bgr state & local update (1.10.18)

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    January 10, 2018

    Policy and Politics I. Trending Topics

    Issues in Focus

    STATE LEGISLATURES GAVEL IN: Well over half of the countrys state legislatures have gaveled in for the 2018 session. The National Conference of State Legislatures is tracking legislative sessions and more information can be found here (.pdf breakdown of session dates here). According to Governing, a handful of issues will be on state legislative radars in 2018. They include: federal tax revision, health insurance, building next generation data networks, sexual harassment, fair work schedules, opioids, union regulations, budgets and revenue, and election cybersecurity. For more in-depth coverage of these issues, see here. Governors are also giving their annual State of the State addresses outlining priorities for the 2018 session. Details on those addresses can be found in the state section below. In addition, the National Governors Association (NGA) is tracking every governors State of the State address. The list, which is regularly updated, can be found here.


    STATES ESTIMATE REVENUE INCREASES FROM TAX BILL: State tax systems are directly affected by federal tax changes because nearly all states conform to the federal code in some way. For example, in 36 states, taxpayers start their state income tax form by using the gross income, adjusted gross income, or taxable income figure from the federal return. Nine states have no income tax, so that leaves just six states where taxpayers must start from scratch. This conformityshadowing federal provisionsreduces tax compliance costs and generally makes things easier for everyone involved. Most states have found positive revenue impacts from the federal bill. MARYLAND GOVERNOR HOGAN is discussing legislation that would return the states windfall to taxpayers in some form, perhaps by targeting high-income taxpayers likely to be paying more due to the SALT cap. For Iowa, federal tax reform may provide revenue that would enable the state to undertake its long-talked-about state tax reform. TRUMP TAX REFORM HAS STATES HUNGRY FOR LOWER UTILITY BILLS: Its been less than a month since Congress approved a sweeping tax overhaul and states are already chomping at the bit to get a piece of the action. Regulators from Montana to Kentucky have ordered utilities to act now to ensure ratepayers share in the windfall from the tax bill signed into law by President Donald Trump that slashed corporate rates to 21 percent from 35 percent.

    The following are among states that have taken action so far:

    Montana Public Service Commission gave utilities a March 31 deadline to calculate tax savings and how they should be shared with customers.

    Kentucky Public Service Commission ordered utilities to begin tracking tax savings.


    Indiana Utility Regulatory Commission ordered a review into the impact of the tax cut and how customers can benefit.

    Louisiana Governor John Bel Edwards asked the state public service commission to review utility rates and adjust them to reflect the tax cut.

    Utilities that are already offering to cut rates include:

    Exelons Baltimore Gas & Electric will pass around $82 million in annual tax savings to customers. Exelons Commonwealth Edison in Chicago is seeking approval to pass along about $200 million

    in tax savings to customers this year. Eversources customers in eastern Massachusetts will see a reduction in rates of around $35.4

    million instead of an approved increase of $12.2 million; its customers in western Massachusetts also stand to gain.

    BLUE STATE OFFICIALS PLOT RESPONSE TO GOP TAX LAW: Elected officials in high-tax Democratic-leaning states are looking at creative ways to prevent the new tax law from raising their residents bills. One option is to challenge the tax law in the courts. NEW YORK GOV. ANDREW CUOMO has said he plans to sue over the law, and NEW JERSEY GOV.-ELECT PHIL MURPHY has expressed interest in a legal challenge as well. But tax experts doubt the lawsuits will be successful. They noted that Congress has broad discretion to levy an income tax, and pointed out that the alternative minimum tax has limited the SALT deduction for years. Another option that blue-state officials are considering is allowing taxpayers to make tax-deductible charitable contributions to state and local funds. KEVIN DE LEN, the president pro tempore of the California Senate who is also running for the U.S. Senate, offered legislation that would allow state residents to donate to a fund and receive a dollar-for-dollar tax credit for those contributions. Cuomo and Murphy are looking at taking similar initiatives. A third option under consideration for the states is shifting toward a payroll tax system. Under that option, states would create employer-side payroll taxes, which would still be deductible on federal tax returns, and would also provide employees a credit to offset their income tax liability. But Jared Walczak, a senior policy analyst at the Tax Foundation, suggested that the payroll tax combined with a tax credit could still draw concerns from the IRS. More on Democratic strategies to blunt the impact of the GOP law can be found here, from the New York Times, as well. HOW THE TAX BILL WILL CHANGE STATE GOVERNMENTS BORROWING COSTS: For the first time in more than 30 years, Congress has passed a major overhaul of the tax code. The final bill is better than initially expected for state and local governments, but key provisions are still likely to force big changes to their cost of borrowing. The cause of these changes is indirect: The bill's big break for corporations on their income tax rate will force some state and local governments into higher debt payments on money they have already borrowed directly from banks, thanks to triggers placed in those loan contracts. Also worth considering, the lower corporate tax rate could also potentially make it more expensive for governments to issue bonds in the municipal market. More here.

    POPULATION DECLINE: Eight states lost population between July 2016 and July 2017, according to new U.S. Census Bureau estimates. If the estimates hold up, it would be the first time in 30 years that so many states lost residents in a single year. According to this years state population estimate, Alaska, Hawaii, Illinois,


    Louisiana, Mississippi, North Dakota, West Virginia and Wyoming all lost population between 2016 and 2017. The states that lost population between 2015 and 2016 were Connecticut, Illinois, Pennsylvania, Vermont, West Virginia and Wyoming. The last time eight states lost population in one year was between 1986 and 1987, when a collapse in oil prices hit the economies of energy-producing states. Domestic migration drove change in the two fastest-growing states, Idaho and Nevada, while an excess of births over deaths played a major part in the growth of the third-fastest-growing state, Utah, said Luke Rogers, Chief of the Population Estimates Branch.


    AGING, UNDOCUMENTED AND UNINSURED IMMIGRANTS: For decades, the United States has struggled to deal with the health care needs of its undocumented immigrants now an estimated 11 million mainly through emergency room care and community health centers. But in the coming years, that struggle will evolve. As with the rest of America, the population of people living here illegally is aging and beginning to develop the same health problems that plague senior citizens generally and are a lot more expensive to treat: chronic diseases, cognitive disorders and physical injuries. MEDICAID WAIVER TRACKER: WHICH STATES HAV