2018 marks the anniversary of a multitude of different political as well as social turning points in human history. While the festivities commemorating the end of World War I were widely broadcasted and spoken about, two anniversaries often fall short of the public's attention: The 70th anniversary of the Universal Declaration of Human Rights as well as the 15th anniversary of the United Nations Convention against Corruption, leading to the International Anti-Corruption Day on the 9th of December.
Corruption, a risk to the SDGs
Corruption presents a serious and often underestimated threat in achieving the Sustainable Development Goals, a list of 17 goals introduced to tackle current challenges and transform our world. Established in 2015 under the leadership of former United Nations Secretary General Ban Ki-moon, the SDGs aim at providing a united blueprint for action in order to achieve both peace and prosperity within the global community. Recent studies have frequently argued in favor of the vital and important role anti-corruption measures can occupy when it comes to the implementation of the SDG’s.
The true costs of corruption
The economic, political and social complexity of corruption affects both developed and developing countries and sabotages global efforts of democratization, decreases economic growth and fuels political and social instability by interfering in electoral campaigns, inciting distrust towards governmental and economic institutions and demoralizes the rule of law.
Organizations such as the United Nations Human Rights Council have intensified their attention towards the impact of corruption on the global implementation of human rights. The increasing examination of the complex interplay between human rights abuse and corruption led to the conclusion that disadvantaged groups are disproportionately suffering from corruption because of their greater reliance on public services and goods. Estimates by the World Economic Forum suggest that up to 5 percent of the global gross domestic product or up to $2.7 trillion are lost annually due to global corruption. The loss of important financial means, often further hampers the success of the Sustainable Development Goals for years to come.
Building awareness
Most of the countries are making little to no progress in combating corruption according to the latest Corruption Perception Index, published by Transparency International.The report rated 180 countries on their perceived levels of public sector corruption according to experts and business people. While the corruption threatens all 17 SDGs, its dangerous effect becomes particularly clear when speaking about specific goals:
The Human Rights day, annually celebrated shortly after the International Anti-Corruption Day, on the 10th of December reflects the adaption of the Universal Declaration for Human Rights by the United Nations General Assembly in 1948. This milestone document empowers all of humankind by proclaiming the inalienable rights to which every human being is inherently entitled, regardless of race, colour, religion, sex, language, political or other opinion, national or social origin, property, birth or other status. While it is yet to be fully realized, it acts as a foundation of a more just world building the framework of a equal society.
What’s next?
There is no one-size-fits-all solution or measure to counteract corruption. Numerous societies have had significant breakthroughs when it comes to combating and opposing corruption. Here are four ways how governments, civil society, and business can help address the problem and get active:
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Women are running for state legislative office in record numbers this year. The “pink wave” may not only significantly change the gender makeup of the nation’s state legislatures, where men currently outnumber women by an average of three to one, but also help flip partisan control of some chambers.
On Nov. 6, 3,388 women will be among those vying for state legislative seats across the country, according to the Center for American Women and Politics (CAWP) at Rutgers University. Analysis by Kelly Dittmar, a CAWP scholar and assistant professor of political science at Rutgers, indicates the number of female nominees is a record, surpassing the old one set in 2016 by about 28 percent, although she notes 46 states are holding legislative elections this year, compared to 44 two years ago.
CAWP data also shows there are nearly 1,000 more women running for legislative office this year than the average for the last decade, which is about 2,400.
Dittmar points out there are significant disparities between the two major parties with regard to the female legislative nominees. Seventy percent are Democrats, while 29 percent are Republicans. And although the number of Democratic women set new records in 35 states, the same was true of Republican women in just 10.
The election of President Donald Trump seems to have been the catalyst for many of the women, CAWP Director Debbie Walsh told SNCJ.
“They woke up after the ’16 election and...felt they couldn’t wait around for candidates who look like them and sound like them to run,” she said. “They needed to be the candidate themselves.”
Walsh said the Trump administration’s policies and Trump’s rhetoric and gender comments have continued to fuel women’s drive for change. But she said it would be simplistic to say women are running solely because of Trump.
“They’re running because of a whole host of policy issues that affect their lives, their families’ lives, their communities...healthcare, education, the environment, gun safety,” she said. “And [they’re] saying they want to have a say in the decision-making process.”
She said the #MeToo movement also helped sustain the initial burst of energy from the election.
It was something “women of all ages could relate to,” she said. “And it was...about women finding their voice...and speaking out and for the first time on this issue having a sense that their experience was being validated.”
One thing Walsh said was different about this election cycle was that more women seemed to be “self-starters,” meaning they decided to run themselves instead of having to be recruited. She said that’s tended to be the case far more often with men.
“Basically, [men] wake up one morning and look in the mirror and say, ‘I’d be a great state legislator,’ and they just run,” she said. “Women, for all kinds of reasons, not the least of which is that they look at most of these institutions and don’t really see a lot of people that look like them...just don’t think to run.”
But she said in this cycle, based on anecdotal evidence, a lot of women have stepped up and run on their own initiative. And those women could help reshape the gender makeup of the state legislatures.
Currently, women hold just 1,875, or 25.4 percent, of the 7,383 state legislative seats nationwide. And that rate hasn’t fluctuated more than a percentage point or two over the last decade.
Even in Arizona, where women make up 40 percent of the Legislature, the representation rate is still well below the 50-plus percent of the population women comprise in that state and the country as a whole.
But there are several reasons to believe female representation rates in the legislatures will change on Election Day. One of them is last year’s elections for the Virginia House of Delegates, in which a record 28 women won seats, bumping the state up in CAWP’s rankings of female representation in the legislatures from 38th to 22nd.
Nine of the 30 women who ran against incumbents also won, defying the conventional wisdom about the overwhelming advantage of incumbency in legislative elections. The National Institute on Money in State Politics placed the win rate for incumbent legislators in the 2015 and 2016 elections at 92 percent.
The success of female legislative candidates in this year’s primaries had the New York Times speculating that women could reach or even exceed parity with men in some legislatures, including those in Nevada, Maine and Colorado. Women have attained majority status at least once before, in New Hampshire in 2009, but only in the Senate.
Along with the big increase in the number of women legislative candidates nationwide, in eight states there are at least 50 percent more female legislative candidates than there were in 2016. In Kentucky and Michigan, there are roughly twice as many.
At the same time, according to the National Conference of State Legislatures, the total number of male legislative candidates has dropped nearly 2 percent from the last election cycle, 7,552 this year versus 7,670 in 2016.
According to CAWP’s Dittmar, research shows that “the most direct hurdle to reaching greater gender parity in government” is “a persistent dearth of women candidates” and that “when women run, they win at the same rates as their male counterparts in comparable races.”
Women also appear to be just as effective as men at getting bills through state legislatures, based on research conducted by W. Mark Crain, William E. Simon Professor of Political Economy at Lafayette College in Easton, Pennsylvania, in conjunction with LexisNexis State Net and CAWP.
