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Budget Battles Continue in Several Key States

By Ryan Maness | May 11, 2016
Topics: Budgets, Tax

2015 saw a nearly unprecedented number of late budgets (Illinois' 2015 budget is technically still late), and while fewer states are having the the same kinds of problems this year, there are still plenty of interesting fiscal battles being fought across the country.

Budget Highlights

Colorado | Colorado Democrats were unsuccessful this session to remove Colorado's hospital provider fee from underneath TABOR's revenue cap, meaning that the $700 million associated with the fee will now be refunded to Colorado taxpayers. Democratic leaders had made the change a top priority for the session, but the bill died in the Senate Finance committee yesterday. In the House, Democratic opposition stymied House Republicans stymied in their pursuit of one of their key agenda items, a proposal to ask voters to approve a $3.5 billion bond measure to improve state infrastructure.

Connecticut | Legislators were close to finalizing a budget on May 4, but leadership opted instead to return to Hartford on May 12 rather than rush the process through in the waning hours of the regular session. This came after weeks of argument between Governor Malloy (D) and Democratic leaders in the legislature, with the governor seeking to increase infrastructure spending and to impose broad agency budget cuts including, controversially, to hospitals and public schools; on the other side legislators sought to close the gap by freezing non-union public employee pay, capping pensions, transferring money, and establishing a program to allow businesses to voluntarily make tax payments now in anticipation of tax cuts later. On Tuesday night lawmakers announced that they had agreed to $830 million worth of budget cuts without any plans to increase taxes or fees. The following day, with the deal in hand, lawmakers needed to decide whether they would hurry through the process to get the budget passed by midnight or to defer final action for a special session; after several hours of work legislators decided that they would need a special session. Governor Malloy was supportive of the move, but said that this should not be taken as an excuse to reopen the deal; however the state has a history of last minute shenanigans. Given how much blow back the state received last year from the business community, it's unlikely that legislation will will move forward that is seeking to implement market sourcing rules and to tax inter-company transactions.

Kansas | Beset by a projected $249 million budget shortfall, Kansas lawmaker struggled to devise a budget plan to bring the state's books into balance. Legislators ultimately passed a plan that relies on Governor Brownback (R) to make nearly $200 million in additional spending cuts and revenue transfers (a move that has prompted Moody's to downgrade the state's credit outlook from stable to negative). In the lead up to the budget's crafting, Kansas had consistently missed its revenue estimates, which had forced the governor to cut $93 million from pension contributions to replace money lost to education. In the midst of these harsh fiscal circumstances a growing chorus of lawmakers renewed their call to repeal marquee tax cuts, but Governor Brownback was adamant that Kansas' budget could and should be balanced without any changes to the state's tax portfolio. His argument was successful this year, but unless the state's economic fortunes turn around soon, the argument may soon become too powerful for him to beat back.

Kentucky | Following up on our coverage from last month, on April 18 Governor Bevin (R) enacted a $22 billion biennial spending plan that increases funding for the state's pension system, cuts state higher education spending by 4.5 percent, and preserves a series of K-12 support programs. Negotiations for the final budget came down to the wire as the Democratic majority in the House battled with the GOP-controlled Senate over pension contributions and higher education funding. While the final budget deal was able to obviate the need for the deep cuts that the governor proposed at the beginning of the session, it did not seek to undo the immediate 4.5 percent cut to higher education that Bevin ordered on March 31; instead, the state will wait for the outcome of a lawsuit filed by Attorney General Beshear (D) challenging the cuts before taking any further action on the issue.

Illinois | At the end of April, Illinois lawmakers were able to bypass the interminable budget impasse in order to release $600 million to prop up the state's higher education system. Insiders report that the legislature was only having a momentary dalliance with bipartisanship and that the state is not expected to pass a permanent budget anytime soon. While the budget fight continues, a group of Democrats are pushing a constitutional amendment that would enact a progressive income tax to replace the state's current 3.75 percent flat rate. Under the plan Those filing jointly who earn less than $200,000 would be taxed at 3.5 percent, those making between $200,000 and $750,000 would be taxed at 3.75 percent, those making between $750,000 and $1.5 million would be taxed at 8.75 percent, and those making in excess of $1.5 million would be taxed at 9.75 percent. Governor Rauner (R) has lodged his strong opposition to the measure.

Minnesota | Lawmakers are currently engaged in negotiations to resolve the of competing supplemental budget packages that promoted by the two legislative chambers. Governor Dayton (DFL) and his allies in the Senate want to use a $900 million budget surplus to combat racial disparities, enact a series of middle-class tax cuts, and expand pre-K education programs. The Republican majority in the House is pushing a more fiscally restrained plan that does not draw down the state's budget surplus, sends no new money to public colleges and universities, and would establish $600 million in bonding to pay for state infrastructure improvements. Their plan also calls for a series of tax cuts, including a temporary personal income tax cut for middle class Minnesotans, a permanent phase out of the business property tax, and a tax exemption for Social Security benefits.

