This is an updated compilation of six separate posts the MultiState team has published over the past month reviewing the top state issues of 2017 and previewing what's ahead in 2018.
At the start of 2017, MultiState found that 31 states were facing budget deficits, a reflection of the trouble that states continue to have recovering from the Great Recession. Over the past several years, states have faced slow, but usually steady revenue growth. However, it has not always kept pace with the costs of expanding state services in a climate of intense political polarization.
This year, the need to make hard trade-offs led state legislators to engage in prolonged, acrimonious budget negotiations. While most states were able to turn their spending plans in on time, a record 11 states missed their budget deadlines and continued debating into the summer and beyond.
Politics and Policy Differences Take Toll on Budget Debates
The reasons for these delays varied from state to state, but the root cause in many legislative chambers was political brinkmanship. The Pennsylvania House, for example, stonewalled any attempts to impose new taxes until the Senate and the governor were forced to acquiesce to avert fiscal calamity. Things were so bad in Minnesota this year that the governor threatened to defund the legislature. Finally, Illinois continued to define political cynicism as the governor and speaker steadfastly refused to deal with one another; a resolution was only reached after a bitter back and forth and veto override.
While nearly all of these states ultimately passed a long-term spending plan, Oklahoma remains the only fiscal holdout. After blowing past the end of their regular session, lawmakers in Oklahoma City breathed a sigh of relief when they were finally able to pass a budget using rainy day funds, agency spending cuts, and a new $1.50 fee on cigarettes. But that relief was short-lived when the Oklahoma Supreme Court threw out the cigarette tax hike, citing improper legislative procedure. Legislators passed a tax-increase-free “cash and cuts” budget, but Governor Mary Fallin (R) struck it down, saying it would do too much harm to essential state services. Lawmakers are set to return to the Capitol on December 18, but it's still unclear how they plan to move past their differences.
What to Expect in 2018: Budgets
Last year was a difficult time for state finances, but there are at least modest signs that 2018 will be a little easier. In its most recent report, the Rockefeller Institute of Government found that state revenue growth has been relatively strong compared to the recent past, though revenues were down in 12 states. Furthermore, the report's authors argue that there is evidence to suggest that 2016 revenues were depressed as taxpayers moved returns to 2017 to take advantage of tax reform. In our own report we found that 25 states will face deficits in 2018.
But there is still trouble on the horizon. Economists are still debating how federal tax reform may affect state finances. Additionally, oil-producing states could continue to struggle because the Organization of the Petroleum Exporting Countries has decided to extend production limits, at least temporarily.
Employment & Labor
Legislators across the country focused on a variety of employment issues in 2017, from more traditional issues like paid leave and right-to-work laws to emerging issues like predictive scheduling and salary history bans. In places where legislation was introduced, it was seriously considered, leading to new laws in several states. Next year is shaping up to be an active year as well, as employment issues are popular with voters in election years — particularly at the ballot.
Oregon Passes First-in-the-Nation Statewide Predictive Scheduling Law
Last August, Oregon became the first state in the nation to enact a predictive scheduling law (also known as "restrictive scheduling" or "fair scheduling"), following the passage of similar local ordinances in San Francisco (2014), Emeryville, California (2016), Seattle (2016), and New York City (2017). The law targets employers in the retail, hospitality, and food service industries, mandating that they provide employees with their work schedule 14 days in advance of their first shift and requiring them to pay employees extra wages for making changes within that window.
In addition to Oregon, 12 states and the U.S. Congress debated predictive scheduling legislation in 2017, though none of the bills passed out of their chambers of origin. A similar number of states introduced legislation in 2015 and 2016. Thus far, states have been more successful in enacting legislation preempting localities from enacting scheduling ordinances. In 2017 alone, Arkansas (AR SB 668), Georgia (GA HB 243), Iowa (IA HF 295), and Tennessee (TN SB 262) enacted laws preempting localities from regulating employees' schedules. Read More...
States and Localities Bar Salary History Inquiries
In 2017, three states — California, Delaware, and Oregon — banned employers from inquiring into prospective employees' salary histories as part of the application process. Additionally, bills in Illinois and Maine passed both houses of their legislatures before Governors Bruce Rauner (R) and Paul LePage (R) vetoed the legislation in those states, respectively. In total, 24 states, Washington, D.C., and Congress introduced salary history ban legislation this year. At the local level, Philadelphia enacted a ban that would prohibit all employers from inquiring into an employee's salary history. The ban is scheduledto take effect this month, pending the result of a lawsuit. New York City followed suit in April, passing its own ordinance applicable to all employers. Read More...