Of the more than 134,000 bills introduced in the 50 states during the 2013-14 legislative cycle that Crain analyzed, 18.9 percent of those sponsored by male legislators and 18.6 percent of those sponsored by female legislators became law.
“Collectively, in the state legislatures the success rate of female legislators is virtually identical” to that of male legislators, he told SNCJ.
When it comes to women candidates’ prospects in this week’s elections, however, Walsh said CAWP is very cautiously optimistic because some of the women aren’t running “particularly strategically.”
“Some of them are running in really rough races against really entrenched incumbents in districts that are just not particularly welcoming to their party,” she said.
Over a third of the female candidates are challenging incumbents. Still, given all the other numbers, Walsh said, “I think there will be an increase, absolutely.”
“Is it going to turn around the systematic underrepresentation of women?” she said. “No, we’re not going to go from 24.9 percent or whatever our exact number these days is in state legislatures to 50 percent women.”
Katie Ziegler, program manager of NCSL’s women’s legislative network, likewise, told SNCJ an increase of two or three percent in the female representation rate would be significant, given its “very incremental” growth over the last twenty years.
“I wouldn’t expect it to jump five percentage points...certainly not nationwide,” she said.
Along with its potential for increasing women’s numbers in the legislatures, the pink wave could also help power the “blue wave” some political analysts say is a distinct possibility this year.
As Lou Cannon reported in SNCJ last month, NCSL’s Tim Storey said Democrats could pick up nine legislative chambers in a normal wave election - referring to the first midterm election of a new presidency, which usually benefits the party out of power - and as many as 15 chambers in a big wave.
There are considerably more Democratic female nominees than Republican ones in all 12 states Storey mentions. In seven of them the Democratic nominees outnumber Republican nominees two to one. In four, the ratio is three to one. And in one, Wisconsin, it’s four to one. (For more on this see Bird’s eye view.)
NCSL’s Ziegler noted women also make up 44 percent of all Democrats running for state legislatures this year.
“So certainly, if there’s a blue wave, women are absolutely a part of that,” she said.
Walsh pointed out there are “other ways of measuring success this year besides just how many women get elected,” including the passage of major milestones like Georgia Democrat Stacey Abrams becoming the first black woman in the country to be nominated by a major party for governor.
But she also said it seemed like the issue of sexual harassment had become part of the national narrative, and the #MeToo movement had made its way into some women’s campaigns in a very personal way. She said that made her think “maybe this might be more than a moment, it might be a movement.”
Infant formula marketing—just writing those words triggers a mental picture of ads full of cheerful, chubby-cheeked babies. Unfortunately for Mead Johnson Nutrition Company, some third-party distributors promoting the formula took a different approach, landing the company in hot water with the SEC over FCPA compliance. At issue? Improper payments to foreign officials. Could enhanced due diligence have mitigated the risk?
The Foreign Corrupt Practices Act defines a foreign official as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.” In China, where the alleged violations took place, the distributors offered cash and other incentives to physicians and other healthcare officials so they would recommend the company’s infant formal to patients who were new or expectant mothers. Because these physicians work at government-owned hospitals, they qualify as foreign officials under the FCPA’s broad definition.
In the SEC press release, Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit, said that “Mead Johnson Nutrition’s lax internal control environment enabled its subsidiary to use off-the-books slush funds to pay doctors and other health care professionals in China to recommend its baby formula and give the company marketing access to mothers.” According to the SEC investigation, the improper payments funneled through the distributor allowance amounted to more than $2 million over five years. To bring an end to the investigation, Mead Johnson Nutrition agreed to pay $7.77 million in disgorgement, $1.26 million in prejudgment interest and a $3 million penalty without an admission or denial of the findings.
Risk analysis that only covers the surface offers little protection, especially for companies expanding into emerging markets. Access to broad content, such as country risk analysis reports, sanctions and watch lists, PEPs, trusted news and business information sources, plays an important role in supporting enhanced due diligence to mitigate risk in today’s global pharmaceutical and healthcare-related industries. Are you confident that your current due-diligence strategy brings potential risks into view?
3 Ways to Apply This Information Now
California will have the highest cybercrime losses of any state this year, according to analysis of data from the Federal Bureau of Investigation and the Insurance Information Institute by Website Builder Expert. The website development adviser estimates that total cybercrime losses by individuals in the state will exceed $329 million. It also projected Vermont would have the lowest cybercrime losses, at a little over $968,000.
The TEXAS Senate approves SB 17, which would allow occupational license holders whose licenses are at risk due to professional behavior or speech to cite “sincerely held religious beliefs” as cause for their actions. It requires one more vote in that chamber before it can move to the House (TEXAS TRIBUNE).
NEW MEXICO Gov. Michelle Lujan Grisham (D) signs SB 437, which will incrementally raise the state minimum wage to $12 per hour by 2023 (ALBUQUERQUE JOURNAL).
The MINNESOTA Senate approves HB 400, a bill that would raise state licensing fees on opioid manufactures from the current $235 a year to $55,000 annually. Wholesalers and drug companies would pay $5,000 a year, while companies that sell or distribute 2 million or more units of opioids would pay an additional $250,000. The measure will go to a conference committee for consideration alongside a similar measure passed in the House last month (ST. PAUL PIONEER PRESS).
MASSACHUSETTS lawmakers give final approval to HB 140, which would ban conversion therapy, which seeks to change a person’s sexual orientation, on minors. It moves to Gov. Charlie Baker (R), who has indicated he will sign it (MASSLIVE.COM).
NEW MEXICO Gov. Michelle Lujan Grisham (D) signs SB 323 a, a bill that decriminalizes possession of small amounts of marijuana. The new law decreases penalties for possession of up to half an ounce to a $50 fine (FORBES).
VIRGINIA Gov. Ralph Northam (D) signs SB 1604, which makes any form of cruelty toward animals a felony in the Old Dominion. Previous law required an animal to have died from such abuse before a felony was warranted. The new law takes effect July 1 (ABC NEWS).
Our globalized society relies heavily on highspeed communication, made possible by the continuous innovation in the global electronic industry. Everyday electronics like smartphones, tablets and laptops, along with the rapidly growing market for Internet of Things (IoT) technology, require a vast amount of resources, particularly rare earths and other metals such as gold.
Recently, the Guardian—in collaboration with a collective of investigative journalists led by Forbidden Stories—uncovered ongoing human rights abuses as well as environmental failures in the Tanzanian North Mara goldmine, whose extracted deposits are also part of the supply chain of global hi-tech giants like Apple, Canon and Nokia. These recent findings make it necessary to take a closer look at why identifying possible supply chain risks is particularly important for the electronic industry and how corporations could best comply with the ethical expectations for responsible sourcing in line with their own Corporate Social Responsibility (CSR) commitments.
