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Tax Law

State Net Capitol Journal – August 13, 2012

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Budget & Taxes

STATE BUDGETS STILL IMPROVING BUT NOT YET SECURE: Year-end balances are on the rise. Revenues are returning to pre-recession levels. Spending is in line with budget projections. That's what state legislative fiscal directors have been telling the National Conference of State Legislatures the last couple of months, according to the organization's Summer 2012 budget update. But the reports from the state fiscal officers aren't entirely rosy.

The majority of states reported year-end balances at or above 5 percent of general fund spending - the amount typically recommended by rating agencies - for FY 2012 and projected the same for FY 2013. Ten states, including Alaska, North Dakota and Wyoming, are expecting to finish both fiscal years with year-end balances of 10 percent or more.

But 21 states reported year-end balances of less than 5 percent for FY 2012. Two, Alabama and Connecticut, reported zero balances, while California and Washington reported deficits. Even more states are projecting year-end balances under 5 percent for FY 2013, although the same two states are predicting zero balances, and no state is expecting a negative balance.

NCSL acknowledged the states' fiscal improvement.

"For the first time since the recession started we didn't ask states 'How big is your budget gap?'" NCSL analyst Arturo Perez said at the organization's annual conference in Chicago last week.

State revenue collections are also looking up. Forty-four states reported their revenues were up in FY 2012 compared to prior-year levels. Revenues grew between 5 and 9.9 percent in 14 states and more than 10 percent in five. The revenue projections were similar for FY 2013, with 44 states predicting year-over-year growth and nine anticipating growth over 10 percent, although California's 10.4 percent projection rests on the passage of a sales and income tax ballot measure in November.

General fund spending grew by just 0.4 percent more than forecast in FY 2012, 3.1 percent versus 2.7 percent. And it is projected to grow 2.4 percent in FY 2013.

Consequently, state fiscal officers' outlook for FY 2013 is generally positive, with 6 states describing it as "optimistic," 33 as "stable" and not one as "pessimistic." But officials in 11 states categorized their outlook as "concerned." Among the issues contributing to that view are the nation's lingering jobless rate, the European debt crisis, potential federal deficit reduction, and costs associated with the implementation of federal health care reform. (NATIONAL CONFERENCE OF STATE LEGISLATURES, STATE NET)

STATES RACE TO BOTTOM TO LURE JOBS? To land a planned Apple Inc. data center last week, Nevada had to beat out a small town in Oregon. The town of Prineville, population 9,200, had a lot going for it. It offers a 100 percent tax break on property improvements for up to 15 years, and Oregon has no sales tax. The town is also already home to an Apple data warehouse, as well as facilities owned by Facebook and Google.

Faced with that kind of competition, the Nevada Governor's Office of Economic Development had to offer Apple $89 million in tax breaks over 10 years, despite the state's already favorable tax climate. Sandoval's economic development czar, Steve Hill, said anything less, and Apple would have gone elsewhere.

Tax Breaks

Such deals are becoming increasingly common as states, coming out of the recession, are aggressively pursuing companies promising jobs. But some say the deals are promoting a race to the bottom.

"You'll always have somebody who can come in and say, 'we'll build a lot of stuff, bring a lot of jobs, do a lot of good, but you have to nudge the tax down," said Joe Henchman, vice president of legal and state projects for the Tax Foundation. "Once you do that, another person comes in wanting a better deal, and another person and another person." (LAS VEGAS SUN, STATE NET)

BUDGETS IN BRIEF: ARIZONA ended FY 2012 with a $401 million budget surplus, state officials reported last week. The surprise surplus brings the state's cash reserve heading into FY 2013 to over $850 million, with the state having recently deposited $450 million into its rainy-day fund (ARIZONA REPUBLIC). • The nation's four major professional sports leagues and the NCAA have filed a federal lawsuit to block implementation of the law Gov. Chris Christie (R) signed in January allowing sports betting in NEW JERSEY. The plaintiffs contend that allowing sports betting - currently legal only in DELAWARE, MONTANA, NEVADA and OREGON - to expand to NEW JERSEY "would irreparably harm amateur and professional sports by fostering suspicion that individual plays and final scores of games may have been influenced by factors other than honest athletic competition" (NJ.COM). • NEW JERSEY Gov. Chris Christie (R) signed legislation last week giving the go-ahead to seek voter approval for $750 million in borrowing for construction projects at the state's public and private colleges. If approved, the higher education bond issue would be the state's first in 24 years (NJ.COM). • CALIFORNIA's Indian casinos pump $7.5 billion into the state's economy each year and provide more than 52,000 jobs, according to the results of a tribal-commissioned study released last week. Tribal leaders say the study is not tied to any specific political campaign or legislative measure, but it is the first detailed analysis of Indian gaming's economic impact on the state since voters legalized Vegas-style gambling on tribal land over a decade ago (PRESS-ENTERPRISE). • The former controller and the former chief operating officer of the NEW MEXICO Finance Authority, a public agency that finances infrastructure projects in the state, were arrested last week for securities fraud. The two officials allegedly forged an audit used to sell $24.3 million in bonds in March (WALL STREET JOURNAL). • A record $1.13 billion was wagered at the racino at Aqueduct Racetrack in NEW YORK in July. The Resorts World Casino New York City reported to state regulators that the total amount gambled and the net revenue of $59.75 million were all-time monthly highs for the racino since opening in October (ASSOCIATED PRESS, TIMES UNION). • Farmers, ranchers and small businesses in the 19 states hardest hit by the drought will get $30 million in federal relief, the Obama administration announced last week (STATELINE.ORG)

- Compiled by KOREY CLARK

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