Paid Sick and Family Leave Laws Continue to Spread
In 2017, Washington (WA SB 5975) became the fifth state to establish a paid family leave program, which is scheduled to launch in 2020. Upon implementation, it will join California, New Jersey, New York, Rhode Island, and Washington, D.C., all of which have existing programs. Each state offers between four and 12 weeks of paid leave per year to qualifying employees at varying levels of wage replacement. Twenty-five states considered legislation to implement new paid family and medical leave programs in 2017, and Congress is also debating the issue at the federal level. Read More...
Rhode Island became the eighth state to enact a law mandating that employers provide employees with paid sick leave. Under the new law, effective July 1, 2018, employers are required to provide employees with three paid sick days per year in 2018, four in 2019, and five paid sick days per year in 2020 and thereafter. An additional 20 states introduced legislation on paid sick leave in 2017. The legislation was popular with legislators in places where it was introduced, passing out of its chamber of origin in five states. Read More...
Right-to-Work: Victories and Challenges
Advocates for right-to-work laws secured two major victories in early 2017, with a new Republican majority in the Kentucky House and Missouri Governor Eric Greitens (R) enabling lawmakers to enact right-to-work laws in those states. Right-to-work laws, which now exist in 28 states, allow employees to decide whether to join or financially support a labor union.
However, opponents in Missouri, backed by funding from organized labor, gathered enough signatures to protest the new law and place a repeal measure on the November 6, 2018, ballot. Of the 17 states that currently have a right-to-work statute (with an additional 11 states that have enshrined right-to-work language in their state constitutions), five states (Idaho, Utah, Wyoming, Missouri, and Michigan) authorize their citizens to initiate a popular referendum to place a measure on the ballot that will repeal specific statutes that the legislature passed. Read More...
What to Expect in 2018: Employment & Labor
Lawmakers will continue to debate and enact right-to-work, salary history, paid sick and family leave, and predictive scheduling laws in the 2018 legislative session. Keep a close eye on states where these bills passed one or both chambers of the legislature. In Maryland, for example, the legislature is expected to take up the paid sick leave bill vetoed by Governor Larry Hogan (R) sometime in January. The legislature is likely to overturn the governor's veto, but even if it doesn't, the governor has proposed his own alternative paid sick leave bill.
In addition to legislative activity, expect to see a variety of ballot measures on employment-related topics in 2018. In particular, minimum wage increases and marijuana legalization initiatives are popular with voters at the ballot box. Campaigns to put these issues in front of voters are currently underway in a number of states.
Finally, a number of states have already begun pre-filing legislation for 2018 that restrict or ban the use of employee arbitration agreements in sexual harassment cases. Expect a renewed interest in these issues as state legislatures weigh in on the media coverage surrounding sexual harassment claims in the workplace.
Health Care & Wellness
State lawmakers kept an eye on federal health care action in 2017, but they didn't remain idle as states face growing health care costs, an opioid crisis, and the growing popularity of marijuana legalization.
Will States Step In to Save the ACA's Individual Mandate?
In December, President Donald Trump signed the long-awaited tax reform legislation into law. One often overlooked aspect of the legislation was the repeal of the Affordable Care Act's (ACA) individual mandate, which required individuals to secure health insurance or pay a financial penalty to the IRS. One of the ACA's three legs of the stool — vital, interlocking parts of the law — the individual mandate survived legal challenges in 2012.
The Congressional Budget Office projects that the individual mandate repeal will result in millions of people declining to purchase health insurance, raising health care premiums and potentially destabilizing state health insurance markets. However, states have the option to enact their own mandates, similar to the mandate that Massachusetts set up before the ACA's enactment. Several blue states are already looking into this option.
The purpose of a statewide individual mandate would be to help stabilize health care marketplaces and lower premiums. States would also have the freedom to design the financial penalties for individuals refusing to secure health insurance, and any resulting revenues would flow to state budgets instead of the federal government. Budget-crunched state policymakers may find this additional source of revenue appealing.
Similar to this time last year, there are more questions than answers when it comes to U.S. health care policy. But one thing is fairly certain: with tax reform, states will be recapturing some control from the ACA, and the health care industry, consumers, and state budget officers will be closely watching what they do with it.
State Lawmakers Struggle to Solve the Opioid Crisis
The opioid epidemic remains a ballooning public health crisis with upwards of 91 Americans dying from opioid overdoses each day. State lawmakers continue to introduce, debate, and pass legislation in the hopes of solving this crisis.