Mining, a high-risk factor for the global tech industry
Valued at approximately USD 1.75 trillion, the electronics industry is one of the largest industrial sectors in the global economy, generating more revenue than any other goods-producing sector according to recent estimates published by the World Bank. Through the high consumption and utilization of rare earths and minerals such as gold, which is mainly used for conductors on circuit boards during the production process, global tech-giants are increasingly dependent on resilient and stable mineral sources.
Currently, developing countries especially in South-East Asia, Latin America and Africa are facing an increased growth in the tech-related mining industry and while environmental standards for emission, effluent and groundwater contamination exist, the mining industry often falls short on compliance. According to the United Nations, this can be traced back to a variety of reasons:
But what exactly are the risks for a company’s ethnic liability and how can these supply chain and third-party exposures be best monitored, identified and prevented?
The recent findings, with regard to human rights abuses and environmental wrong doings in a Tanzanian gold mine have brought these issues into the public spotlight again and underline how neglecting an approach to responsible sourcing procedures can lead to increased media attention and scrutinization by the public eye.
Corporate initiatives such as the Responsible Minerals Initiative, a network of more than 380 companies and associations have committed their work to improving the flow of information regarding responsibly-sourced minerals by providing companies with a variety of supportive tools and resources.
The recent report of serious misconducts in Tanzania is only one of numerous examples of how the tech-related mining industry has come under scrutiny. Environmental and worker rights abuses in countries such as the Democratic Republic of Congo and Malaysia have become a common feature in the media.
The consequences of human rights and environmental malpractice can be severe for the involved companies. A brand’s reputation is highly dependent on consumers and investors, who increasing assess companies’ performance in terms of human rights and environmental protection. By demanding insights into companies’ supply chain and third-party agreements, responsible sourcing can also constitute a commercial incentive for businesses to distinguish themselves from their competitors.
A Nielsen study found that more than 55 percent of global respondents favored products form companies that are committed to a positive social and environmental impact. Amy Fenton, the Global leader of public development and sustainability at Nielsen concluded that,
“Consumers around the world are saying loud and clear that a brand’s social purpose is among the factors that influence purchase decisions. This behavior is on the rise and it provides opportunities for meaningful impact in our communities, in addition to helping to grow share for brands.”
The positive effect of increased consumer awareness has led to several improvements and increased due diligence by leading tech companies such as Apple, which removed 10 smelters and refiners from its supply chain in 2017 because they failed to comply with audits.
Besides the important factors of investor and consumer contentment, countries around the globe are beginning to adopt or amend legislation aimed at expanding transparency in supply chains. In the case of the European Union, for example, Regulation 2017/821 requires companies to publicly share their supply chain policies and report their auditing reports to their member states. As these requirements are strengthened, companies will face increased risk of fines, civil and even criminal liabilities.
Can mining be sustainable?
Tech-related mineral sourcing is often located in ecologically sensitive, less-developed and remote areas that partially also includes indigenous territories and land. A 2016 collaborative work, conducted by the UNDP, the World Economic Forum, the Columbia Centre on Sustainable Investment and the Sustainable Development Solutions Network with regard to the UN’s Sustainable Development Goals, has concluded that mining effects on regional development are ambiguous at best. When managed appropriately, it can help create sustainable jobs, increase innovation and foster investments in regional infrastructure. At the same time, poor management can lead to devastating environmental effects, displaced populations, rising inequality and violent conflicts.
The Organization for Economic Co-operation and Development (OECD) has published a guide on how due diligence should be carried out for minerals supply chains from high risk and conflict-affected areas.
While experts agree that tech-related mining is not likely to transform into a complete sustainable industry, the re-evaluation of supply chains and third parties after recent reports of environmental and human rights abuses in the Tanzanian North Mara goldmine can not only prevent electronics companies such as Canon, Apple or Nokia from regulatory breaches and possible legal consequences but also from a damaged reputation.
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The Affordable Care Act, long a punching bag for Republicans, has survived body blows from Congress and the Trump administration and could become a political asset for Democrats in an election year in which they hope to gain legislative and congressional ground.
But the battle over health care policy is a long fight, and the law widely known as Obamacare is still in the ring. The ACA is threatened by rising insurance premiums and cut-rate plans that limit health care coverage.
Meanwhile, states are struggling to contain the rising costs of Medicaid, the second largest item in most state budgets. Some states have achieved savings by providing social services and one-on-one assistance that have helped the sickest patients deal with multiple health issues.
The good news for Obamacare is that it’s become popular with the American people despite congressional and executive actions aimed at weakening the law.
Barack Obama was in the White House and Democrats controlled Congress when the ACA was enacted in 2010. It didn’t take effect until 2013, and the public was skeptical. Republicans successfully made repeal of the ACA a central issue in the 2010 midterm elections. This helped the GOP to gain control of Congress and win or tie in 24 state legislative chambers previously held by Democrats. Republicans have held Congress and dominated a majority of statehouses ever since.
After Donald Trump was elected president in 2016, the ACA seemed ripe for repeal. But Obamacare had proved its worth and developed a following. It took Republicans two attempts to get an ACA repeal measure through the House in 2017. Polls showed the ACA’s popularity rising as the issue was debated in the Senate, where repeal was narrowly but repeatedly rejected.
Since then, Obamacare has become even more popular. A recent survey by the Kaiser Family Foundation found that 54 percent of Americans favor the law compared to 42 percent who oppose it, the ACA’s best showing in any poll.
According to Kaiser, more than 24 million Americans have health insurance because of the ACA. About half of these have policies purchased on the federal ACA exchange or the exchanges run by 11 states and the District of Columbia.
The other 12 million people are covered by Obamacare’s expansion of Medicaid, the federal-state program that provides health care for the poor and disabled. A Supreme Court decision upholding the constitutionality of the ACA gave states the discretion on expanding Medicaid, which now serves more than 70 million people, one in five Americans.
The federal government initially funds 90 percent of Medicaid expansion. This incentive has prompted 32 states and the District of Columbia to expand Medicaid. Five other states could join them this year. Voters in Maine in 2017 approved Medicaid expansion, which Gov. Paul LePage (R) has resisted implementing. He faces a July deadline for submitting an expansion plan to the federal Centers for Medicare and Medicaid (CMS).
The Virginia State Senate appears to be on the verge of passing a Medicaid expansion plan approved by the House of Delegates. The House had blocked expansion for years until Democrats gained 15 seats in last November’s election. Republicans hold a 21-19 edge in the Senate but two GOP senators have said they will join Democrats in supporting Medicaid expansion.
Voters could decide the issue in three states that Trump carried by big margins. In Utah, supporters have gathered enough signatures to put Medicaid expansion on the November ballot. In Idaho, supporters claim to have enough signatures, but they have yet to be certified. Backers of expansion are gathering signatures in Nebraska.
Conservatives who want to limit Medicaid are fighting back. New Hampshire recently became the fourth state to receive federal approval to impose work requirements on Medicaid recipients, joining Arkansas, Indiana and Kentucky.
