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Tax Law

State Net Capitol Journal – February 11, 2013

Budget & Taxes

VA TRANSPORTATION PLAN GETS MIXED RECEPTION: As the deadline for Virginia's House and Senate to pass bills to the opposite chamber came and went last week, Senate Democrats refused to go along with Gov. Robert McDonnell's (R) radical plan to overhaul the state's transportation funding system, effectively killing the chamber's version of that proposal. The Senate, divided 20-20 between Democrats and Republicans, split right down the middle of the aisle on the $3.1 billion plan, dubbed "Virginia's Road to the Future," which would do away with the state's 17.5 cents-per-gallon gas tax and fund transportation expenditures with a 0.8 percent increase in the state's 5 percent sales tax instead. And the state's Republican lieutenant governor, Bill Bolling, was unable to cast a tie-breaking vote because the bill, SB 1355, was revenue-related.

"I'm very disappointed," McDonnell said afterward. "I think the Democrats have a lot of answering to do tonight. They're going to have to tell us what they're willing to do. This is a party that says no to everything but higher taxes. I think the Democrats are way out of touch and they need to start being reasonable."

Several Democrats said they opposed the plan because they simply didn't like it, but the stealth maneuver Senate Republicans used to redraw the state's political boundaries (see GOP SNEAKS THROUGH LEGISLATIVE REMAP IN VA in Feb. 4 issue of SNCJ) probably didn't make them too inclined to view the proposal in the most favorable light.

The plan is still alive, however. The GOP-controlled House passed its own version, HB 2313, although not without several amendments - barring the state from imposing tolls on Interstate 95, among other things - and plenty of criticism.

"It's a bunch of gymnastics to try to say you're not raising taxes," said Del. Scott A. Surovell (D). "Beyond that, decoupling road funding from road usage is a pretty radical idea, and it unfairly punishes people who are not even driving on roads."

But ultimately the view expressed by Del. Timothy D. Hugo (R) prevailed.

"Mr. Speaker, there is gridlock in Northern Virginia, and there is gridlock in Hampton Roads, and there is gridlock all over. But the gridlock is caused because of gridlock here in the General Assembly," he said. "Today is the day, the time is now, and the vote is green. Vote yes."

The vote could quickly turn red, however, when "Virginia's Road to the Future" reaches the Senate. (WASHINGTON POST, STATE NET)

CA OUT OF BOND-RATING BASEMENT: Standard & Poor's raised California's general obligation bond rating from A-minus to A this month. The upgrade comes just a week after S&P downgraded Illinois' rating to A-minus, meaning The Prairie State now has the lowest bond rating in the nation instead of The Golden State.

The rating agency has been encouraged by budget developments in California, including recent spending cuts and temporary tax hikes voters approved in November with Proposition 30.

"A more streamlined budget, the temporary taxes and a strengthening economy present the state an opportunity to stabilize its finances for at least several years," S&P stated.

But the agency also cautioned: "Over five to seven years, however, the state's credit rating will depend more on lawmaker actions - in particular, whether lawmakers stay the fiscal course charted out in recent budgets even while Proposition 30 taxes are in effect and especially as they approach expiration." (SACRAMENTO BEE, STATELINE.ORG)

FL GOV PROPOSES RECORD BUDGET: Two years ago, Florida Gov. Rick Scott (R) told a crowd of tea party activists gathered at a church in Eustis that he wanted to cut state spending by $5 billion and require government workers to pay for more of their pensions. But last week the governor proposed a $74.2 billion budget, the largest in the state's history and a $4 billion increase over last year. What's more, he wants to give teachers $2,500 raises and award state workers cash bonuses.

"We balanced the budget, paid down state debt, cut taxes, cut regulation and it worked," Scott said at a news conference where he rolled out his budget. "Now we have the wherewithal to make more investments."

The governor's poor job approval ratings and a "listening tour" of schools last fall may also have contributed to some of the budget provisions. But he hasn't entirely forgotten about spending cuts or become an absolute champion of public labor. His budget also calls for eliminating 3,600 more state jobs and freezing government workers' salaries for the seventh year in a row. (MIAMI HERALD)

CORBETT REVEALS MODEST PA BUDGET: Pennsylvania Gov. Tom Corbett (R) has presented state lawmakers with a $28.4 billion proposed budget for fiscal 2013-14, representing a modest increase over current spending with its balance hinged to broad reforms of state employee and teacher pension systems and the privatization of the state-run liquor store system. The proposal would increase state spending by 2.4 percent without any new or increased taxes. However, Corbett's proposed elimination of the cap on the state's longstanding tax on fuel at the wholesale level realistically could result in higher gas prices at the pump. The governor's proposed pension reforms include a shift to a 401(k)-style plan for new employees and a cut in benefits for current workers going forward. His liquor sale privatization plan would close 600 state-operated wine and spirits store and replace them with the auctioned sale of 1,200 retail licenses to private enterprise. Corbett's proposal would provide a 1.2 percent increase in basic education spending, but would hold spending for special education and higher education at present levels. The spending blueprint drew mixed partisan reaction from the Republican-controlled House and Senate whose respective appropriations committees will begin a month-long series of hearings on it later this month. (STATE NET)

BUDGETS IN BRIEF: The CALIFORNIA State Teachers Retirement System is facing a $64 billion deficit that would require $4.5 billion a year in additional funding to bridge, according to a report released by the pension fund last week (SACRAMENTO BEE). • ILLINOIS withdrew a $500 million bond offering at the last minute on Jan. 30 over concerns about investor response, in light of the state's $96.8 billion projected pension shortfall, among the largest in the nation. The state's pension woes spurred Standard & Poor's to downgrade its bond rating days earlier (WALL STREET JOURNAL). The NEVADA Supreme Court unanimously rejected a challenge to an initiative petition calling for the imposition of a 2 percent business margin tax to provide funding for education. The Legislature must now consider such a tax in the first 40 days of the 2013 session or the proposal will go before the state's voters in the 2014 general election (LAS VEGAS REVIEW-JOURNAL). • A TEXAS judge ruled last week that the state's public school funding system violates the Constitution by failing to provide enough money to school districts or distribute it fairly among them. The decision marks the second time in less than a decade that the state has been ordered to overhaul its school funding system (HOUSTON CHRONICLE).


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