BGR State & Local Update (12.19.17)

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    December 19, 2017

    Policy and Politics

    I. Trending Topics

    Issue in Focus WHAT TAX REFORM MEANS FOR STATES: With Congress poised to overhaul the federal tax code, much of the impact on states has focused on changes to the state and local tax deduction. However, the Tax Cuts and Jobs Act could provide states with many other direct revenue opportunities and challenges to consider. For administrative simplicity, states conform to the federal code in different ways. On the individual income tax side, 27 states use federal adjusted gross income as their income tax base, while six states use federal taxable income and three states use gross income. Meanwhile, 41 states conform to federal definitions of corporate income, either before or after net operating losses. As a result, federal changes that expand the tax base (by eliminating or limiting certain tax deductions) could mean that states see an increase in revenue collections. The federal plan offsets the increase in revenue from broadening the tax base with lowered and consolidated tax rates, but states set their rates independently.


    TRENDS IN STATE TAX POLICY: The Tax Policy Foundation writes that even as federal tax reform efforts took center stage this year, states continue to engage on tax policy, and certain trends are abundantly clear. State taxation of corporate income is well past its heyday, with states grasping for revenue alternatives from gross receipts taxes to broader sales tax collection authority. Taxes on capital continue to lose popularity and are widely regarded as uncompetitive, though their importance as a revenue stream has kept them in placealbeit under pressurein many states. As public attitudes about marijuana change, states increasingly see legalization as an opportunity to grow state revenues. Perhaps the most important trend to watch in 2018, however, is one that has yet to begin. Should the federal government adopt substantial tax reform legislation, this will have an almost immediate effect on state budgets (in most cases, increasing revenue through broader bases), which is likely to emerge as the driver for state tax reform considerations in the year to come.

    STATE REPUBLICANS REFLECT ON NATIONAL TAX PLAN: While Congress races to pass a massive tax overhaul by the end of the year, Republicans in state capitals across the country find themselves in a bind as they plan their own state budget requirements. On one hand, Republicans at the state level say their party must prove it is able to handle the responsibilities of leadership by notching legislative victories that voters will be able to judge next November. On the other, some legislative leaders say the tax package being pushed by congressional Republicans will undoubtedly impact their states in a negative way, foisting new uncertainty into the budgetary process as tax collections have already begun to sag.

    RISING PENSION LIABILITIES: Douglas Offerman, senior director at Fitch Ratings, recently noted that a number of states with the highest pension burdens Illinois, Kentucky, New Jersey and Massachusetts help cover the cost of local teachers' pensions. Illinois' unfunded pension liabilities amounted to 22.8% of residents' personal income at the end of fiscal year 2016, compared to a median 3.1% for all states and 1%


    for Florida, the least burdened state. Illinois' net pension liabilities totaled $151.5 billion at the end of fiscal year 2016; New Jersey, $91.8 billion; Massachusetts, $48.9 billion; and Kentucky, $32.8 billion. For this year's report, Fitch used a 6% discount rate to calculate net pension liabilities, down from 7% last year. Forty-six states saw unfunded pension liabilities increase in 2016.


    HEALTH CARE NEWS YOU MAY HAVE MISSED IN 2017: To say its been a big year in health care is a bit of an understatement. From the back and forth of Congressional Republicans' attempts to repeal and replace the Affordable Care Act (ACA) and President Trump's executive orders on health care to the resignation of U.S. Health and Human Services Secretary Tom Price and the declaration of the opioid epidemic as a public health emergency, 2017 was unpredictable. But beyond those headlines that appeared in every news outlet -- big or small, conservative or liberal, online or on TV -- there was plenty more policymaking going on beneath the surface, particularly on the state and local level.

    HOW BLUE STATES MIGHT SAVE OBAMACARES MARKETS: Blue state officials, who have been working to protect their insurance markets from the Trump administration's efforts to dismantle the health law, are beginning to grapple with strategies for preserving coverage. Those officials in California, Connecticut, New Jersey and elsewhere aren't ruling out a state-level requirement that residents must obtain health insurance. But even in the most Obamacare-friendly states, trying to implement an individual mandate could be politically risky, particularly in an election year.

    16 Democratic AGs, led by NEW YORK ATTORNEY GENERAL SCHNEIDERMAN, filed comments with the U.S. Department of Health and Human Services (HHS) opposing an interim final rule which broadens the types of entities that can claim a religious exemption from the Affordable Care Acts (ACA) requirement that employer-sponsored health plans cover contraceptive services for their employees. In the comments, the AGs argue that the interim final rule violates the Establishment Clause by allowing employers to use their own religious beliefs to discriminate against employees; the Equal Protection Clause by specifically targeting and harming women; and the Administrative Procedure Act by pushing through these new rules without proper factual and legal basis. Further, the AGs argue the interim final rule would force states to incur additional financial burden. As previously reported, 18 Democratic AGs sent a letter to HHS ACTING SECRETARY DON WRIGHT, U.S. DEPARTMENT OF LABOR SECRETARY ALEXANDER ACOSTA, AND U.S. DEPARTMENT OF TREASURY SECRETARY STEVEN MNUCHIN expressing similar opposition. Prior to last months elections, no polling had been done on Maines first-of-its-kind ballot initiative to expand Medicaid. Considering how controversial the health-care debate in Congress has been all year and the fact that the state elected a Republican governor, health policy experts were expecting a nail biter. But to their pleasant surprise, the vote was quickly called in their favor. The victory in Maine has re-energized Obamacare advocates hoping to replicate that success in other states.