“Medicaid work requirements will cause many low-income adults to lose health coverage,” according to the Center on Budget and Policy Priorities, a liberal group. An analysis by The New York Times said “the thicket of new documentation requirements in Medicaid will be daunting for low-income people, who may have little education and struggle with transportation, paying for cellphone minutes and getting access to the internet.”
But the Trump administration is not rubber stamping state requests. Seema Verma, the CMS administrator, this month warned non-expansion states that applications for work requirements would need to include a plan to avoid the “subsidy cliff,” in which a person earns too much to keep Medicaid coverage and too little to qualify for a tax credit on the insurance exchange. This could block a pending application for work requirements by Mississippi, which has no plan for avoiding the subsidy cliff.
CMS also blocked Iowa’s attempts to implement a controversial plan to funnel $1 billion of Medicaid money into privately owned nursing homes.
All in all, Medicaid is more than holding its own. But individual policyholders on the various ACA exchanges face daunting premium hikes in 2019, judging from early requests for increases of 30 percent or more filed by several insurers in Maryland and Virginia. Alfred W. Redmer Jr., Maryland’s health insurance commissioner, said soaring premiums are causing healthy people to drop out of the insurance pool, leaving only sick people behind.
Democrats often say this is happening because a provision of last year’s tax bill eliminated an ACA provision requiring most Americans to have health insurance or pay a penalty. But this requirement, known as a mandate, was already on shaky ground, as many young and healthy Americans chose to pay the penalty rather than buy health insurance.
The main reason for the pending premium increases is President Trump’s decision last October to discontinue paying insurance companies to subsidize policies for low and moderate-income Americans. Starting in 2014, the Obama administration paid insurers to offer low-cost policies to people with annual incomes between 100 percent and 400 percent of the poverty line ($12,000 to $48,000 for single people).
Trump’s action panicked patient advocates and insurance regulators, who foresaw the move would destabilize insurance markets. “It’s going to hurt people, it’s going to hurt kids, it’s going to hurt families,” Nevada Gov. Brian Sandoval (R) said at the time.
Sandoval and other moderates urged Congress to restore the payments. Sens. Lamar Alexander (R-Tennessee) and Patty Murray (D-Washington) tried to do so, but their bipartisan bill ran aground because of differences between Democrats and Republicans on abortion.
The Trump administration has continued to nibble away at Obamacare in an effort to cripple a law it has been unable to kill. Last month the CMS allowed states to reduce the benefits an insurer must cover. The ACA requires coverage of 10 benefits, including maternity and prescription drugs.
According to Kaiser Health News, sales are growing for bare-bones health policies that offer a cheaper alternative to traditional insurance but put buyers at risk for big bills if they have major medical needs. Known as fixed indemnity plans, the products typically pay set amounts toward the cost of doctor visits and hospital stays and carry restrictions on people with pre-existing conditions.
Full coverage remains a preferable option, and Kaiser surveys show that most Americans holding ACA-compliant policies intend to keep them. Whether they can afford to do so will depend upon whether states make up the loss of federal subsidies either directly or through reinsurance that would lower premiums. Nine states have approved reinsurance plans or applied for a federal waiver that will allow them to do so. (See “The ACA’s Key to Success?” in the May 14 State Net Capitol Journal.)
With many of the 2019 premium increases due to be announced in October, the ACA is likely once again to be a prime issue in this year’s November elections. But unlike in 2010, when the issue harmed Democrats, this time it is Republicans who are on the defensive.
According to Politico, Democrats have a “unified message blaming Republicans for ‘sabotaging’ the health care law, leading to a cascade of sky-high insurance premiums....” Republicans counter that they are offering affordable alternatives to Obamacare “but haven’t developed a consistent message since their repeal efforts collapsed after years of insistent campaign promises to undo Obamacare,” Politico said.
The recent Kaiser Family Foundation survey on the popularity of the Affordable Care Act found that independents for the first time hold a favorable view of the law. The actions of these independents at the ballot box in November could determine the future of Obamacare.
Forty-three states currently allow restaurant operators to pay employees who receive tips, such as waiters and bartenders, less than the state minimum wage, with the minimum hourly rate for such tipped workers set by the federal government at $2.13. This year 12 states introduced legislation requiring all restaurant workers to be paid the standard minimum wage, according to Teófilo Reyes, national research director for the Restaurant Opportunities Centers United, which advocates for restaurant workers. Michigan voters will consider a ballot measure in November that would phase out that state’s tipped minimum wage by 2024. New York’s labor commissioner has also held hearings on eliminating the tipped minimum wage there.
The shadow of President Donald Trump and the Republican tax bill will hover over state governing bodies in 2018, a year of midterm elections that Tim Storey, political analyst for the National Conference of State Legislatures, says will be “a referendum on the president.”
Long before these elections, states will need to address a host of issues affected by changes in federal policy or congressional inaction. Among them are the persistent opioid epidemic, the growing costs of Medicaid, the financing of the Children’s Health Insurance Program (CHIP) on which Congress continues to drag its feet, as well as decisions on energy policy, the environment, voting procedures and immigration. States will need to show fiscal restraint in dealing with these issues. Although the economy is booming, an analysis by Pew Charitable Trusts found that slow revenue growth has left many states “with little or no wiggle room in their budgets.”
The new annual report of the National Association of State Budget Officers (NASBO) was slightly more optimistic. It found that state spending grew moderately in fiscal 2017 following a slowdown the previous year. Total estimated state spending from all fund sources reached nearly $2 trillion in 2017, a 5.2 increase from fiscal 2016. But the NASBO outlook echoed Pew’s. “State spending in the near future will likely remain modest as states contend with sluggish revenue collections and modest growth in the national economy,” the report said.
States will also be impacted by the pending tax bill, which Republicans describe as significant tax reform and Democrats call a giveaway to corporations and wealthy individuals. A Gallup Poll this month found only 29 percent public support for the tax bill.
In a last-minute compromise intended to appease Republican members of Congress from wealthy coastal states, House and Senate conferees allowed a federal income tax deduction of up to $10,000 for state and local income and property taxes. The original bill had eliminated the income tax deductions entirely and had an outsize impact on New York, California, Connecticut, New Jersey and five other states with the highest state and local income taxes, all of them were carried by Hillary Clinton in the 2016 election. Democratic governors claimed that eliminating the deductions was political payback, with New York Gov. Andrew Cuomo tweeting that they would “destroy New York.”
Conservative economists welcome the new rules, however, which probably would make it more difficult for Democratic-leaning states to raise taxes. Writing in Forbes, economist Adam Millsap said that “state and local governments with high tax burdens may have to reevaluate spending priorities and shift to more user fees.”