Oklahoma | While the legislature is currently wrestling with a number of high-profile legislative controversies, budget writers have assured the public that they are still working on a plan to close the state's $1.3 billion budget shortfall. Governor Fallin (R) has already released her own plan for closing the gap, calling for 4.5 percent budget cuts for most agencies, $500 million in bonding, and new taxes on advertising, commercial airlines, and some entertainment admissions. The governor has said that these are her preferences, but that everything must be on the table in order to bring the budget into balance.

West Virginia | Governor Tomblin (D) announced on May 5 that he will call a special session later this month, regardless of whether lawmakers have reached an agreement to resolve the state's budget impasse. Lawmakers adjourned their regular in March without finalizing a budget to close the state's $238.8 million budget deficit, having rejected the governor's plan increase cigarette taxes and to levy a new tax on telecommunication services. Governor Tomblin hasn't said exactly when he would reconvene the legislature, only that if legislators cannot come up with their own plan he will introduce his own proposal for legislative action. A spokesman for the Governor announced that he would convene the special session on May 16.

Outstanding Fiscal Year 2017 Budgets

The states below still have outstanding state budgets for the 2017 fiscal year (note that Connecticut, Illinois, Minnesota, Oklahoma, and West Virginia, which are listed above, also do not have budgets yet).* Check out the summary map at the bottom of this post, too.

Alaska | The state is currently facing a $4.1 billion deficit, a fiscal calamity so drastic that lawmakers are considering making adjustments to the Permanent Fund, the program that disburses oil revenue to residents. Now, well into the state's over-time session, lawmakers are still wrestling with how to find a solution to their fiscal dire straits.

California | Citing concerns that state revenues could be about to slip, Governor Brown's (D) January $170.7 billion budget plan was relatively conservative, calling for increases to education and infrastructure spending, but sending an additional $2 billion to the state's reserve fund. The governor has until May 15 to release a revised plan, after which the state will begin its budget negotiations in earnest. The question remains whether Brown will continue on his current, restrained course or, given his boost to the state's minimum wage, he will set a more “progressive” agenda.

Delaware | Lawmakers are expected to begin voting on the state budget the week of May 9. Last June economists predicted that Delaware could face a deficit of up to $100 million, but in April they announced that current projections showed the state just $9.5 million short.

Louisiana | After a tumultuous special session earlier this year, lawmakers were able to resolve the state's FY16 budget and put a dent in FY17, but more work was needed. In April Governor Edwards (D) announced that he will convene another special session this summer to consider tax measures necessary to balance the state's books. Business groups and Republicans have criticized this schedule, saying that the Edwards should wait to see what effect the existing tax changes will have on the state's budget before embarking on another round of reform. More recently, the Governor has said he will call a constitutional convention next year if he doesn't get his way with regard to a second special session.

Massachusetts | On April 27 the House gave unanimous approval to a $39.56 billion state budget. The plan does not differ significantly from Governor Baker's budget proposal and it does not include any new fees or taxes. The budget invests new money in substance abuse programs, services for homeless individuals, and early education.

Michigan | Legislators are currently working to resolve the differences between the budget bills passed by the House and the Senate (valued at $47.5 billion and $52 billion, respectively). Major differences between the budgets include prison closures, reimbursements for lead testing in Flint, cuts to the state Board of Education, and private school funding.

New Jersey | In April a state budget officer announced that a local billionaire had moved his assets outside the state, sending local media and legislators into a tizzy. Lawmakers are still crafting the state's budget, but the departure of this one individual could reportedly cost the state hundreds of millions of dollars in tax revenue.

North Carolina | While the House and Senate have not yet released the details of their budget plans yet, budget negotiators announced in early May that they would hold their spending limit to $22.225 billion. Governor McCrory's own budget proposal clocks in at $22.8 billion and notably features no new tax cuts and a 3 percent (on average) bonus to state workers.

Pennsylvania | In March Governor Wolf (D) allowed the legislature's 2015 budget to become law despite his objections after nearly a year of acrimonious debates. The question now is whether 2016 will follow the same fraught path. The governor is still pushing for new taxes (though to a lesser degree than last year) in order to bolster state spending, but majority Republicans have shown no inclination to accept the Governor's tax increases.

Rhode Island | Debate has just begun on the state's FY17 budget, but the biggest questions moving forward will deal with Governor Raimondo's (D) proposals to expand economic development tax incentives, new fees for marijuana growers, and reforming Medicaid.

South Carolina | On May 4 the Senate passed a $7.5 billion budget plan, which will now need to be reconciled with the House's version. Issues that will need to be resolved include employee pay, transportation funding, and money for police body cameras.

Vermont | Sources indicate that legislative leaders have hammered out most of the remaining differences between the House and Senate budget plans and that they will be able to adjourn on May 7.

*This list does not include states where the budget is merely awaiting gubernatorial action (i.e., Arkansas, Iowa, Hawaii, and Kansas) or states that had not planned to pass any budget measures this year (i.e., Nevada, New Hampshire, North Dakota, Oregon, Wisconsin, and Texas).
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