State Net Capitol Journal Spotlight: Issues Old And New Catch Fire In States

State Net Capitol Journal Spotlight: Issues Old And New Catch Fire In States

By Korey Clark 

Last week, we took a mid-year look at several of the issues we predicted last December would see a lot of action in statehouses this year. Here are a few more of those issues, as well as a couple of others that have heated up as the year has progressed.
DIGITAL REVOLUTION/SHARING ECONOMY — State and local officials are struggling to get a handle on the digital technology-driven businesses like Uber, Lyft, Airbnb and Bitcoin that are disrupting the industries in which they operate. A week hasn't gone by recently without a news headline reporting regulatory action on one of these business or another. In late May, for instance, the vacation rental provider Airbnb agreed to hand over its user records to New York state Attorney General Eric Schneiderman in connection with an investigation into the company's operations in New York City. The same month, New Mexico's Public Regulation Commission ordered the ride-sharing service Lyft to stop operating in the state until regulators can determine whether the service is operating legally. And in early June, Virginia's Department of Motor Vehicles issued a similar cease-and-desist order to both Lyft and competing service Uber. 
The governmental actions have now reached the legislative level. Last month Colorado Gov. John Hickenlooper (D) signed SB 125, officially authorizing and regulating ride-sharing services in the state. And at the end of June, California Gov. Jerry Brown (D) signed AB 129, repealing a prohibition against the use of anything other than official U.S. currency for commerce in that state and opening the way for digital currencies like bitcoins, which have been growing in popularity. With the amount of money at stake — nearly $888 billion was spent on business and leisure travel alone in 2013, according to the U.S. Travel Association — other states are likely to follow Colorado and California's lead. 
FILM TAX CREDITS — Tax incentives for film and television production have been a subject of debate in many statehouses in recent years, spurred by conflicting research about their effectiveness. But the profile of the issue has been raised considerably this year by the media attention drawn by the aggressive efforts of the production company behind the Netflix series "House of Cards" to obtain millions of dollars more in tax breaks from the state of Maryland, where the show is filmed. There have also been a number of national and local news stories about the migration of film and TV production out of California to states like Georgia and Louisiana. The combination of those developments has not only likely put the issue on more legislators' radar screens but also given more of them reason to believe their states' could grab their own piece of Hollywood. 
TRANSPORTATION/INFRASTRUCTURE FUNDING — With the federal Highway Trust Fund currently running on fumes and looking to hit empty before the end of August, Congress is expected to take some form of remedial action before its summer recess next month. But that fix is likely to be only a temporary one, so states will still be left to come up with their own funding sources to meet their mounting infrastructure needs, as Pennsylvania did last year by enacting HB 1060, gradually increasing the state's gas taxes and motorist fees over five years to provide at least $2.3 billion annually for transportation projects. Missouri is one state that is hoping to take similar action this year through an August ballot measure seeking voter approval for a .75 percent increase in the state's 4.225 percent sales tax. Meanwhile, states have been busy making plans to postpone or scrap critical infrastructure projects in the event Congress fails to act (see FEDERAL HIGHWAY FUNDING BOTTLENECK FORCES STATES TO HIT BRAKES ON ROAD PROJECTS in Budget & taxes). 
INTERNET SALES TAX — Last year, the U.S. Supreme Court refused to review a New York appeals court decision requiring online retailers like to collect sales taxes in states where they have affiliates that promote their products. With states standing to lose $23 billion a year in uncollected taxes on online, phone and catalog purchases, according to an estimate by the National Conference of State Legislatures, we predicted the 37 states that didn't already have "affiliate nexus tax" laws — commonly referred to as "Amazon taxes" — might try to enact them this year. But only one state, Colorado, has enacted such a law (HB 1269), according to the LexisNexis State Net Hot Issues database. Nine states tried, but failed to pass, Internet sales tax bills, while at least six states are still weighing such measures. 
Congress could resolve the issue by passing the Marketplace Fairness Act, which would allow each state to impose sales and use taxes on online retailers with at least $1 million in sales within their borders, regardless of whether or not the retailers have a physical presence there. But although a version of that measure has already been passed by the Democrat-controlled Senate, it is hung up in the Republican-led House. 
ONLINE GAMBLING — Last year Delaware, Nevada and New Jersey became the first states in the nation to legalize Internet gambling within their respective borders. But no state has enacted a law legalizing online gambling this year, while Internet gaming measures have failed in nine states and are still pending in California (AB 2291 and SB 1366) and Pennsylvania (SB 1386). 
The pending legislation may gain some impetus from reports in a few states, including Pennsylvania, of flattening revenues from conventional gambling sources like casinos due to market saturation. However, online gambling revenues in Delaware, Nevada and New Jersey have been falling far short of projections, although state officials blame that lackluster performance on technology glitches, payment processing issues and startup costs, as well as the learning curve associated with the transition of Internet gambling to legal status. 
Internet gaming legislation is also pending in Congress, including HR 3491, which would legalize all online gambling except poker, and HR 2666, which would allow both the states and the federal government to tax such gambling. But neither of those bills has budged since being referred to committee last year. 
PENSION REFORM — With states collectively facing trillions of dollars in unfunded pension liabilities, pension reform has been a white hot issue in the states in recent years. This year hasn't been much different, with State Net's Hot Issues database showing legislative enactments pertaining to state pensions in 35 states, including the somewhat unexpected passage of California AB 1469, increasing the amount teachers have to contribute to their pensions. 
But the most substantive action on the issue has actually been taking place outside the statehouses. This month the Illinois Supreme Court ruled that state's constitution prohibited any "diminishment" of health care benefits for public retirees. The decision, consistent with the widely held belief that benefits for current retirees cannot be touched, dealt a major blow to the historic pension overhaul enacted by the state last year, which had presumably given other states with pension holes smaller than Illinois' $100-billion chasm hope of shoring up their own retirement systems. 
This week, however, Detroit retirees are being asked to approve a bankruptcy deal cutting their own pension benefits 4.5 percent and lowering or eliminating their cost-of-living allowances, depending on whether or not they wore a police officer's or fireman's uniform during their working lives. That decision, which became a possibility after a federal bankruptcy judge ruled in December that the city's public employee pensions were not untouchable in a Chapter 9 bankruptcy, even though they are expressly protected under Michigan's Constitution, could set a precedent with far-reaching effects. 
VOTER ID/ELECTION REFORM — Election reform is another issue in which most of the action has taken place in the courts, with challenges to tough new voting laws, imposing strict photo ID requirements and restricting early voting and same-day registration, passed mostly by Republican-dominated legislatures since 2011 coming in numerous states. The rulings have gone both ways. Laws have been upheld in Arizona, Kansas and Tennessee, for example. But courts have rejected the new voting restrictions in Arkansas, Pennsylvania, Wisconsin and Ohio. Laws are still awaiting legal action in seven states, including North Carolina and Texas, and some of the courts in those cases have indicated they may issue rulings before Election Day, when the entire U.S. House and a majority of the nation's legislative seats will be up for grabs.

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