Meanwhile, withdrawing from the North American Free Trade Agreement (NAFTA), as President Trump has proposed, could harm agricultural and auto-producing states, Republican governors warned Vice President Mike Pence at a November meeting in Austin, TX. At Trump’s insistence the United States is involved in negotiations with Canada and Mexico to modify the accord, but the talks have made little progress.
The meeting at which GOP governors delivered their warning to Pence occurred on the heels of Democratic victories in the Virginia and New Jersey gubernatorial elections. The big surprise of the elections was a powerful Democratic surge in contests for the Virginia House of Delegates, which Republicans had controlled by a 66-34 majority. In their best showing in three decades, Democrats picked up 15 seats, leaving the GOP in slender 51-49 control. Two narrowly won GOP-held seats are under challenge in federal court because of ballot irregularities.
Virginia may be a special case. Through ambitious, some would say greedy, gerrymanders, Virginia Republicans had become so thinly stretched that 17 districts carried by Clinton in 2016 were represented by Republicans in the House of Delegates. Most of these districts are now in Democratic hands. Nicholas Stephanopoulos, a University of Chicago law professor who specializes in election law, wrote in the Los Angeles Times that a similar showing in 2018 in Wisconsin would net Democrats a gain of only four seats in the Wisconsin Assembly.
Nevertheless, the Wisconsin Assembly, in which Republicans hold a 65-33 edge with one vacancy, is sufficiently gerrymandered to become the basis of a lawsuit challenging partisan redistricting. The case, Gill vs. Whitford, is now before the Supreme Court.
Harbinger or not, Tennessee Gov. Bill Haslam, the new chairman of the Republican Governors Association, told the New York Times the Virginia election was a “wake-up call” for Republicans. An even louder wake-up call occurred Tuesday when Democrat Doug Jones upset Republican Roy Moore in a U.S. Senate special election in Alabama, one of the nation’s reddest states.
“Democrats have the tail wind and Republicans the head wind in 2018,” NCSL’s Tim Storey said in an interview. “Democrats had a good head start in Virginia and New Jersey. They are energized. They are winning the message battle on the tax bill. The Democratic problem is that they are in such a deep hole they may not be able to get out of it in one election. They need a tidal wave. The normal surge that parties out of power usually get won’t be enough.”
Digging on this “deep hole” began in the 2010 midterms when backlash against President Barack Obama and the Affordable Care Act he’d pushed through Congress on a party-line vote fueled a Republican landslide in which the GOP gained 63 House seats and seized control of Congress. Beginning in 2010 and continuing in subsequent elections during the Obama presidency, Republicans gained 910 state legislative seats and took control of a majority of chambers.
When Democrat Phil Murphy replaces Republican Chris Christie as New Jersey governor in January, Democrats will hold the governorship and both legislative chambers in seven states. Republicans have such unified control in 25 states plus functional control in Nebraska, which has a unicameral and nominally non-partisan legislature.
Control is divided in 17 states. These include New York state, where Democrats have unified control on paper, but the State Senate is run by a coalition of Republicans and maverick Democrats. Similarly, the Alaska House is officially Republican but run by a coalition of Democrats and moderate Republicans.
Republicans will have a 33-16 lead in governorships once Murphy takes office. Alaska Gov. Bill Walker is an independent. Of the 36 governorships that will be decided next year, Republicans hold 26, with Democrats holding nine. Walker is also facing re-election.
An analysis by Louis Jacobson of Governing magazine found that a dozen of the governorships now held by Republicans are vulnerable compared to five for the Democrats. The most vulnerable GOP-held governorships are open seats in Maine and New Mexico plus Illinois, where embattled Gov. Bruce Rauner is seeking reelection.
Democrats are given a chance by Jacobson to contest open governorships now held by Republicans in Florida, Iowa, Kansas, Michigan, Nevada, and Ohio. Republican incumbents seeking reelection face challenges in Maryland, New Hampshire and Wisconsin. Democrats have vulnerable incumbents in Pennsylvania and Rhode Island and in Democratic-held open seats in Colorado, Connecticut and Minnesota.
Democrats also are eying legislative takeovers, including the Connecticut Senate, which is now tied. They hope to win state senates in Colorado and Maine, each of which Republicans now control by a single vote. More ambitiously, Democrats are also targeting the Iowa Senate and both chambers in Arizona, Michigan, and New Mexico in which Republicans now have seemingly comfortable leads.
The Democrats have history in their corner, as the party out of power usually does well in a president’s first midterm. Every president since World War II with an approval rating below 50 percent at midterm time lost a double-digit number of House seats and a corresponding number of legislative seats. With slightly more than 10 months to go before the 2018 midterms Trump’s approval rating is 37.4 percent in the RealClearPolitics average of polls, lower than any president since the advent of modern polling.
Legislative elections matter. While Congress has been gridlocked for the past six years on many issues, Republican dominance in statehouses produced a number of conservative accomplishments, including restrictions on voting rights and abortion, expansion of gun rights, weakening of labor unions and a greater use of school vouchers. Democratic-controlled states expanded health care, took major strides toward greater use of alternative energy and in some states eased restrictions on unauthorized immigrants.
Most of the governors and more than 880 of the legislators elected in 2018 will be in office when the next redrawing of congressional and legislative districts occurs in 2021. The coming midterms are a referendum on President Trump, to be sure, but they also are the beginning of a political blueprint on the nation’s future.
You folks can eat all the veggie-based faux burger patties you want. You can even pretend you’re chomping on meat if that makes you happy, but once you cross over into Mississippi you had better not call it that. As the Jackson Clarion-Ledger reports, in a rare show of bipartisanship the Magnolia State House and Senate endorsed legislation that would bar the labeling of animal cultures, plants and insects as meat. That’s right – it might look like meat, smell like meat, and maybe even taste like it, but calling it that ain’t gonna git ‘er done. It’s off to the gov, who is expected to sign it into law. Perhaps while munching a tasty cheeseburger. And be warned: over a dozen other states are pondering the same legislation.
California for the most part really doesn’t like Donald Trump. This is hardly news. Alas, it is news that the California Public Employee Retirement System – the largest pension fund in the nation - is one of the larger shareholders in American Media Inc., the debt-ridden parent company of the National Enquirer. Yes sir, as the LA Times reports, in 2016 CalPERS owned up to a third of AMI, which has been implicated in helping The Donald funnel cash to a mistress to keep her quiet about their extra-marital dalliances. And the same mini-mart rag that regularly buried stories that would make the Donster look bad, while savaging anyone said Donster doesn’t like. One can only imagine the faces many state workers made upon learning that they not only helped their least favorite person get elected, they helped him pay off his side hustles.
Alaska’s public pension “funded ratio” – the level of assets compared to accrued liabilities – increased 10.3 percent between 2013 and 2016, more than in any other state, according to data from the Pew Charitable Trusts. New Jersey had the largest funded ratio decrease over that same period, at -31.9 percent. The Garden State also had the lowest funded ratio as of 2016, at 30.9 percent, less than half of the 65.9 percent national average.
