State Net Capitol Journal – April 15, 2013

State Net Capitol Journal – April 15, 2013

Budget & Taxes

STATES' TRANSPORTATION FUNDING NEEDS TRUMPING TAX AVERSION: This month Virginia's Republican-controlled House and GOP-Democrat-split Senate gave final approval to a $6 billion transportation funding overhaul proposed by the state's Republican Gov. Bob McDonnell that included, among other things, a new 3.5 percent sales tax on gasoline and a 6 percent tax on diesel fuel. That action highlights a developing trend across the country: States - even some controlled by usually tax-averse Republicans - are opting to increase gas taxes and other fees to provide funding for transportation projects.

Nineteen states have either already enacted or are considering tax and other fee changes to boost transportation budgets, according to the National Conference of State Legislatures. In March, Maryland lawmakers passed Gov. Martin O'Malley's (D) plan to raise state gas taxes 13 to 20 cents per gallon by 2016, which would make that state's gas taxes and fees among the highest in the nation. Wyoming, another GOP-dominated state, enacted a 10-cents-per-gallon gas tax hike (from 14 cents per gallon to 24), effective in July. And two other states, Iowa and Texas, are considering similar proposals.

"It doesn't matter whether you're Republican, Democrat, tea party," said Texas Sen. Robert Nichols (R), chairman of the Senate's transportation committee. "Everybody recognizes the need for transportation funding."

In its latest report card, released in late March, the American Society of Civil Engineers concluded that the nation's congested and deteriorating roads and infrastructure cost the economy $130 billion in 2010. And the group estimated the country needs to invest $1.7 trillion through 2020 to get things back on track but will only raise about half that amount at current funding levels.

The crux of the problem is that gas tax revenues are a diminishing resource.

"Cars are getting more efficient, and people are actually driving less," which have conspired to put less revenue into the trust funds used to pay for transportation projects, said James Corless of Transportation for America.

Another big part of the problem is that gas taxes aren't generally linked to inflation, meaning gas-tax revenues have effectively shrunk over time. And lawmakers have been loath to raise the levies. Until this month, Virginia hadn't increased its 19.9 cents-per-gallon in gas taxes and fees for 26 years. And the federal gas tax has been at 18.4 cents per gallon since 1993.

Virginia's Republicans came up with a novel approach for dealing with that issue, however. They structured the state's new gas taxes as percentages of sales instead of as flat fees, so theoretically they should rise with inflation without the need for legislated increases.

But all Republicans haven't climbed aboard the gas-tax bandwagon. In January a commission created by the Wisconsin Legislature unanimously recommended a suite of transportation funding measures, including a five-cents-per-gallon increase in the gas tax. Gov. Scott Walker (R), however, has opted instead to issue general-purpose bonds and sell some state property to raise revenue for transportation.

Even in Virginia, the new gas taxes weren't embraced without reservation.

"It was a true compromise," said Del. William Howell, speaker of the Virginia House, who helped broker the state's transportation funding deal. "As with most any compromise, no one's 100 percent happy with every feature of it. There are some things that I'm not crazy about. I'm sure there's some features that other people don't relish."

One thing keeping lawmakers on both sides of the aisle from relishing gas taxes is that despite the sorry state of the nation's roads, the taxes haven't stopped being something of a political hot potato.

"Any time you use the words 'gas tax,' there are lots of political consequences," said Iowa Sen. Tod Bowman (D), chairman of his chamber's transportation committee. And in an interview in Annapolis last week, O'Malley said there's probably no tax "more unpopular than the gas tax."

But Transportation of America's Corless said a couple of developments have forced state lawmakers to overcome their aversion to gas taxes, including Congress' failure to provide a new revenue source in the transportation bill it approved last year.

"I think states were hopeful that Congress would step up, and they didn't," said Corless. "And then secondly, really, is...the combination of the state budgets themselves getting hammered since 2007, but also really seriously a precipitous drop in revenues from the gasoline tax." As Howell said of Virginia's transportation funding overhaul, "we had to do it."

Iowa's Bowman, likewise, said finding a solution to the transportation funding problem was crucial for his state.

"We pay now, or we'll pay later," he said.

(WALL STREET JOURNAL, NATIONAL CONFERENCE OF STATE LEGISLATURES, WASHINGTON TIMES, VIRGINIAN-PILOT [NORFOLK], WASHINGTON POST, NATIONAL PUBLIC RADIO, POLITICO, STATE NET)

LA GOV OPTS FOR INCOME TAX REPEAL OVER TAX SWAP: Last month, Louisiana Gov. Bobby Jindal (R) unveiled a bold plan to scrap the state's income tax and replace the lost revenue by increasing and broadening the state sales tax. Last week the governor announced that he was scrapping that plan.