Abuse-deterrent opioid formulations (ADF) are specialized drugs with extended-release mechanisms that prevent users from manipulating the drug’s chemical delivery systems. State lawmakers are attempting to curb the number of future addicts by passing legislation requiring health plans to provide coverage for ADF drugs, which can be prohibitively more expensive than their generic counterparts. By improving access to ADF drugs, these lawmakers aim to keep opioids out of the hands of patients at risk of addiction. However, only five states successfully passed legislation with ADF insurance requirements in 2017. We identified nearly a 50-percent drop in ADF bill introductions from 2016. One reason ADF legislation is losing traction stems from the cost burdens they pose for state-run health plans, as Medicaid is one of the largest payers of opioid products.
Some lawmakers have shifted attention to new methods of preventing opioid abuse, such as limiting the supply of opioid prescriptions. Last February, New Jersey passed legislation (NJ SB 3) limiting initial opioids prescriptions for outpatients to five days. We identified roughly 30 opioid prescription limit bills in at least 16 states during the 2017 legislative session. Generally, these laws target first-time opioid patients and minors. Read More...
Marijuana Legalization Continues to Spread
Last April, Governor Jim Justice (D) signed legislation (WV SB 386) making West Virginia the 29th state to legalize medical marijuana for certain conditions. This follows lawmakers in Ohio and Pennsylvania passing medical marijuana laws in 2016, while voters in Florida, Arkansas, and North Dakota approved ballot measures to legalize medical marijuana. Additionally, ballot measures that year legalized recreational marijuana in California, Nevada, Maine, and Massachusetts, making it a total of eight states that now allow recreational marijuana use. The Vermont Legislature voted to legalize recreational marijuana in 2017, but Governor Phil Scott (R) vetoed the bill, though he later indicated that he would consider similar legislation in future legislative sessions. Read More...
What to Expect in 2018: Health Care & Wellness
Federal actions will continue to drive health care policy in the states in 2018. Congress failed to fully repeal the ACA last year, but as we've outlined, the federal Centers for Medicare and Medicaid Services (CMS) has a great deal on control over expanding Medicaid waivers, which could transform state-federal programs. CMS Administrator Seema Verma has indicated that work requirements will be on the table, and CMS approved the first such waiver requist on Friday to Kentucky. States are also likely to respond to Congress repealing the ACA's individual mandate, especially blue states.
In 2018, state lawmakers will continue their search for solutions to the opioid crisis and prescription drug pricing, as well as take a renewed look at single-payer health care. One idea that caught the attention of health policy wonks and could gain support is allowing state residents to buy into the Medicaid program. The proposal passed the Nevada Legislature in 2017, but Governor Brian Sandoval vetoed the bill (NV AB 374). And Medicaid expansion will return as an issue in states like Virginia and Utah.
Vermont will try again to become the first state to legalize recreational marijuana through the legislative process. In fact, during the first week of legislative session, the Vermont legislature again passed a recreational marijuana bill (VT HB 511), and Governor Phil Scott (R) indicated he'll sign the legislation into law. And after marijuana legalization proponents' success with ballot measures in 2016, election year 2018 will be another popular time for marijuana on state ballots. There are already 25 potential marijuana-related ballot measures aiming for the 2018 ballot. A medical marijuana legalization initiative (State Question 788) in Oklahoma is the only measure that has been certified so far, but expect more to follow as November approaches. Oklahoma Governor Mary Fallin (R) made the unusual move to place Question 788 on the June 26 primary ballot instead of the general election ballot in November, where turnout is traditionally much higher.
Adding a new wrinkle into the marijuana legalization debate is Attorney General Jeff Sessions' decision this month to reverse an Obama-era memo, which had previously directed federal law enforcement official to not prioritize non-violent marijuana prosecutions, which remain illegal under federal law.
Technology and the rise of social media have pushed privacy concerns into the spotlight for policymakers. States have grappled with how to protect consumers' personal information and prevent it from falling into nefarious hands. Recent high-profile hacks at Uber, Verizon, and Equifax have led to greater scrutiny of how organizations protect customer data.
More Security Breach Notification Laws
Although Congress introduced some bills in 2017 to address personal data notification and protection, notification laws regarding security breaches have been left largely to the states. Many states already have laws on the books addressing security breaches, yet many additional bills were introduced this year to refine them further. Some states expanded the scope of what type of information is covered under security breach laws — including information like biometric data — to keep up with the changing technology. Another emerging trend is requiring companies that experience a breach to notify not just the consumer, but also the state agency charged with regulating the industry, or the state attorney general. Security breach bills have also extended the laws to educational institutions to protect students' personal information. Overall, six states and Washington, D.C., enacted eight bills addressing security breaches in 2017. Read More...