Pension reformers won a narrow victory this month in the California Supreme Court, but the justices dodged a decision on the “California Rule,” a restrictive provision cherished by public employee unions.
In a nationally watched case, the California high court upheld a pension reform initiated by former Gov. Jerry Brown (D) that stripped a retirement perk from public employees. The perk, known as air time, allowed public employees to purchase credits that boosted their pensions by up to five years as if they had worked that time.
The unanimous decision in Cal Fire Local 2881 vs. CalPERS found that these credits were not part of core pension benefits and therefore could be eliminated.
The court explicitly avoided a decision on the California Rule, which makes the pension an employee receives when hired a vested right that can’t be cut unless offset by a comparable new benefit.
“We have no occasion in this decision to address, let alone to alter, the continued application of the California Rule,” the court said.
The court did not tip its hand on what it might do in four other pending cases on which it has yet to schedule oral arguments.
The rigidity of the California Rule has long made it a target of pension reformers. In an interview with the Sacramento Bee last December before he left office Brown called such rules a “one-way ratchet to fiscal oblivion.”
A dozen other states adopted the California Rule, according to the Public CEO website, but nine of them have modified it. In California the rule is embedded in the state constitution.
The California Supreme Court cited the rule in overturning voter-approved pension cuts in San Diego and San Jose. San Diego appealed to the U.S. Supreme Court, which on March 18 declined to review the case.
The Cal Fire decision came as states, cities and school districts across the country come under increasing pressure from unfunded pension liabilities.
In Illinois, a perennial trouble spot, new Gov. J.B. Pritzker (D) has proposed selling $2 billion of bonds to inject cash into the state’s retirement system.
Pritzker said he won’t make the mistakes of past governors and use the money to cover annual payments, which pushed Illinois’s credit rating to near junk bond status. Instead, he proposes also to raise taxes and turn over some government assets, such as office buildings, to the retirement system. In Kentucky, reports the Louisville Courier-Journal, $38 million in increased pension costs could shutter health departments serving 42 Kentucky counties in the coming fiscal year. Kentucky health leaders are pressing lawmakers for a one-year reprieve to allow time to overhaul a public health system facing a financial crisis. The higher pension costs could lead local health departments serving an additional 22 counties to run out of reserves and force them to close the following year, state officials said. In Michigan, 250 public bodies have been flagged by the Michigan Treasury Department for carrying significant unfunded public debt. Small communities in the largely rural Upper Peninsula have been particularly hard hit. Iron Mountain, a one time mining community with a population of 7,400, typifies these small cities. It has 41 employees, down from 55 a decade ago, and nearly $1.5 million in retirement health care debt. Jordan Stanchina, Iron County’s City Manager, told Bridge magazine that pension costs have diverted funds from basic functions such as road repair. He said he’s put off water and sewer projects and delayed replacing worn-out equipment. Similar narratives have played out across the United States as thousands of local governments have trimmed services, delayed capital improvements or reduced staff because of pension pressures. Santa Barbara, California, a coastal city of 92,000 in a relatively well-off area, never fully recovered from the Great Recession of 2007-2009, says Bob Samario, the city finance director. The city had 662 full time positions in 2008; it now has 624. Samario expects “unprecedented” pension costs and an uncertain economy from 2019 to 2025. He predicts that Santa Barbara will survive but says some cities would file for bankruptcy because of pension costs. “This is the real deal for some cities that aren’t financially strong,” he told the online newspaper Noozhawk. “It will hit them hard.” In the past decade pension liabilities played a role in the bankruptcies of three California cities: San Bernardino, Stockton and Vallejo during or soon after the Great Recession. That recession made the public aware of the strain put on state and city finances by generous retirement benefits and enabled Gov. Brown to win legislative approval of a package of reforms embodied in the Public Employee Pension Reform Act of 2012 (PEPRA). One of these reforms, as upheld by the California Supreme Court in the Cal Fire decision, banned air time. Both sides in the ongoing pension debate have attempted to put a positive spin on Cal Fire. “This ruling offers hope that California can take reasonable steps to ensure that our pension systems can always pay all the benefits our employees have earned without driving cities, counties, and school districts into insolvency,” said Chuck Reed, a former San Jose mayor and founder of Retirement Security Initiative. Ted Toppin, chairman of the union-backed Californians for Retirement Security, said he was pleased that the court had left the California Rule in place, “holding that vested benefits cannot be impaired.” Dan Pellissier, president of California Pension Reform, said the Cal Fire decision could become a “building block” in other cases. Next up before the court is a case known as Alameda, in which public unions in three California counties are attempting to overturn a provision of PEPRA that banned pension “spiking.” This practice allowed employees to increase their pensions by adding the value of unused vacation, leave time and other benefits. Cities and counties have saved tens of millions of dollars in retirement obligations since spiking was banned. Unfunded liabilities for the 50 states reached $1.6 trillion in fiscal year 2017, the last year for which full figures are available, according to Moody's Investors Service. Nonetheless, there are some reasons for optimism. The first reason is that public awareness of the peril of unfunded liabilities that arose during the Great Recession has not abated. Pension issues are frequent discussion items on the agendas of governing bodies of cities and councils. They’re on state legislative agendas, too. Colorado, Illinois, Kentucky and Minnesota, took steps to mitigate their respective pension funding crises in 2018. Pension issues are front and center this year in Illinois, the state with the most unfunded liabilities. Nine states now perform regular stress tests on their public retirement systems and report the results. These states are California, Colorado, Connecticut, Hawaii, Kentucky, New Jersey, Vermont, Virginia and Washington.
Another reason for optimism is that some retirement systems have improved their investment practices, among them the California Public Employees Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS). CalPERS, the nation’s largest retirement system, had an 8.6 return on investments in the 2017-2018 fiscal year; CalSTRS had a 9 percent return.
Even more encouraging, CalSTRS and the Teachers Retirement System of Texas (TRS) are investing directly in businesses, a practice known as co-investing that was pioneered by Canada.
Public pensions already put billions of dollars into buyout firms such as Blackstone LP, bringing a median annual return of nearly 12 percent. Co-investing, in which pension funds buy direct stakes in companies, promises even bigger gains but requires a highly sophisticated investment staff that smaller funds may be unable to afford.
All in all, states and their pension funds are facing up to the recurrent problem of unfunded liabilities to an unprecedented degree.
It’s imperative that they do since these liabilities pose a clear and growing danger to the fiscal health of state and local government.
Many people cringe when they hear the word ‘audit’ because it is almost inextricably linked with ‘tax’—another cringe-worthy topic. Admittedly, audits can be uncomfortable; very few people enjoy time spent under a microscope. But as the Institute of Internal Auditors (IIA) points out, internal audits represent important links in the chain of comprehensive risk mitigation.
Since May is International Internal Audit Awareness Month, we’re taking a closer look at how this misunderstood and oft-maligned profession delivers big benefits to companies.
