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Tax Law

State Net Capitol Journal – November 5, 2012

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Budget & Taxes

SANDY'S ECONOMIC TOLL COULD TOP $20B: New Jersey Gov. Chris Christie (R), whose state was among those hit hardest by Hurricane Sandy, said last week that the damage from the storm was going to be "almost incalculable." But economic analysts did their best to figure the possible tab.

Charles Watson, research and development director at Kinetic Analysis Corp., a hazard-research company in Silver Spring, Maryland, said it could be as much as $20 billion, with about $7 billion to $8 billion of that in insured losses. Watson said the other $12 to $13 billion would be paid by states and cities to repair damaged infrastructure, like New York City's subway system.

Watson also said the heavy losses to public infrastructure in some ways mirrored the effects of Hurricane Katrina, the nation's costliest natural disaster, with insured property losses exceeding $41 billion, according to the Insurance Information Institute.

"It kind of reminds me of Katrina, the actual wind damage from Katrina and coastal storm surge damage was easy to pull down," Watson said. "But once you start getting water going over your protective measures and getting into your infrastructure the numbers start to go crazy."

Oakland, California-based Eqecat Inc.'s numbers went crazy in much the same way. The catastrophic risk modeler also placed the total figure at around $20 billion, although with a slightly wider range for insured losses, $5 billion to $10 billion.

Weather Damaged House Fallen Tree

Mark Vitner, a senior economist for Wells Fargo Securities LLC in Charlotte, North Carolina, expressed the economic impact of the storm somewhat differently. He said that in the fourth quarter it might subtract 0.1 to 0.2 percentage points from the U.S. GDP - which grew 2 percent to $13.6 trillion in the third quarter - as a result of a decline in spending on services like restaurant meals.

"There's a loss of activity that's going to be hard to make up," he said. "If you're a restaurant and you're closed today, people are not going to eat two lunches tomorrow."

More negative news came from Oliver Chen, an analyst at Citigroup Inc. in New York, who said the storm might reduce same-store sales by as much as 3 percent in the first week of November, which usually accounts for about 22 percent of the month's sales.

But Gil Luria, an analyst at Wedbush Securities in Los Angeles, found one of the few bright spots in the storm's aftermath: store closings in storm-damaged areas could boost online sales by a percentage point in the fourth quarter. (BLOOMBERG BUSINESSWEEK, NEW YORK TIMES)

NATION'S COLLOSAL INFRASTRUCTURE PROBLEM FALLING TO STATES: America has a "$2.2 trillion backlog of infrastructure projects," according to a report last month from Standard & Poor's Ratings Services. That's twice the size of the federal deficit, which largely explains Congress' failure to come up with a long-term transportation-funding plan that doesn't rely primarily on the increasingly inadequate federal gas tax.

As a result, state and local governments will be increasingly called upon to shoulder the cost of critical infrastructure repairs, or they may simply continue to go unaddressed, according to the report.

"The burden to finance infrastructure projects will fall more heavily on local government entities or users in the form of higher rates or tolls," the S&P analysts said, "and some important construction could simply be deferred.

It also appears unlikely that whoever occupies the White House the next four years is going to lead the charge to change that situation. During the entire course of the three presidential debates the issue was mentioned only once, on Oct. 16, when President Obama said the money saved from ending military conflicts could be used to rebuild the country's bridges, roads and schools.

Spurred by Washington's inaction, some states that levy their own gas taxes and have seen the same widening gulf between transportation revenue and need as the federal government has are considering a wholesale shift to highway usage fees instead.

"Oregon is getting closer and closer to converting to that system, the state of Washington is looking closely at it, Nevada's looking closely at it, Minnesota's looking closely at it," said Jack Basso, chief operating officer of the American Association of State Highway and Transportation Officials. (WASHINGTON POST)

BUDGETS IN BRIEF: Support is waning for CALIFORNIA Proposition 30, the tax measure Gov. Jerry Brown (D) is backing in an effort to avoid severe cuts to funding for education and emergency services. A Public Policy Institute of California poll late last month found voters supported the measure by a margin of 48 percent to 44 percent, down from the 52 percent-to-40 percent margin in September (PPIC.ORG, SAN JOSE MERCURY NEWS, STATE NET). • Online retailer Amazon disclosed last month it will begin collecting sales tax on product sales in ARIZONA on Feb. 1 and on digital sales to residents of the state in July. The state sent the Seattle-based company a $53 million bill in November 2011 for sales taxes it failed to collect between March 2006 and Jan. 1, 2011 plus interest (ARIZONA CAPITOL TIMES [PHOENIX]). • A state judge ruled last month that online travel companies that book hotel rooms in HAWAII, including Expedia, Orbitz, Priceline and Travelocity, are not subject to the state's hotel room tax. The state's Department of Transportation had billed the companies nearly $700 million for unpaid taxes dating back to 1999, but Circuit Judge Gary Won Bae Chang said that when the state Legislature enacted its transient accommodations tax law, it didn't intend for the tax to apply to such companies (HONOLULU STAR ADVERTISER). • Six industry sectors could receive financial incentives and preferential status in government spending decisions, under a proposed strategic plan for development and land use in NEW JERSEY, which is set for adoption this month. The state's Office for Planning Advocacy has singled out the six sectors - advanced manufacturing, life sciences, transportation, finance, technology and health care - as the ones most critical to the state's economic future (NORTHJERSEY.COM).

- Compiled by KOREY CLARK

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