Regulating Data from Internet Providers Shifts to States
In April, the Trump Administration repealed Obama-era rules that required broadband providers to obtain consent from consumers before using geolocation, financial information, health information, children’s information, and web browsing history for advertising and marketing purposes. Proponents of the repeal argued that the previous rules required more regulation on Internet providers than on websites, which face no such consent requirement. However, rather than end the controversy, the battle shifted to the state level. A number of states introduced measures this year that would require broadband providers to obtain consent before selling consumer data. Some lawmakers have argued that the absence of federal policy gives states latitude to enact their own policies, though others question whether states are overreaching. Ultimately, leaving the matter in state hands could lead to a confusing patchwork of requirements for Internet providers. In 2017, lawmakers in 22 states introduced 50 bills on this issue with legislation in Nevada and Montana enacted this year. Read More...
State lawmakers across the country spent 2017 debating whether major tax policy changes were necessary to keep up with their state's growing demands. Whether it was reconceptualizing business taxes, broadening the sales tax base, or levying taxes on more internet sales, legislators were willing to explore big ideas. These proposals were almost universally defeated, but the fact that the discussion occurred at all is a signal that elected leaders are looking to make major changes.
Gross Receipts Tax Legislation Pops Up, Gets Cut Down
In 2017, lawmakers took a run at replacing their traditional corporate income taxes with gross receipts-based taxes (GRTs). By taxing a company's total revenue instead, these lawmakers argued that businesses would have a much lower tax rate and broader base, and the tax would be easier to administer. This isn't new, and the economic literature is clear that GRTs are unwieldy and lead to all kinds of economic distortions. But 2017 was the year when a couple of states (notably West Virginia, Oregon, and Louisiana) decided to trot it out and see if they could use it to ease their budget problems. Despite support from their respective governors and compelling revenue difficulties, each of these proposals was defeated in the face of intense political pushback. Time will tell whether GRTs will come up again in 2018 (notably an election year), but all three of those states still face long-term budget challenges, and drastic changes are probably going to be necessary. Read More...
States Push the Limit by Experimenting with Sales Tax Nexus Legislation
As more Americans do their shopping online, states have increasingly felt that sales taxes have not kept pace with the times. Under the U.S. Supreme Court's current jurisprudence, a state can only collect sales tax on a transaction if the seller has a physical presence with the state. In an effort to gather more revenue and force the Court to reevaluate its standard, states have been experimenting with legislation that pushes the boundaries of when the state can collect sales tax. These experiments have included expanding the definition of physical nexus to include utilizing an in-state agent to facilitate a sale (usually called “expanded nexus”), requiring sellers who do not collect the sales tax to inform their customers of their duty to remit themselves, requiring sellers to collect if they utilize an in-state marketplace provider (such as Amazon or eBay), and, more recently, acting in contravention of the Court by requiring remote sellers to collect the tax if they have more than a certain threshold of sales into the state (called “economic nexus”).
In total, 34 states introduced 81 pieces of legislation affecting sales tax nexus rules, with notable enacted bills coming from Indiana (economic nexus), Minnesota (marketplace provider), Rhode Island (expanded nexus), and Wyoming (economic nexus). Read More...
States Consider Expanding Sales Tax to Services in Effort to Shore Up Revenues
At the beginning of last year, we predicted that 2017 would be the year that state lawmakers seriously considered expanding their sales tax bases to include new services. The rationale was that state budgets were under strain, there was a political opening due to state partisan breakdowns, and a generalized trend away from income taxes. After 24 states introduced 47 bills on the topic in 2017, we felt pretty good about our original prediction. These bills typically fell into one of a few categories: bills that sought to tax all services generally as a part of a sweeping tax reform package, bills that would tax most services (except professional services), and bills that would tax certain enumerated services (pet care, security, landscaping, and cleaning were all popular targets). Of the introduced bills, only one has been enacted so far: an Ohio bill that expands the sales tax to enumerated services. Read More...
South Dakota v. Wayfair Could Shake Up How Sales Taxes Are Collected Across the Country
State revenue officials from across the country have been keeping a close eye on South Dakota for over a year now, waiting to see if the U.S. Supreme Court will take a case that could upend how sales taxes are administered. In 2016, South Dakota passed legislation ( SD SB 106) that requires out-of-state sellers to collect sales tax if they had annual sales into the state of more than $100,000 or more than 200 separate transactions in the state. As a clear violation of the Court's precedent in Quill v. North Dakota, the law was passed to invite a legal challenge.