What does an internal auditor do?
The Institute of Internal Auditors (IIA) offers this description: “At its simplest, internal auditing involves identifying the risks that could keep an organization from achieving its goals, making sure the organization’s leaders know about these risks, and proactively recommending improvements to help reduce the risks.”
Internal auditors typically report directly to the “highest governing body” of an organization, ensuring that they have the authority to drive change, when needed.
Internal auditors aren’t boring bean-counters, either. While ensuring the accuracy of financial statements is one aspect of the job, internal auditors wear many hats:
Make the most of your internal auditor
Since we’re celebrating International Internal Audits Awareness Month, May is the perfect time for risk management professionals to reach out to internal auditors.
After all, you’re on the same team.
Instead of feeling threatened or nervous about an audit of your third-party risk management processes, embrace the internal auditor’s expertise.
An internal auditor’s understanding of the big picture can help you optimize your due diligence and ongoing risk monitoring to better protect against reputational, regulatory, financial or strategic risks. In the long run, better results yield advantages for the business—and your professional reputation. Sounds like a win-win situation, doesn’t it?
Take Action
NEBRASKA Gov. Pete Ricketts (R) signs LB 399, which provides Cornhusker State schools with three different options for students to learn civics: participating in and reporting on a local government meeting, taking the test given to those seeking to become U.S. citizens, or completing a project or paper and a class presentation on holidays such as Veterans Day, Constitution Day or Native American Heritage Day (ASSOCIATED PRESS).
The ARKANSAS Senate approves HB 1684, which would allow so-called “dreamers” – students under the Deferred Action to Childhood Arrivals, or DACA – to pay in-state tuition rates at Razorback State colleges and universities. The measure moves back to the House (ARKANSAS TIMES [LITTLE ROCK]).
Thirty-three states have considered legislation related to daily fantasy sports this year, according to LegalSportsReport.com and LexisNexis State Net legislative data. DFS bills have been passed in four states, including Virginia, which enacted two. DFS measures have also failed in 13 states, but DFS legislation is still pending in 17 states and has already passed the second chamber in three of them, Colorado, Mississippi and Missouri.
Source: LegalSportsReport.com, LexisNexis State Net
Legend:
DFS bill(s) passed: Indiana, Tennessee, Virginia
DFS bill(s) pending: California (1st chamber), Colorado (2nd chamber), Illinois, Iowa (1st chamber), Louisiana, Massachusetts, Michigan, Minnesota (1st chamber), Mississippi (2nd chamber), Missouri (2nd chamber), New Jersey, New York, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont (1st chamber)
DFS bill(s) failed: Alabama, Arizona, Connecticut, Florida, Georgia, Hawaii, Kentucky, Maryland, Nebraska, New Mexico, Washington, West Virginia, Wisconsin
New Names Showcase Flagship Research Solution
As November approaches, new signs of the changing season appear every day. The air is a little crisper. The trees are a little more colorful. And here at Nexis® Solutions, another change is taking place—our product names are being updated. What’s behind the transition?
Nexis: A Name Worth Remembering
At the beginning of 2019, we announced that LexisNexis® Business Insight Solutions—a business unit of LexisNexis Legal & Professional—was becoming Nexis Solutions. The name change served several purposes:
Most importantly, the name change speaks to our commitment to supporting a nexus of ideas and innovation in our solutions and for our customers. This includes a future vision of continuous improvement through artificial intelligence, including:
These efforts are supported through our people and our partnerships. In addition to investing in technology professionals to build in-house expertise in artificial intelligence, machine learning, predictive and prescriptive analytics, Nexis Solutions is teaming up with best-in-class partners across RELX and across the industry to ensure we continue to evolve to meet the current and future needs of our customers.
What hasn’t changed, however, is our commitment to the organizations that depend on our incomparable content universe and technologies that help companies:
And now, we’re taking the next step on this journey.
Indispensable tools for data-driven insights
Our product line-up is poised to go through a name realignment beginning November 1st—and it’s easy to remember: All our product names will now reflect the same flagship product that inspired the Nexis Solutions name change: Nexis.
As we have introduced new or enhanced products over the past two years, we’ve connected the name back to Nexis.
November 2019 marks the last of these name transitions:
If you’re familiar with Shakespeare’s Romeo and Juliette, you’ll recognize a quote that’s has flitted through our minds since we began considering how we could introduce the new product names.
“What’s in a name? That which we call a rose By any other name would smell as sweet.”
Despite having been written 420 years ago, the quote feels especially relevant to our current situation. Yes, our product names are changing. But the promise behind our products remains unchanged—and just as sweet: Deliver our unmatched content in ways that quickly address your organization’s evolving needs for actionable business research, enhanced risk management, comprehensive media intelligence or the data to power machine learning, predictive analytics and other artificial intelligence applications.
NEW MEXICO Gov. Michelle Lujan Grisham (D) signs SB 76, which makes it illegal to organize or take part in coyote-killing contests (SANTA FE NEW MEXICAN).
The COLORADO House and Senate give final approval to SB 181, a sweeping oil and gas reform measure that would, among many things, give local governments the power to regulate oil and gas operations in their jurisdictions. It moves to Gov. Jared Polis (D), who is expected to sign it into law (WESTWORLD [DENVER]).
The NORTH DAKOTA Senate approves HB 1400, which defines what constitutes meat and bars non-meat products from being labeled as meat in any way. It moves to Gov. Doug Burgum (R) for consideration (BISMARCK TRIBUNE).
OREGON Gov. Kate Brown (D) signs SB 608, which imposes the nation’s first statewide rent control statute. Under the new law, which takes effect immediately, it is illegal for Beaver State landlords to raise rent by more than 7 percent plus inflation each year. The law also limits a landlord’s ability to evict tenants without a reason after they have lived in a property for a year (OREGON PUBLIC BROADCASTING).
The NEW MEXICO House endorses HB 441, which would bar the state lottery from offering sports wagering. It moves to the Senate (ASSOCIATED PRESS).
The MARYLAND House approves HB 166, which would raise the Old Line State minimum wage to $15 by 2025. It is now in the Senate (WASHINGTON POST).
The Pittsburgh City Council approves a package of bills that would ban the use of armor-piercing ammunition and high-capacity magazines and allow the authorities to temporarily seize the firearms of anyone determined to be dangerous. Opponents have vowed to challenge the new statutes in court, arguing that PENNSYLVANIA law bars local governments from enacting such prohibitions (YAHOO NEWS).
TENNESSEE Gov. Bill Lee (R) indicates he will sign HB 1021, which would ban local governments from regulating certain plastic bags and utensils. The move is intended to override local ordinances in Memphis and Nashville that impose taxes or other regulations on those products (NASHVILLE TENNESSEAN).
