Budget negotiations and state-of-the-state speeches are under way

Blog Post

Budget negotiations in several states have already started, although just a few governors have given their state-of-the-state speeches. The dearth of tax revenues in certain areas is on peoples’ minds, as we explained in mid December, with some governors doubling down on plans to cut taxes. 

In Florida, for example, Gov. Scott has announced his Florida First budget for fiscal year 2016-17. While pointing out that the Sunshine State’s per capita tax burden is the lowest among all large states, the governor made it known that he wants to continue pursuing his tax cut plan, which amounts to more than $1 billion in new cuts, because “[t]he more taxes we cut, the more small businesses in Florida grow, which further diversifies the economy and creates opportunities for all Floridians.”

The main components of his proposal are the following: 

• Permanently eliminating the income tax on manufacturing and retail businesses, for permanent savings of about $770 million annually.
• Permanently eliminating the tax on manufacturing machinery and equipment, for permanent savings of about $76.9 million annually, beginning in 2017. Absent action to this end during this legislative session, the governor contended that there would be a substantial tax increase on Florida manufacturers.
• Cutting the tax on commercial leases, for savings of $39 million over the next two fiscal years. Noting that Florida is the only state that has a tax on commercial leases, which unfairly targets small businesses, Gov. Scott wants to reduce this by 1 percent in 2017.
• Extending the sales tax exemption on college textbooks for one more year, for savings of $46 million.
• Implementing two sales tax holidays, for savings of $72.8 million in the upcoming fiscal year. These holidays would cover a 10-day back-to-school sales period, and a 9-day disaster preparedness sales period.

 

Gov. Scott reasoned that these measures would attract more businesses to the state, diversify Florida’s economy, increase competitiveness for manufacturing businesses, and help students and families. With these important “investments in our communities that will help us become first in the country for jobs[, this plan will] help all Floridians have success during both good and bad times in the years ahead.”

The governor’s state-of-the-state speech is now scheduled on March 3, 2017. 

The Buckeye State is another that is facing fiscal problems, and Governor Kasich has been warning Ohioans about the recession that he expect to see this year. In previewing his plans for business leaders last week, the governor reiterated his position with the words “[i]t's going to be tough, it's going to be tight,” approaching $621 million short, according to The State. Consequently, he asked agencies to submit both a flat budget, and one containing a 10 percent reduction. 

Cleveland.com reported that Governor Kasich would seek an expansion of sales tax base, and a possible increase to consumption taxes generally, while also reducing income taxes. He has made no secret of his ongoing desire to increase taxes on oil and gas extraction, and has already vetoed legislation that would have expanded the existing exemption for tangible personal property used in producing oil and natural gas, which we detailed earlier this month.

Notwithstanding his pessimistic expectations for this year’s fiscal situation, Governor Kasich put out a seven-page document touting his accomplishments in 2016. These include the following:

• Reducing taxes by more than $5 billion and the creation of 436,200 new, private sector jobs in the past six years; 
• Making responsible investments in Ohio’s infrastructure, including $2.4 billion in capital improvements, $2.1 billion in road and bridge improvements, and $125 million in improvements along the Turnpike; 
• Reforming education with a record amount of state support; 
• Safeguarding the environment and natural resources; 
• Protecting the state’s most vulnerable citizens: the disabled and young, and those with drug addictions; 
• Embracing technology with projects like the Smart Mobility Corridor and drones; 
• Strengthening community-police relations; and 
• Reducing overcrowding and improving security in the state’s prisons. 

Governor Kasich will introduce his actual budget at the end of the month. 

Gov. Brown, not unlike Ohio’s Gov. Kasich, is expecting a gloomy 2017; in his Jan. 10, 2017 Budget Letter, he declared that “[t]his year’s budget will be the most difficult that we have faced since 2012.” Forecasting a $2billion deficit, the governor wants to roll back certain planned spending increases, which will enable more money for education, an earned income tax credit for working families, an increase in the state’s minimum wage, scheduled to increase to $11 per hour in 2018 and $15 per hour over time, the extension of health care to more people, and the pay down of long‑term liabilities.

A press release set forth the most significant details of the budget, as follows:

