State Net Capitol Journal – March 19th, 2012

State Net Capitol Journal – March 19th, 2012

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Budget & Taxes

WV COMMITS TO PAYING DOWN PENSION DEBT: West Virginia's unfunded pension liability - estimated at $10 billion last year - is one of the highest per capita in the nation. But the state became a standout on the issue in a very different way last month when lawmakers approved legislation proposed by Gov. Earl Ray Tomblin (D) - SB 469 - dedicating $30 million per year in personal income tax revenues to help pay down that pension debt.

"We've struggled for the last three or four years to find a solution," Tomblin said. "Now, as far as I know, we're the first in the country to address it."

Public pension analysts supported that claim.

"While many states struggle with similarly low funded ratios, only West Virginia has implemented a plan to bring the funded ratio of such a large accrued liability to 100 percent," said Lisa Heller, a senior analyst at Moody's Investor Service, echoing three others who said they knew of no other state that had devoted tax revenue to that end.

States have focused instead on shrinking their unfunded liabilities. Over the last three years, nearly every one has reduced retirement benefits for public employees. (STATELINE.ORG, STATE NET)

US SENATE PASSES TRANSPORTATION BILL: On a 74-22 bipartisan vote, the U.S. Senate passed a new transportation bill last week (US SB 1813) that would keep federal funding flowing to states for another two years.

The $109 billion plan would change some transportation processes and increase funding by redirecting money currently allocated for the clean up of leaks from underground fuel tanks and by eliminating tax credits for paper makers. But it would make no major changes in the primary source of federal transportation funding: the federal gas tax. The chamber overwhelmingly rejected proposals that would have allowed states to raise money by commercializing rest stops along interstate highways, and phasing out the gas tax and turning over responsibility for transportation funding to the states.

The American Association of State Highway and Transportation Officials (AASHTO) still praised the senators for their work.

"Their bipartisan approach," the group's executive director, John Horsley, said in a statement, "helped set a path forward for this bill that not only provides a greater degree of funding certainty for states, it also establishes reforms that will streamline project delivery, consolidate programs and improve performance reporting and accountability." With less than two weeks to go before the current federal transportation program expires, the U.S. House still has to approve its own transportation bill, vote on the Senate plan or pass another short-term highway funding bill, as Congress has done eight times since 2009. (STATELINE.ORG)

PROPERTY TAX REVENUES ON DECLINE: Cities, counties and school districts collected $436 billion in property taxes in 2011, about 20 percent more than in 2006. But last year's total was just 1.2 percent more than the year before - and actually .9 percent less after adjusting for inflation - according to data from the U.S. Bureau of Economic Analysis.

Property tax collections haven't fallen below the rate of inflation since 1995. And they haven't dropped below inflation-adjusted, prior-year levels - which could conceivably happen if the current downward trend continues - since the Great Depression.

What is happening is that the devaluation of housing prices is only now beginning to be reflected in American homeowners' property tax bills because of complex laws in most states forestalling property tax declines during economic downturns.

"People say, 'Hey, my house value went down. How about my tax bill going down?' But it doesn't work that way," said Robert Ross, chief assessment officer in McHenry County, Illinois, part of the metropolitan area of Chicago.

Property tax assessments in that state are based on a formula that takes into account home values going back as far as seven years. Public schools in the state, which have had to cut 3.3 percent of their workforce - 270,000 employees - since July 2008, are going to be hit particularly hard.

"We're doing everything we can to save classroom teachers," said Alexandra Nicholson, superintendent of West Northfield School District 31, which gets almost all of its revenue from property taxes. (USA TODAY)

BUDGETS IN BRIEF: Acknowledging the realities of the volatile stock market and weak investment climate, the board of the CALIFORNIA Public Employees Retirement System, the largest public pension fund in the nation, voted 9-1 last week to lower its assumed average annual rate of return a quarter of a percentage point, to 7.5 percent. The reduction will raise the state's pension costs by $167 million (LOS ANGELES TIMES). • NEVADA Gov. Brian Sandoval (R) said last week that in order to avoid further cuts to education and other services, he will seek another extension of the 2009 increase in payroll, sales and car registration taxes in his budget for the next biennium. He extended the sunset date of those levies last year after a state Supreme Court decision threw into question more than $600 million in local government funds he had planned to use to balance the budget (LAS VEGAS SUN). • OREGON lawmakers convened in special session last Monday in an effort to pass a budget addressing the state's $1 billion budget gap, which they failed to do in the 60-day session that ended on March 9, as well as in a 17-day special session last December. They will also consider a $1.2 billion plan to stimulate jobs through school construction, community and environmental cleanup projects across the state (OLYMPIAN). • WYOMING lawmakers approved and Gov. Matt Mead (R) signed legislation - SB 82 - eliminating the state's $2 cap on ATM fees, which was the only such limit in the country. Proponents said the fee wasn't enough for many small businesses to cover the costs of operating the machines, especially in rural areas (CASPER STAR-TRIBUNE, STATE NET). • OHIO Gov. John Kasich (R) unveiled a mid-term budget plan that would provide a $500 million-per-year income tax cut by increasing oil and gas taxes. The proposal also calls for $1.74 billion in construction projects, including $675 million for schools (CLEVELAND PLAIN DEALER). • VIRGINIA ended its 2012 legislative session March 10 without passing a state budget, reportedly due in part to a partisan standoff over committee assignments. Work on the $85 billion, two-year spending plan will recommence in a special session on March 21 (WASHINGTON POST). • Despite signs of an improving economy, the left-leaning Center on Budget and Policy Priorities projects that states will face a combined $47 billion budget gap in the fiscal year that begins in July. But that figure is less than half the shortfall states confronted a year ago and less than a third of the $191 billion gap three years ago (WALL STREET JOURNAL).

- Compiled by KOREY CLARK

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