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Tax Law

State Net Capitol Journal – January 20, 2014; Positive State Fiscal Health Trend Continuing

Budget & Taxes

POSITIVE STATE FISCAL HEALTH TREND CONTINUING: The improving fiscal conditions that characterized most states in fiscal 2013 are continuing in fiscal 2014, according to the National Association of Budget Officer's latest fiscal survey of the states.

According to NASBO's Fall 2013 Fiscal Survey of the States, 43 states are anticipating revenue and spending growth this fiscal year, compared to fiscal 2013 levels. In the few states where revenues aren't expected to rise, the causes are generally state-specific, such as declining oil production and prices in Alaska, declining coal production in West Virginia and Wyoming, and a major tax cut in Kansas.

But states aren't expecting revenues to increase by as much as they did last fiscal year. The forecast for this year is only 0.8 percent, compared to last year's 5.7 percent rate. That softening in tax collections may pose budgetary challenges for states in fiscal 2014 but not significant budget volatility, according to NASBO. States have also been helped by the two-year budget deal approved by Congress last year, easing some of the across-the-board federal spending reductions known as sequestration.

"There's more stability and revenues are less volatile," said Scott Pattison, NASBO's executive director. "As long as the economy continues to recover, states will continue to have modest growth. I don't expect robust growth. I expect modest growth, until we get the next recession, which hopefully is a ways away." (STATELINE.ORG, NASBO.ORG)

SCHOOL-FUNDING ISSUE HANGING OVER KS SESSION: Kansas lawmakers began their 2014 session last week in a state of deep uncertainty, with the state's Supreme Court having yet to rule on a major school-funding lawsuit.

Lawmakers in the Democratic minority and Republican majority alike said that ruling could have a bearing on everything that happens at the statehouse this year.

"It's the sword of Damocles hanging over the whole process," said Senate Minority Leader Anthony Hensley (D).

Senate President Susan Wagle (R) chose a slightly different metaphor, calling it "the gorilla in the room."

"It impacts the rest of government — all of government," she said. "Since the downturn of '08, all agencies that were government funded have taken a if the court were to come in and ask for more money, it would impact other agencies that are funded with state dollars."

If the Supreme Court upholds a lower court ruling, the state's lawmakers could face a court order demanding that they come up with over $400 million a year in additional funding for K-12 schools. The lawmakers' response could be anything from meeting that demand by diverting money from other areas of state spending, such as public employee retirement, to openly defying the court.

"I think the response is going to be what I'm calling the necessary constitutional crisis," said Ty Masterson (R), chairman of the Senate Ways and Means Committee. "I know it will try to be spun into an educational funding issue, but fundamentally it's a separation of powers issue. The court ruling a certain amount of spending is no different than us passing a law that prohibits them from rendering that decision. They're both unconstitutional." (WICHITA EAGLE, STATE NET)

US HOUSE SCRUTINIZES CA BULLET TRAIN: Karen Hedlund, deputy chief of the Federal Railroad Administration, told a U.S. House subcommittee last week that her agency is still providing federal grant funding for California's troubled $68 billion bullet train project even though the state hasn't indicated how it plans to come up with $180 million in matching funds by April 1. Responding to questions from U.S. Rep. Jeff Denham (R-California), chairman of the House Subcommittee on Railroads, Pipelines, and Hazardous Materials, Hedlund said: "We are very concerned about it. That is why we are in discussions with the [California High Speed Rail Authority] about its plans." But she also said her agency was legally obligated to continue funding the project because California hadn't defaulted on its agreement with Washington yet.

Nine billion dollars in voter-approved state bonds for the rail project have been tied up indefinitely by legal challenges, and Rep. Denham, a critic of the project, didn't appear too pleased about the prospect of the federal government getting stuck with the tab.

"The federal government can and would withhold money for other top infrastructure priorities, such as education and water, from the state of California should the state fail to provide state funds," he said after the two-hour-plus hearing. He also said he intends to introduce legislation making it more difficult for the project to receive federal funding. (LOS ANGELES TIMES, ORANGE COUNTY REGISTER)

BUDGETS IN BRIEF: The MINNESOTA Lottery is planning to expand its online offerings to include electronic versions of scratch-off games in an effort to appeal to younger residents and boost sales. But a coalition of well-organized and well-funded gambling opponents, which has killed numerous gambling initiatives, including a proposed casino in downtown Minneapolis, is pressing lottery officials to obtain legislative approval before moving ahead with their plans (STAR TRIBUNE [MINNEAPOLIS]). • NEBRASKA Gov. Dave Heineman (R) called for "up to $500 million in tax relief over the next three years" in his State of the State speech last week. The governor said the state can afford to do so because it has a growing economy and has amassed a $1.2 billion cash reserve (STAR HERALD [SCOTTSBLUFF], STATE NET). • WISCONSIN Gov. Scott Walker (R) intends to call for a property tax cut and lower income tax withholding in his State of the State address scheduled for Jan. 22 (JOURNAL SENTINEL [MILWAUKEE]).

- Compiled by KOREY CLARK

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