State Net Capitol Journal – April 1, 2013

Budget & Taxes

REBOUND SPURRING RAINY DAY DEBATE: During the recession, states raided their rainy-day funds to help plug budget holes. Now, with the economy rebounding, some states are running surpluses. Governors in several of them are pushing to boost those cash reserves higher, spurring debate about whether it would be better to spend that money than save it.

Collectively, states are projected to increase their cash reserves by $3.4 billion, to $41.4 billion, this fiscal year, according to the National Conference of State Legislatures. That would constitute about 9 percent of state revenues, the highest level since 2008 and nearly double the 5.2 percent low of 2010.

Michigan Gov. Rick Snyder (R) wants to add $75 million to the $505 million his state expects to have in its rainy day fund by the end of the fiscal year. And Tennessee Gov. Bill Haslam (R) wants to add $100 million to the $356 million reserve his state is projecting.

The governors say having healthy cash reserves will allow their states to borrow at a lower interest rate, saving taxpayers money in the long run, and the reserves will also help them weather cutbacks in federal funding under sequestration.

"The hardest thing to do in government is to hold in the reins when times are good," said Haslam. "Let's be prepared for the fact that there is going to be a lot of federal money going away. It's all the more reason to be responsible."

But some state lawmakers argue that money should instead be used to restore funding for programs that are suffering as a result of years of budget cuts.

"Before we start putting hundreds of millions of dollars in a rainy-day fund, we should first be meeting the basic commitments," said Michigan Rep. Brandon Dillon (D).

And Tennessee Senate Democratic Leader Jim Kyle said sequestration isn't just a future problem. He said it will eliminate $1 million in funding for a program that provides meals for senior citizens and nearly $15 million in funding for primary and secondary education this year.

"It's rainy," he said. "I don't know what rainy is if sequestration is not rainy. We should hold Tennesseans harmless because we can afford to. It's their money." (WALL STREET JOURNAL, STATE NET)

HIDDEN COST OF NOT EXPANDING MEDICAID: States that refuse to expand their Medicaid programs in accordance with the Affordable Care Act may end up costing local business as much as $1.3 billion in federal fines, according to a new study.

A provision in the federal health care overhaul requires businesses that offer health insurance and have 50 employees or more to pay a "shared responsibility" fee of as much as $3,000 for each employee who is unable to obtain insurance through their company. Workers who qualify for Medicaid would not trigger that fee. But 22 states have rejected the expansion of that program called for by the ACA.

Employers in one state that has done so, Florida, could face as much as $219 million in shared responsibility fines, according to a study released last month by Jackson Hewitt Tax Service Inc. Employers in Texas could be subject to as much as $448 million in such fees.

"A lot of businesses have taken the position that they oppose a Medicaid expansion because it would increase their taxes," said Brian Haile, senior vice president for health policy at Jackson Hewitt. "The irony of this, or the paradox, is that the opposite may be true, at least for some businesses in some states." (BLOOMBERG, JACKSON HEWITT TAX SERVICE INC)

SLIGHT IMPROVEMENT IN NATION'S INFRASTRUCTURE: In its latest report card on the state of America's roads, bridges, water systems and energy networks, the American Society of Civil Engineers (ASCE) gave the nation a "D+," a slight improvement over the "D" grade the organization gave the country in its last Report Card for America's Infrastructure, four years ago. That may not seem like much to cheer about, but it's actually the first time the grade has improved in 15 years.

The report showed progress in six areas, including bridges, rail and drinking water, which the ASCE attributed to increased private financing of public projects and state and local governments taking the initiative on their own projects rather than waiting for Washington to allocate funding.

"When investments are made and projects move forward, the grades rise," the ASCE report card stated.

Still, ASCE President Gregory E. DiLoreto said, "A D+ is simply unacceptable for anyone serious about strengthening our nation's economy." He added, however, that the improvement "shows that this problem can be solved."

The group estimates that the nation will need investment of about $3.6 trillion by 2020 but that current spending levels will come about $1.6 trillion short of that mark. (NEW YORK TIMES, INFRASTRUCTUREREPORTCARD.ORG)

BUDGETS IN BRIEF: At a joint meeting of the LOUISIANA House Ways and Means Committee and the Senate Revenue and Fiscal Affairs Committee last month, Gov. Bobby Jindal (R) outlined a plan to replace the state's personal and corporate income taxes with a higher, broader sales tax. The details of the $3.64 billion tax swap were still being worked out but it would take effect next year (TIMES-PICAYUNE [NEW ORLEANS]). The ILLINOIS House voted last month to curb the automatic cost-of-living increases to retirees that have helped drive up retirement costs and make the state's public pension system the most underfunded in the nation. The 66-50 vote sent HB 1165 to the Senate (CHICAGO TRIBUNE, STATE NET). • TEXAS' House Appropriations Committee approved a 2014-15 budget plan last week calling for $1 billion in additional funding for public schools on top of the $1.5 billion the House and Senate have already committed to. The combined funding would restore about half of the $5.4 billion cut from schools in 2011 (HOUSTON CHRONICLE). • WISCONSIN Gov. Scott Walker (R) has proposed a state budget calling for $1 billion in borrowing over two years, mostly to bolster the state's transportation fund (MILWAUKEE JOURNAL SENTINEL). • David Unkovic, the former receiver of PENNSYLVANIA's troubled capital, Harrisburg, said the segregation of minorities and the poor is as much to blame for the fiscal distress of municipalities with high populations of minorities like Harrisburg and Detroit as escalating pension costs and declining tax revenues. Our system of government tends "to isolate the poor, including many minorities, in defined political subdivisions where they receive substandard education, substandard services and substandard opportunities." he wrote in a paper he presented last month at the Bond Buyer Symposium on Distressed Municipalities in Providence, RHODE ISLAND (BLOOMBERG). • MAINE Gov. Paul LePage (R) unveiled a $100 million transportation bond proposal last month. He also admitted to refusing to release $105 million in bonds approved by voters until lawmakers pass his plan to repay the state's $484 million in hospital debt (BANGOR DAILY NEWS). • FLORIDA Gov. Rick Scott (R) has temporarily shut down the lieutenant governor's office in an effort to save money following the resignation of Lt. Gov. Jennifer Carroll (R) in connection with a state probe of a gambling ring. The office has an annual budget of about $510,000, most of which goes toward salaries for the lieutenant governor and four full-time staffers (TAMPA BAY TIMES). • As a result of the furloughs CALIFORNIA imposed on state workers over the last five years to save money, the state may end up having to pay workers $1 billion more for unused vacation time when they retire. The mandatory furloughs evidently prompted workers to take less discretionary time off from work (LOS ANGELES TIMES). • VIRGINIA Gov. Bob McDonnell (R) has proposed amending the state's new transportation funding law to allow any region of the state to impose regional taxes for transportation initiatives, although only Northern Virginia and Hampton Roads currently meet the standards specified in his proposal. The proposed change was spurred by concerns raised by Attorney General Ken Cuccinelli (R) about the constitutionality of allowing just those two regions to impose such taxes (RICHMOND TIMES-DISPATCH).

- Compiled by KOREY CLARK

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