After months of legal maneuvering, South Dakota has submitted its cert petition (which includes maps and research from MultiState Associates) to the highest court in the land, which the Court granted in early 2018 and will take the case in the next few months in advance of formal arguments later this year.
What to Expect in 2018: Taxation
Usually lawmakers are more hesitant to pursue tax policy in an election year, but because half of the states are facing budget deficits, most won't be able to avoid it this year. The states with the biggest deficits (like Illinois, Louisiana, and New York) are keyed up to explore more drastic changes, but it's unclear whether the mounting fiscal pressure is enough to overcome the political opposition those ideas saw in 2017.
This year will also be a year of states reacting to congressional tax reform. Lawmakers in several blue states are already looking for ways to avoid some of the costlier provisions of the new law, such as allowing taxpayers to make federally deductible charitable contributions to the state in lieu of taxes. Other Democrats will use the new law as opening to advance their plans for a more progressive tax code. Finally, as more concrete forecasts about the effects come out, we can expect lawmakers on both sides of the aisle to adjust their fiscal priorities accordingly.
Transportation & Infrastructure
Last year was a productive time for states making investments in their transportation infrastructure. While the Trump Administration has so far failed to deliver on promised infrastructure funding, 24 states have raised fuel taxes to invest in roads and bridges since 2012. Meanwhile, states continue to update fees by targeting hybrid and electric vehicles and are keeping an eye on, and encouraging the development of, autonomous and connected vehicles.
Seven States Pass Major Gas Tax Increases
As we reported previously, non-election years are a popular time to raise new revenue for transportation infrastructure investments. This year, seven states — California, Indiana, Montana, Tennessee, South Carolina, Oregon, and West Virginia — passed substantial road funding measures. The main component of all of these measures is a major increase in fuel taxes, ranging from 6 to 12 cents. The remarkable thing about this year's crop of transportation funding measures is the similarity between their legislative components. In addition to raising fuel tax rates, each state included increases in vehicle registration fees, and all but one implemented new annual fees for electric vehicles (see more on this below). State lawmakers appear to have settled on a similar package of user-fee revenue raisers that Republicans, who dominate most statehouses today, can embrace. Read More...
Eight States Target Electric Vehicles with Special Fees
Lawmakers are increasingly enacting special fees for electric and hybrid vehicles, which pay little to no gas taxes, to pay their fair share to maintain and build state roads. As of 2012, only Missouri and Nebraska charged electric vehicles additional fees. By the end of last year, eight additional states had passed similar fees, and 2017 alone has seen another seven states pass special fees on electric vehicles, making it a total of 17 states. Lawmakers in Oklahoma also passed a stand-alone fee on electric vehicles earlier this year, but the Oklahoma Supreme Court ruled that law invalid, citing a legislative procedure issue. Read More...
States Clear Path for Truck Platooning: First Step to Fully Autonomous Vehicles
The debate over autonomous vehicles (AVs) is no longer about if, but when they'll become ubiquitous. But before AVs take over city streets, the first real-world application of a low-level autonomous technology is already developing in the long-distance trucking sector. Platooning refers to vehicle-to-vehicle communications technology that utilizes radar, GPS, and Wi-Fi to link up two or more vehicles. Platooned vehicles don't drive themselves, but have autonomous communication. The commercial trucking industry, which deploys fleets of heavy trucks to ship goods over long distances, is particularly interested in this technology. However, current traffic laws in most states unintentionally block testing and implementing platooning on state roads. This year, seven states passed legislation to make it clear that testing platooning on state roads was excluded from those traffic laws, joining three states that passed similar laws in 2015-16. Read More...
What to Expect in 2018: Transportation & Infrastructure
Because transportation funding is generally a non-election year legislative activity, lawmakers will probably be fairly quiet on the issue in 2018. But ballot measures are always a wild card during election years in the 24 states that allow them. 2017 saw five transportation-related ballot measures, and there are already 13 potential transportation-related ballot measures circulating for 2018, including a potential repeal of this year's gas tax increase in California, various transportation fund lockbox provisions, and toll lane prohibitions.
Congress is expected to pass federal legislation by the end of the year that will clarify which AV issues the federal government will preempt the states from regulating and which areas states can tackle themselves. As a result, expect to see an increase in state-level AV legislation in 2018.
In the near term, states will continue to struggle to raise funds for transportation infrastructure, so expect politically popular fees on electric and hybrid vehicles to proliferate as a small, stopgap measure. States will also continue to experiment with mileage fees as a potential replacement for lagging gas tax revenues.