In a speech opening the state's legislative session last Monday, Jindal told lawmakers he'd listened to their criticism of his plan.

"I realize that some of you think I haven't been listening. But you'll be surprised to learn I have been," he said. "And here is what I've heard from you and from the people of Louisiana: 'Yes, we do want to get rid of the income tax, but governor, you're moving too fast and we aren't sure that your plan is the best way to do it.'"

Jindal made it clear he wasn't giving up on doing away with the income tax, however, just calling on the legislature to propose alternatives for doing so.

"Already, several of you have filed plans that phase out the income tax. So, let's work together to pass a bill this session to get rid of our state income tax," he said.

Another twist came the following day when the Jindal administration indicated that revenue neutrality - which had been at the heart of the governor's income tax-sales tax swap - would not be a requirement for any plan lawmakers came up with for repealing the income tax.

Tim Barfield, executive counsel for the Department of Revenue, and Jindal spokesman Kyle Plotkin said many of the legislative proposals that had already been put forward this year would phase out the income tax over a number of years, allowing lawmakers time to figure out how to make up the lost revenue later.

That idea didn't sit well with Sen. J.P. Morrell (D).

"As you well know, the people of this state count on the governor for being the leader. And to tell the Legislature that revenue neutrality is no longer mandated for a bill for the governor to sign really sends the wrong message," he said.

A bill repealing the income tax without any immediate strings attached might be more tempting to lawmakers this session but it could also potentially set up a situation in future sessions where lawmakers would have to pass a tax increase without any tax cuts to make the hike more palatable.

Plotkin suggested that doing away with the income tax would spur economic growth, potentially reducing the need for revenue generating measures in the future. But Morrell said passing a tax cut that doesn't keep funding stable could make it impossible to keep running the government.

"You're not talking fiscal responsibility, you're talking fiscal fantasy at that point," he said. (POLITICO, TIMES-PICAYUNE [NEW ORLEANS])

UNIVERSAL HEALTH OVERAGE PIONEER MA MOVES ON TO COST CONTAINMENT: Seven years after enacting its groundbreaking near-universal health care law, which became the model for the Affordable Care Act, Massachusetts is now hoping to become a pioneer in curbing the cost of health care.

The state has an uninsured rate of less than 2 percent, far below the national average of 16 percent. But health care costs in the state, which were the highest in the nation before passage of the universal health care law, remain high.

Under a law signed by Gov. Deval Patrick (D) last year (Chapter 224), however, Massachusetts is placing its entire health care industry on an annual budget and requiring all insurers and medical providers to make the prices of their services public. Starting in October, consumers will be able to make comparisons of those prices online.

That broad-based approach to health care cost containment is sure to draw the attention of other states.

"Just as with our 2006 access law, other states will be watching and seeing how this experiment moves forward," said the state's health policy commissioner, David Seltz. "I feel certain we'll have some positive results to show." (STATELINE.ORG)

FEDERAL RESERVE POLICY HAS STATES BACKING GOLD: More than a dozen states, including Arizona, Kansas and South Carolina, are pushing to recognize gold and silver coins as legal tender, following the lead of Utah, which recognized bullion as currency two years ago.

The proposals, backed by the Tea Party movement and largely symbolic - you still can't buy groceries with gold in Utah, for instance - reflect ongoing concerns about the U.S. dollar amid the Federal Reserve's unconventional moves over the past few years to stabilize the economy, which include Ben Bernanke's insistence on keeping interest rates near zero since the start of the recession.

"The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing," said Loren Gatch, a political science professor at the University of Central Oklahoma. "There is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar. That's what is behind it." (BLOOMBERG.COM)

BUDGETS IN BRIEF: A group of senior senators in IDAHO has blocked the efforts of the Girl Scouts of America to get the state sales tax on their cookies lifted. Idaho and HAWAII remain the only two states to take a bite out of the Girl Scout's cookie sales (WALL STREET JOURNAL). • TENNESSEE is using a new online tool made possible by the U.S. Treasury Department to seize the federal income tax refunds of individuals who received unemployment benefits they weren't entitled to. A recent audit of the state's unemployment system revealed the state made $73.4 million in overpayments over the past six years (NASHVILLE TENNESSEAN). • CALIFORNIA lawmakers have proposed legislation that would revoke the exemption from state taxes for nonprofits that exclude members on the basis of sexual orientation, gender identity or religious affiliation. The bill's author, Sen. Ricardo Lara (D), said the measure (SB 323) is directed mainly at the Boy Scouts of America, which has voted twice since 2010 to maintain its ban on openly gay members (LOS ANGELES TIMES, STATE NET).

- Compiled by KOREY CLARK

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