State Net Capitol Journal – February 3, 2014; States Debate What To Do With Tax Windfalls

Budget & Taxes

STATES DEBATE WHAT TO DO WITH TAX WINDFALLS: Rising tax revenues — and election-year considerations — are ratcheting up debate in state capitols over whether to cut taxes, restore spending eliminated during the recession or fund new programs.

Although the debates tend to fall along party lines, with Republicans calling for tax cuts and Democrats pushing for more spending, there are exceptions. For instance, Georgia Gov. Nathan Deal, a Republican, is calling for the biggest increase in K-12 education funding since the start of the recession. Michigan's Republican Gov. Rick Snyder is expected to face off with members of his own party in the Legislature over how much to reduce taxes and how much to put into cash reserves. And California Gov. Jerry Brown (D) wants his fellow Democrats who control that state's Legislature to focus on paying down debt rather than increasing spending.

"Boom and bust is our lot," he said in a speech to state lawmakers last month.

Wisconsin Gov. Scott Walker (R) and New York Gov. Andrew Cuomo (D), meanwhile, are heading in both directions, calling for major tax cuts but also more spending on job-training and prekindergarten programs, respectively. (WALL STREET JOURNAL)

MI GOV WANTS TO OPEN BANKRUPT DETROIT TO WORLD: Last month Michigan Gov. Rick Snyder (R) unveiled a plan to help revitalize bankrupt Detroit: issue special visas to lure highly skilled immigrants to the city, or as he put it, send the message that "Detroit is open to the world."

The city's population has plunged by over 1 million since its peak of 1.8 million in 1950. The EB-2 visa's Snyder envisions would be aimed at individuals with advanced degrees in fields like information technology, healthcare and life sciences.

Snyder would need federal approval for the plan at a time when immigration reform is one of the most contentious political issues. And there's no precedent for issuing such visas for a specific geographic region. But the governor said the program is similar to an existing one granting visas to doctors who commit to working in under-served areas. And he believes the plan could draw tens of thousands of immigrants to Detroit over the next five years.

"Let's ask the federal government to change regulations to bring in highly skilled immigrants to the state," Snyder said. "We'd like to see 50,000 immigrants over five years coming to live and work in Detroit."

In other Detroit-related news, a federal bankruptcy court judge rejected a deal negotiated by the city to pay Bank of America and UBS $165 million to extricate itself from some long-term financial contracts that are costing it tens of millions of dollars each year.

U.S. Bankruptcy Court Judge Steven W. Rhodes said it was time to put an end to the hasty financial decisions that got the city into the trouble it's currently in.

"It's just too much money," Judge Rhodes said.

But the judge also said it was "reasonably likely" the city could get out of its contractual obligations to the two banks by suing them instead. (DETROIT FREE PRESS, NBCNEWS.COM, NEW YORK TIMES, STATE NET)

'TAKE 'N' BAKE' PIZZA TAX DILEMMA: Most states tax prepared, ready-to-eat food but don't tax food sold at grocery stores and cooked at home. "Take 'n' bake" pizza — the half-ready-to-eat fare offered by pizzerias and supermarket chains alike — presents states a bit of a quandary, however: Is it a prepared food or is it a grocery item like frozen pizza.

The Streamlined Sales Tax Governing Board, which aims to regularize sales taxes among the states, defines prepared food as that sold in a "heated state," containing two or more ingredients combined by the seller, or sold with utensils. And that board's Compliance Review and Interpretations Committee recently voted that take 'n' bake pizza meets that definition. But only about half of the 24 states that follow the board's guidelines agreed with that decision.

"The states that are looking at it as not prepared food, say it's not in a ready to eat condition," said Myles Vosberg, chairman of the Compliance Review and Interpretations Committee. "The other states say well, it's prepared, even if it's not ready to eat."

"It's a very, very, very difficult line to draw," said Michael Mazerov, a senior fellow at the progressive Center on Budget and Policy Priorities. "I know this because 16 years ago, I was on [another] multi-state tax commission, and I tried to write a definition of 'prepared food' that made some sense. It was extremely difficult then and now, with the evolution of the food industry, it's even harder."

Because of the split on the issue, the board is now considering a "toggle rule," allowing states to include or exclude take 'n' bake pizza and other products from the definition of prepared food. The board will review the rule at its May meeting. (STATELINE.ORG)

BUDGETS IN BRIEF: The U.S. Department of Agriculture declared portions of 11 drought-stricken states — ARKANSAS, CALIFORNIA, COLORADO, HAWAII, IDAHO, KANSAS, NEVADA, NEW MEXICO, OKLAHOMA, TEXAS and UTAH — primary natural disaster areas last month. The designation will allow eligible farmers to qualify for low-interest emergency loans from the department (SAN ANTONIO EXPRESS-NEWS). • U.S. House and Senate negotiators reached agreement last month on a new farm bill that cuts the $80 billion-per-year food stamp program by 1 percent, or $800 million (CHRISTIAN SCIENCE MONITOR). • A pair of NEW JERSEY lawmakers has introduced a bill that would let the state enter into reciprocal agreements with other states and countries that allow Internet gambling. "This opens up the worldwide market to us, the $30 billion Big Kahuna," said Sen. Ray Lesniak (D), one of the measure's co-sponsors (ASSOCIATED PRESS, PRESS OF ATLANTIC CITY). • The top staff economist for NORTH CAROLINA's General Assembly told a legislative committee last month the state could take in $20 million to $30 million more — and cities and counties $10 million to $13 million more — each year in taxes with Internet retailer Amazon collecting sales tax on items purchased within the state as of Feb. 1 (WINSTON-SALEM JOURNAL). • On a party line 5-2 vote, MICHIGAN's Senate Finance Committee approved a bill that would gradually reduce the state's income tax from 4.25 percent to 3.9 percent by 2017. The full Senate will now consider the measure. (DETROIT FREE PRESS)

- Compiled by KOREY CLARK

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