• Keeping the budget balanced - The budget proposes $3.2 billion in solutions to ensure a balanced budget, while keeping General Fund spending flat. By tempering spending growth rather than cutting existing program levels, these actions minimize the negative effects on Californians. The solutions include recapturing unspent allocations from 2016, constraining some projected spending growth, and adjusting Proposition 98 spending. Prop 98, passed 1988 by a 50.7 percent to 49.3 percent vote, requires a minimum of 40 percent of the state budget to be spent on K-14 education. 
• Bolstering state reserves - Proposition 2, a 2014 measure that 69 percent of voters approved, is also known as the Rainy Day Budget Stabilization Fund Act. Prop 2 established a constitutional goal of having 10 percent of tax revenues in the state's Rainy Day Fund. With a $1.15 billion deposit in the budget, the Rainy Day Fund will total $7.9 billion by the end of 2017-18, 63 percent of the constitutional target. 
• Increasing education funding - K-14 funding is expected to grow to $73.5 billion in 2017-18, up 55 percent - or $26.2 billion - from 2011-12. For K-12 schools, funding levels will increase by about $3,900 per student in 2017-18, over 2011-12 levels. This reinvestment provides the opportunity to correct historical inequities in school district funding with continued implementation of the Local Control Funding Formula.
• Continuing health care expansion - Under the optional expansion provisions of the federal Affordable Care Act, the budget increases enrollment of this Medi-Cal population to 4.1 million oeornians, with the state's General Fund share of cost increasing from $888 million to nearly $1.6 billion. 
• Counteracting poverty - California has an extensive safety net for the state's residents who live in poverty. Since 2012, the general fund has invested about $18 billion annually to help those in poverty. The budget continues to fund: the rising state minimum wage; the Earned Income Tax Credit; the first cost-of-living adjustment for Supplemental Security Income/State Supplementary Payment recipients since 2005; the repeal of the maximum family grant rule in CalWORKs, which denied aid to children who were born while their parents were receiving aid; and increases amounting to $837 million in child care and early education provider rates and children served.
• Strengthening transportation infrastructure - Annual maintenance and repairs of California's highways, roads and bridges are billions of dollars more than can be funded annually within existing revenues. The budget reflects the Governor Brown’s transportation package, first proposed in September 2015, which would provide $4.2 billion annually to improve the maintenance of highways and local roads, expand public transit and strengthen critical trade routes. 
• Combating climate change - The state has appropriated $3.4 billion in cap-and-trade auction proceeds to help reduce greenhouse gas emissions, with funding prioritized in disadvantaged communities. With volatility in recent auctions due in part to uncertainty about the program's post-2020 future, Governor Brown proposes two-thirds urgency legislation to confirm the program's continued authority beyond 2020. Assuming approval, the budget proposes $2.2 billion in expenditures from auction proceeds, with a continued emphasis on low-income and disadvantaged communities.

Governor Brown expects “even worse financial news—either from the start of the next inevitable recession or from changes at the federal level” in the coming years. “This uncertainty about the future makes acting responsibly now even more important.” 

Governor Cuomo’s state-of-the-state message focused on “admit[ing], acknowledge[ing] and address[ing] the very real economic problems of our struggling middle class and [the prevention of] misdirected anger from doing damage to our country’s core values.” However, in the regional address that he gave in Buffalo, he touted several accomplishments, such as these:

• The fact that New York now has more private sector jobs than ever before
• Unemployment has dropped from 8.4 percent to 5.1 percent in the last six years
• Government spending, at just 1.4 percent, is under control
• The middle class tax rate is the lowest it has been since 1947
• The manufactured tax is the lowest it has been, at 0 percent, since 1917
• The corporate tax rate is the lowest it has been since 1968
• The new Middle Class Recovery Act will focus on creating new innovation economy jobs, like ridesharing; improving infrastructure and protecting water; establishing tuition free, public college; lowering property taxes; and instituting a Middle Class Child Care Tax Credit that will benefit more than 200,000 families.

In addition, the governor has compiled 37 proposals to advance his goals, the top 15 of which are:

1. Making College Tuition-Free for New York’s Middle Class Families
2. Transforming JFK International Airport for the 21st Century
3. Making Child Care More Affordable for Middle Class Families
4. Protecting New Yorkers from Cyber-Attacks
5. Comprehensive Plan to Protect Seniors from Financial Exploitation and Foreclosure
6. Banning Bad Actors from the Financial Services Industry for Egregious Conduct
7. Further Strengthening New York’s Efforts to Crack Down on Wage Theft
8. Install Over 500 New Charging Stations to Promote Electric Vehicle Use
9. Modernizing Voting in New York to Increase Participation in the Democratic System
10. Closure of the Indian Point Nuclear Power Plant by 2021
11. Investing $650 Million to Fuel the Growth of a World-Class Life Sciences Cluster in New York
12. Launching the “New York Promise” Agenda to Advance Social Justice and Affirm New York’s Progressive Values
13. Expand After-School Education to Children in High-Need Areas Across the State
14. Lower Regional Greenhouse Gas Initiative Cap by 30 Percent Between 2020 and 2030
15. Make Regional Investments to Move New York City Forward.

Declared the governor, “[w]e will not stop working until the bright light of opportunity shines on all New Yorkers.” 

In the last two weeks, Governor Haley, who is leaving her post to become the Ambassador to the United Nations, delivered both a budget and what the Post and Courier characterized as a “sentimental” state-of-the-state speech in which she declared that “[t]he state of our state is blessed.” While the paper noted that she did address public education and her tenure as the “jobs governor,” she did not mention other more contentious issues, such as infrastructure funding, the “ailing pension system,” and ethics reform.

The budget allocates the following percentages of total funds into these six categories:

• 38.3 percent: health and social rehabilitation agencies
• 18 percent: higher education
• 17 percent: k-12 education
• 9.5 percent: transportation
• 3.1 percent: corrections and public safety
• 14.1 percent: all other

Democrats were disappointed that Gov. Haley did not offer a solution for the state’s crumbling roads and bridges. Judging by the rebuttal to Gov. Haley’s speech that Sen. McElveen gave, the Palmetto State’s “failing transportation system … crumbling roads and bridges” will be a top priority during budget negotiations: “[i]t’s time for our legislators and our soon-to-be new governor [the current Lt. Gov. McMaster] to zero in on a plan that will include a stream of revenue that’s exclusively dedicated to restoring, improving and maintaining our infrastructure.”