit pre-filing bills.

Republicans now control the House and the Senate in 32 states – 69 of 99 legislative chambers – and 33 of the 50 governorships, so it’s little wonder they’re adeptly availing themselves of the advantages that pre-filing offers. Data from pre-filing indicates they will pursue their traditional agenda of cutting taxes, removing regulations, promoting school choice, enforcing pre-emption and limiting local governments’ capacity to adopt ordinances contrary to state law.

Ideology aside, however, the two most dominant issues facing state lawmakers across the country will be balancing budgets and building bridges. Actual bridges, that is. Not the metaphorical “reach across the aisle” ones.

In many states, the first year of a biennium legislative session is the budget year, and many will enter 2017 facing significant budget shortfalls. Legislators will have to contend with growing revenue deficits while also simultaneously developing capital improvement plans to overhaul inadequate and obsolete infrastructure. That’s a big urgency in many states and became a 2016 presidential campaign issue.

In response, Trump has pledged $550 billion in federal infrastructure investment in the coming years, putting the onus on states to integrate their existing and proposed project profiles into whatever designs come from Washington, D.C.

Other trending pre-filed bill topics include: Tax relief/tax reform; prohibiting sanctuary cities; reproductive restrictions; bathroom privacy; death penalty; ‘Blue Lives Matter’ bills making crimes against law enforcement hate crimes; gun-owners’ rights vs. gun control; lotteries, online gaming, daily fantasy sports bills; marijuana legalization, taxation, regulation; minimum wage and gender equity bills; recouping online sales taxes; opioid regulation and prescription drug prices.

BUDGETS/TAX RELIEF & REFORM

According to the National Association of State Budget Officers’ (NASBO) Fall 2016 Fiscal Survey of the States, 24 states are reporting general fund revenues below projections thus far for FY 2017, which began on July 1. That wasn’t unexpected after FY 2016 ended with reporting revenues collections below budget forecasts, and 19 states having to make mid-year reductions in adopted budgets.

NASBO and other economic forecasters see more of the same for state governments in 2017 when legislatures convene: Lower than projected tax revenues and moderately increasing expenditure commitments mean lawmakers will be spending a lot of time and effort plugging holes in their budgets.

Budget issues lawmakers is some states will confront in 2017:

— Delaware: $350 million dollar deficit and a bare budget already.

— New Hampshire: Senate President Chuck Morse wants reforms to the state’s Department of Health and Human Services, which consumes roughly 40 percent of state tax dollars.

— Oregon: Facing a $1.7 billion shortfall, House Republicans want to address state’s “unsustainable rate of spending.” Oregon voters in November rejected Measure 97, the largest tax increase in the state’s history. The Democrat majority will seeking to develop new revenue streams.

— Maryland: Revenue projections are down $365.1 million for Fiscal Year 2017 and $418 million for FY18, after Maryland ended FY16 $250 million below forecast.

— Massachusetts: An estimated $240 million gap from FY16 budget will engender systemic spending cuts stemming from rising Medicaid costs and stop-gap allocations in previous budgets.

— New York: State is facing potential recurring $5 billion budget gaps over the next three fiscal years.

— Washington: The state could be facing up to a $4 billion budget gap over the next biennium. Revised revenue projections for the next two fiscal years predict a $474 million shortfall that could mushroom to an estimated $3.5 billion every two years if the state supreme court mandates the state more adequately fund the state education system.

— Pennsylvania: Rising pension costs could endanger budgets in near future.

— Florida: Potential $1.3 billion deficit in FY18 will need to be addressed in 2017.

— Illinois: State faces an $8 billion budget shortfall in FY17 after not adopting formal budgets for FY15 or FY16. If recent trend continues, legislators will cobble together yet another stopgap spending plan in 2017.

— Kansas: State budget shortfall could be as much as $20 million. Lagging tax receipts came in $10 million short of projections in FY16. Legislature’s recent tax cuts cited as cause.

