Tax Law

State Net Capitol Journal – March 4, 2013

Budget & Taxes

VA PASSES TRANSPORTATION FUNDING OVERHAUL: On the final day of their legislative session, Virginia lawmakers approved a plan overhauling the way the state will pay for its roads, highways and mass transit.

Under the plan, the state's 17.5 cents-per-gallon tax on gasoline - which hadn't been changed in more than two decades - will be replaced by a new 3.5 percent wholesale tax on motor fuels that will rise with inflation. The plan also boosts the sales tax on nonfood items to 5.3 percent from 5 percent and directs more of that revenue to transportation. An additional regional funding mechanism will raise the sales tax in Northern Virginia and Hampton Roads to 6 percent and require all of that revenue to be spent exclusively on transportation projects in those regions.

The plan comes after weeks of twists and turns in Gov. Robert McDonnell's (R) effort to get a transportation funding overhaul through the General Assembly. (See BUMPY ROAD CONTINUES FOR VA TRANSPORTATION FUNDING OVERHAUL in the February 18 issue of SNCJ.) The plan passed the GOP-controlled House with the slimmest majority of the Republican caucus voting for it. And the following day it passed the Senate, split 20-20 between Republicans and Democrats, with only eight Republican "Yes" votes, after Democrats got McDonnell to agree in writing to the Affordable Care Act's prescribed expansion of Medicaid.

"This isn't any bill, this is the only bill, and we did not reach this decision lightly without hundreds of hours of anguish and numbers-crunching," said Senate Majority Leader Thomas K. Norment Jr. (R). "It is the only solution we could come up with."

That solution was quite a bit different than the one McDonnell initially proposed, which among other things had called for elimination of the gas tax altogether, but he seemed satisfied with the result nonetheless.

"This is a historic day in Virginia," he said in a written statement. "We have worked together across party lines to find common ground and pass the first sustainable long-term transportation funding plan in 27 years. There is a 'Virginia Way' of cooperation and problem solving, and we saw it work again today in Richmond." (WASHINGTON POST, STATE NET)

NEWTOWN SPURS SPENDING ON MENTAL HEALTH: Between 2009 and 2012 an estimated $4.3 billion in mental-health spending was slashed from state budgets. But in the wake of the shooting massacre in Newtown, Connecticut, lawmakers and governors of both parties are pushing to restore some of that funding.

Last month Wisconsin Gov. Scott Walker (R) proposed a nearly $30 million increase in mental health funding in his state budget. Colorado Gov. John Hickenlooper (D) has proposed $18.5 million in mental health initiatives, including a statewide mental-health crisis hotline and walk-in centers. And a Republican state representative in Pennsylvania is leading an effort to reclaim $84 million in mental health funding cut from the state's most recent budget.

Mental health advocates are hopeful about the shift on the issue.

"It would be good if we could undo some of the damage of recent years," said Debbie Plotnick, senior director of state policy for Mental Health America. "We've had years of cuts, and they've been drastic. We're seeing a rethinking of that. I wish it would turn on a dime." (WASHINGTON POST)

KS' 'GLIDE PATH' TO NO INCOME TAX NOT SMOOTH: Last year Kansas eliminated the state income tax for about 190,000 small businesses and lowered the rate for high-income earners. Gov. Sam Brownback (R) says he's put the state on a "glide path to zero" income taxes.

With GOP supermajorities in both legislative chambers, the state is in a unique position.

 "I think the road is open," Brownback says. "I think we do provide an alternative model. I think we do provide a red-state model.

Jonathan Williams, director of the Tax and Fiscal Policy Task Force for the conservative-leaning American Legislative Exchange Council, seems to approve of that model.

"Well, Gov. Brownback has made very bold moves towards making Kansas a more competitive place to do business and to create jobs," he said.

Unsurprisingly, the model has also found favor among small businesses, such as the accounting firm Meara Welch Browne, which recently relocated to Kansas from Missouri. The company's short move "from just a mile or two" on one side of the state line to "literally...a few hundred yards" on the other has boosted its income by over 6 percent, according to partner Steve Browne.

But Republican state Rep. Barbara Bollier isn't a fan of Brownback's red-state model. Although pro-business, she has a hard time swallowing the $850 million per year the state now stands to lose in revenue. With a third of the state's general fund coming from the income tax and neighboring states now talking about lowering or eliminating their own income taxes, Boiler fears a race to the bottom leading to job losses and painful budget cuts.

"I have a hard time looking at the schoolchildren in my neighborhood and saying, 'I'm going to do an experiment on you, and if we lose, your schools are going down the tubes,'" she said.

To keep that from happening in the short term, Brownback is now proposing the extension of a sales tax that's about to expire and the elimination of some tax deductions, which would actually result in a $455 million net increase in state revenue, earning the governor's red-state model the sobriquet "Robin Hood in reverse" among Democrats.

Kansas state Rep. Scott Schwab (R) doesn't much care for the new wrinkle in Brownback's plan either.

"So you're asking me to raise taxes today for a tax cut in five years," he said.

Not doing so, however, could collapse the state's budget, which would likely be even more unpopular. (NATIONAL PUBLIC RADIO)

CA PARK'S SECRET SURPLUS DATES BACK DECADES: Last July revelations surfaced in California that the Department of Parks and Recreation had an unreported cash reserve totaling $20 million even as it was threatening to close 70 state parks due to budget cuts. In the months since then, the department's leadership has been replaced, and Gov. Jerry Brown (D) and lawmakers have approved a plan to spend the $20 million stash on park operations.

But a new investigation into the scandal by the state's auditor has revealed that the surplus has been around as long as 20 years. And although the probe revealed no new evidence that the money had ever been spent illegally, it also failed to shed any additional light on how the surplus accumulated in the first place.

"Neither current staff nor documentation we reviewed in the department's accounting and budget files had an explanation for what originally caused the differences or why the issue was never resolved," said a report on the investigation released last month.

That news was galling to state Assemblywoman Beth Gaines (R).

"I'm appalled that a department in the state of California can operate with such a loose accounting system," she said.

The state has made some effort to address the problem, however. Last year, it imposed a new rule requiring department heads to certify the budget information they report is accurate, under penalty of perjury. (SACRAMENTO BEE)

BUDGETS IN BRIEF: Last month, NEVADA became the first state in the nation to authorize interactive gaming with Gov. Brian Sandoval's (R) signing of AB 114. The law will remove regulatory barriers impeding interstate online gaming (LAS VEGAS REVIEW-JOURNAL, STATE NET). • The Obama administration intends to give states the go-ahead to cut Medicaid payments to doctors and other health care providers to hold down costs. The administration's position was set forth in a brief filed with the U.S. Court of Appeals for the Ninth Circuit, in San Francisco, defending CALIFORNIA's decision to cut Medicaid payments to many providers by 10 percent (NEW YORK TIMES). • NEW JERSEY Gov. Chris Christie (R) proposed a $32.9 billion budget that would put nearly $1.7 billion into the state's underfunded public employee pension system and expand Medicaid coverage for thousands of residents. But the plan delays property tax relief and includes no promised income tax cut (NORTHJERSEY.COM)

- Compiled by KOREY CLARK

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