- Compiled by RICH EHISEN
According to a 2016 analysis of Airbnb booking data by the website fivethirtyeight.com, among the 25 cities with the largest Airbnb markets at that time, Honolulu, Hawaii had the highest percentage of active listings that were rented at least 180 days a year, at 21.1 percent. The other Top 25 markets with the highest share of such “commercial” listings were Portland (15.6 percent), Los Angeles (15.5 percent), Seattle (12.5 percent) and New Orleans (11.9 percent). The top Airbnb markets with the lowest percentage of commercial listings were New York (8.0 percent); Austin, Texas (6.9 percent); Chicago (6.7 percent); San Jose, California (6.1 percent); and Philadelphia (5.4 percent). But even in Airbnb’s largest U.S. market, New York, with 2,464 commercial listings, that number was only a fraction of the city’s roughly 2.2 million total rentals.
Thirteen states have introduced and three have passed legislation this year dealing with the legalization of sports betting, currently prohibited in all but a handful of states by the Professional and Amateur Sports Protection Act (PASPA) passed by Congress in 1992. Most of the state bills would allow such wagering if the federal law changes, although one, Hawaii HB 927, would only create a task force to study the issue. Nevada also passed a bill in 2014 (SB 2460) allowing sports betting at casinos and horse racetracks.
Source: Legal Sports Report, Online Gambling Sites
Introduced sports betting bill in 2017: California, Hawaii, Kentucky, Maryland, Michigan, New Jersey, New York, Oklahoma, South Carolina, West Virginia
Passed sports betting bill in 2017: Connecticut, Mississippi, Pennsylvania
Passed sports betting bill in 2014: New Jersey
Legalized form of sports betting before passage of PASPA: Delaware, Montana, Nevada, Oregon
Blue states might have lost the battle to defeat the Republican-controlled Congress’s massive tax code overhaul in December, but some Democrat-leaning states are not yet ready to concede the war. Led by California and New York, states are weighing a variety of options in looking to blunt the impact of the law, which critics contend greatly favors high earners and corporations over lower income and middle class earners.
One of the most controversial tenets of the GOP tax law is a $10,000 cap on the federal deduction for state and local taxes (SALT), which are likely to have the greatest impact in high-earner, high-tax states like California and New York. For example, the 6.1 million Californians who itemized on their 2015 returns – the latest year data is available – took an average SALT deduction of $18,438, meaning they each stand to lose over $8,000 in deductions.
Lawmakers are weighing a variety of options. Those range from challenging the law in court to changing their own state tax codes to enable residents to utilize other federal tax allowances to make up for the deductions they will lose under the GOP plan.
Of the latter, the proposal receiving the most attention to date has come from California Senate pro Tem Kevin de León (D), who has introduced legislation (SB 227) that would create something called the California Excellence Fund. Under the bill, Golden State residents could make a charitable donation to that fund equivalent to their state income tax obligation and in return take a dollar-for-dollar federal tax credit on the full amount of their contribution. With no cap on charitable contribution deductions under the GOP tax law, this would theoretically restore the loss of the SALT deduction.
In a statement, de León compared his proposal to a pair of previous bills he authored (2014 SB 798, SB 174) that allow people to take large deductions for specific charitable contributions. Under those measures, people who make donations to state college affordability grants, such as the Cal Grant program, may take a 50 percent state tax credit, while private property owners who grant an easement to a land conservancy group are allowed to take a 55 percent credit.
“The Republican tax plan gives corporations and hedge-fund managers a trillion-dollar tax cut and expects California taxpayers to foot the bill,” he said. “We won’t allow California residents to be the casualty of this disastrous tax scheme.”
Three small New Jersey towns have already decided to try a similar plan of their own. On Jan. 5 those towns – Paramus, Fair Lawn and Park Ridge – announced they would allow property owners to donate the same amount they would pay in local property taxes to their respective cities, with those funds then paying for municipal services.
The proposal was the brainchild of U.S. Rep. Josh Gottheimer (D–New Jersey), who called the new tax law a “massive tax hike” on the Garden State. He was joined by Gov.-elect Phil Murphy (D), who said he would work to ensure the state helped the local municipalities implement the plan.
New York Gov. Andrew Cuomo (D) has his own multi-step end-around in the works. In his State of the State address on Jan. 3, Cuomo said his administration would file a lawsuit seeking to undo the federal law. In that address he accused Congress and the Trump administration of engaging in a hyper-partisan “economic civil war” that endorses “robbing the blue states to pay for the red states.”
“We believe it is illegal and we will challenge it in court as unconstitutional, the first federal double-taxation in history, violative of states’ rights and the principle of equal protection,” he said.
Cuomo also ordered his administration to look into altering the Empire State tax code by eliminating state income taxes in favor of a payroll tax collected by employers. The governor promised to release full details later this month, but a senior member of his administration said the proposal is based on the core principle of revenue neutrality for workers, employers and the state.
The jury is decidedly out, however, on whether any of these proposals will work. Tax experts like Daniel Lathrope, who teaches tax law at the University of San Francisco, are skeptical.
“That’s not a charitable contribution, that’s paying off a debt,” he recently told the San Jose Mercury News.
A report issued by the Tax Foundation on Jan. 5 supported that assertion, arguing that “Case law and IRS regulations generally require charitable intent for a contribution to be deductible, meaning that the individual does not receive a substantial benefit from the contribution. Against this requirement, the sole purpose of the proposed contributions in lieu of taxes proposal is financial gain.”
But Gottheimer and de León both point to an array of current federal tax credit programs that allow deductions to be taken for specific charitable donations.
“Our research has shown that there are more than 30 tax credit programs taking advantage of this charitable deduction around the country, in 22 states, that work in basically this same way,” Gottheimer said in a joint press conference with Gov.-elect Murphy announcing the proposal on Jan. 5. “It would be very hard for the IRS to retreat from programs it has been supporting for years, unless it wants to take away this relief in 22 other states.” (NOTE: An addendum produced by Gottheimer’s office listed 31 programs in 21 states, not 22).
Both also note that many of those programs exist in deep red states like Alabama and South Carolina, and Gottheimer also pointed to an academic paper released last week by eight tax scholars that contends current tax law fully supports his proposal.
The Tax Foundation also questions the viability of Cuomo’s payroll tax proposal, saying the IRS would likely consider such a change to “constitute payment of an employee’s income taxes by the employer, which would not only negate the benefit of the plan but could actually increase taxpayer liability.”
During his annual budget release press conference last week, California Gov. Jerry Brown (D) said he is open to de León’s measure, but also noted the possibility that the IRS would simply change the rules to negate it after the fact.
Speaking to Capitol reporters later that day, de León expressed optimism that the workaround would hold up, but said he is also conferring with California Attorney General Xavier Becerra and former U.S. Attorney General Eric Holder, who has been hired to consult with California Democrats on legal ways to resist policy changes imposed by the Trump administration and the GOP-controlled Congress, on possible litigation to block the law. He added he is also studying Gov. Cuomo’s payroll tax proposal to see if there is any applicability to California.