— North Dakota: No budget shortfall but declining energy prices fostered a $310 million reduction in projected revenues.

— Louisiana: Despite two special budget sessions in 2016, an August economic forecast predicted a $1.5 billion revenue shortfall for FY18.

— Mississippi: State is facing a $56 million shortfall because of an “accounting error.” Proposals include agency budget cuts instead of plugging gap with rainy day fund.

— South Dakota: State revenues 3.6 percent below projections, fostering expectation of a “lean” budget.

— Wisconsin: Despite projected $693 million budget shortfall, Gov. Scott Walker vows, “Wisconsin will have a balanced budget.” State also faces a $1 billion transportation budget shortfall over the next two years that lawmakers may address by discontinuing projects or developing additional revenues for roads.

— Montana: Gov. Steve Bullock’s two-year budget plan includes several revenue measures to help plug the state’s revenue gap.

— Virginia: Facing a $1.5 billion biennial budget shortfall because withholding and sales tax revenues are falling below projections. Plans to increase public employee salaries have been delayed.

— New Mexico: There is an estimated $458 million budget hole in the FY17 budget. A new tax on alcohol and tobacco are among ideas being proposed to plug shortfall.

— Connecticut: Ended Fiscal Year 2016 with a $316 million deficit. Lawmakers must address revenue shortfalls in 2017.

— Texas: Legislators want state agencies to cut budgets by 4 percent in 2017 because of declining energy prices, a Medicaid funding gap of up to $1.6 billion and lower tax revenues from 2015’s tax cuts.

— Alaska: State faces a $4 billion budget deficit.

— California: Forecasts estimate state tax receipts will decrease by $1.9 billion in the coming years, leading to a possible $4 billion deficit by 2020.

— Colorado: Lower than expected sales and corporate income tax receipts could foster a FY17 budget shortfall of $227 million to $330 million.

–Oklahoma: Lawmakers closed a $1.3 billion budget hole in 2016 but will face revenue problems soon if the energy economy continues to struggle.

Voters defeat of Question 779, which would have raised the state’s sales tax by 1 percent, would have provided some revenue assurance.

TAX RELIEF & REFORM

Despite stressed budgets, lawmakers in many states campaigned on cutting taxes, and there will be plenty of expectation for them to follow through in 2017. Here is a smattering of a few proposals being discussed in anticipation of upcoming legislative sessions.

— Kentucky: Gov. Matt Bevin and the state’s Republican-controlled legislature have vowed to overhaul the state’s tax code in 2017. Bevin has expressed interest in eliminating the state’s income tax. Supply-side economist Arthur Laffer who will be a budget consultant, is a supporter of eliminating the income tax.

— New Hampshire: Rep. Paul Henle (D-Tamworth) may submit a 2017 bill repealing property taxes and adopting an income tax. Other proposed bills he’s considering include repealing the education tax credit, removing an exemption for premium cigars from the tobacco tax, establishing a small business jobs fund and tax credit, and introducing a local option sales tax to reduce the state’s property taxes.

— Iowa: Legislators are considering 2017 proposals that include converting the state’s graduated tax rate structure to a flat tax, and regressive income tax cuts in exchange for funding water quality improvements.

— Montana: Proposed tax cuts include tax incentives for new or expanding businesses and creation of a state Earned Income Tax Credit (EITC) at 3 percent of the federal EITC. Proposed increases include consumption tax reforms (increased alcohol and taxing medical marijuana) and adding a new top tax bracket and rate for income over $500,000 and limiting the tax credit for capital gains to income under $1 million.

— Maine: Gov. Paul LePage’s proposed budget will contain income tax cuts to counter-act the 3-percent tax surcharge assessed on incomes above $200,000 approved by Maine voters in the November Question 2 ballot measure.

— Missouri: Legislators in 2017 will consider a proposal to phase out the state’s 6.25-percent corporate income tax by 2019.

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