State Rundown 7/1: Fiscal Year Blues


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The budget showdown between Pennsylvania Gov. Tom Wolf and the state legislature continues. Republican lawmakers want to close a large budget gap without new taxes, while the governor has proposed a property tax reform measure and a new tax on natural gas extraction. Wolf has threatened to veto a budget with no tax increases. With the fiscal year ending today, pressure is on for leaders to make a deal. If that deadline is passes without a resolution, most observers expect business to continue as usual for state workers in the short term.

Washington state legislators reached an agreement on transportation spending that includes an increase in the state’s gas excise tax. The $15 billion package will increase the tax by 11.9 cents-per-gallon over three years. Gov. Jay Inslee previously pledged to sign any deal between the House and Senate, making enactment of this deal likely.

New Jersey is poised to increase the state EITC to 30 percent of the federal credit after a surprise endorsement from Gov. Chris Christie. As New Jersey Policy Perspective notes, the increase will help over 500,000 working families and boost the state economy: “It’s been estimated…that the EITC has a multiplier effect of 1.5 to 2 in local economies – in other words, every dollar of tax credit paid ends up generating $1.50 to $2 in local economic activity.”

Connecticut lawmakers reached a deal on the budget in a special session after Gov. Dannel Malloy called lawmakers back to the capital at the behest of corporate lobbyists. At issue was an increase in the state’s sales tax on computer and data processing services from 1 to 3 percent, as well as new combined reporting rules for businesses operating in Connecticut. The legislature backed down on those changes after corporations decried the measures and leaned heavily on the governor. The new deal maintains the sales tax rate on computer and data processing and delays the start of combined reporting by one year.  To make up the lost revenue from those changes, lawmakers reduced Medicaid spending by $12.5 million, reduced a scheduled state employee pay increase by .5%, partially delayed a transfer of sales tax revenue to transportation projects, and delayed some new municipal revenue sharing.  

Oregon will launch a new experiment this month that aims to change the way we fund road construction and repair. The program, called OReGO, will charge 5,000 volunteer drivers a 1.5 cent-per-mile road usage charge, also known as a vehicle miles traveled (VMT) tax, rather than the traditional state gas excise tax at the pump. The program is meant to address declining revenues from the gas tax, as vehicles become more fuel-efficient and the maintenance needs of aging infrastructure skyrocket. While some observers are optimistic that VMT taxes could prove to be a more sustainable revenue source, there is reason to be more skeptical. As ITEP’s Carl Davis points out in a new report, “[Oregon’s] new VMT tax is an unsustainable revenue source because it contains the same design flaw that has plagued the state’s gasoline tax for almost a century—a stagnant, fixed tax rate that is incapable of keeping pace with inflation.” Davis suggests indexing current state gas excise tax rates to inflation before beginning to experiment with entirely new funding mechanisms.

 

States Still In Legislative Session:
Alabama
Illinois
Maine
Massachusetts
Michigan
New Hampshire
North Carolina
Oregon
Pennsylvania
Washington
Wisconsin

 

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