    Restrictive network plans such as health maintenance organizations and exclusive provider organizations have fewer in-network providers and fewer options across specialists than less-restrictive


    plans. Yet just 27% of plans in the 2018 marketplace are preferred provider organizations or point of service plans, which offer broader physician networks, a report from Avalere says.

    STATES ADOPTING LIMITS ON OPIOID PRESCRIBING: Arkansas has joined at least 24 other states in adopting rules limiting the number and strength of opioid painkillers doctors can prescribe. Republican Gov. Asa Hutchinson, who urged the state medical board to adopt the regulations, called the move an important step in curtailing the escalating danger of opioid abuse in the state. The restrictions, based on 2016 guidelines from the Centers for Disease Control and Prevention, require doctors to take a variety of precautions when prescribing highly addictive opioid painkillers and limit prescriptions for acute pain from an injury or surgery to a seven-day supply. As in other states, Arkansas new limits do not apply to patients with cancer, in hospice or palliative care, or who are being treated in hospitals or during emergencies (more here).

    CHIP REAUTHORIZATION: A bipartisan group of governors is urging Congress to act quickly to reauthorize funding for the Childrens Health Insurance Program. In a letter led by OHIO GOV. JOHN KASICH AND COLORADO GOV. JOHN HICKENLOOPER, the governors said their states are running out of money, and urged lawmakers to find a bipartisan solution. They are joined in making this call by GOVERNORS BILL WALKER OF ALASKA, JOHN BEL EDWARDS OF LOUISIANA, TOM WOLF OF PENNSYLVANIA, CHRISTOPHER T. SUNUNU OF NEW HAMPSHIRE, TERENCE R. MCAULIFFE OF VIRGINIA, CHARLES D. BAKER OF MASSACHUSETTS, BRIAN SANDOVAL OF NEVADA AND MARK DAYTON OF MINNESOTA.

    The National Governors Association urged Congress to fund critical health-care programs including the Childrens Health Insurance Program and community health centers before the year ends. These disruptions have not been without consequences, and we write to convey that further delay into 2018 will only compound the issues facing our states and vulnerable citizens, the leaders of the NGAs Health and Human Services Committee wrote in a letter to congressional leaders in both chambers on behalf of the association.

    BLUE STATES TAKE IN BILLIONS WITH RED STATES ON THE SIDELINES: For years, red states have effectively been subsidizing part of health insurance for blue states. By declining to expand their Medicaid programs as part of the Affordable Care Act, many of those states have passed up tens of billions of federal dollars they could have used to offer health coverage to more poor residents. That means that taxpayers in Texas are helping to fund treatment for patients with opioid addiction in Vermont, while Texans with opioid problems may have no such option.

    CHANGING FOOD STAMPS: The USDA is preparing to give states new flexibility in administering food stamps, which is properly called the Supplemental Nutrition Assistance Program (SNAP). In a letter to SNAP directors on Nov. 30, a USDA administrator promised increased federal cooperation with states to reduce fraud, promote employment, and improve customer service for food stamp recipients. In the letter, BRANDON LIPPS, ADMINISTRATOR OF THE USDA'S FOOD AND NUTRITION SERVICE, called states "laboratories of innovation" and invited their ideas on how to improve the nutrition program so long as proposed changes "do not increase costs to taxpayers or our various partners on the ground." The letter from Lipps is likely a prelude to changes


    Republican leadership in Congress and the White House will consider next year that remove people from the nations welfare programs.


    COMMERCE CLAUSE - STATES CHALLENGE CALIFORNIA EGG LAW: More than a dozen states have banded together to ask the U.S. Supreme Court to block a California law requiring any eggs sold there to come from hens that have space to stretch out in their cages. In a lawsuit filed directly to the high court, the states allege that Californias law has cost consumers nationwide up to $350 million annually because of higher egg prices since it took effect in 2015. The lawsuit argues that Californias requirements violate the U.S. Constitutions interstate commerce clause and are pre-empted by federal law. MISSOURI ATTORNEY GENERAL JOSH HAWLEY, a Republican who is running for U.S. Senate in 2018, is leading the lawsuit. Other plaintiff states are Alabama, Arkansas, Indiana, Iowa, Louisiana, Nebraska, Nevada, North Dakota, Oklahoma, Texas, Utah and Wisconsin. All have Republican attorneys general except Iowa, which has a Democrat.

    BGR Insight WEST VIRGINIA AND SOUTH KOREA LINKED BY FREE TRADE: Frank Ahrens of BGR-PR looks at the U.S.-Korea Free Trade Agreement and writes: But the truth is, South Korea has other trading partners. The U.S. is South Koreas No. 2 trading partner, behind China. If this White House tries to renegotiate the KORUSFTA so its unfairly balanced against South Korea, or apply tariffs to individual South Korean products, Trump will have a trade war, but it will not turn out to be what he wants. South Korea will reimpose tariffs on U.S. imports, perhaps has high as 14 percent, former Obama White House economist Chad Brown told The Washington Post. This would impact folk all over Appalachia. South Koreas Hyundai Motor and Kia employ thousands of American workers at their assembly plants in Birmingham, Ala., and West Point, Ga., respectively. The KORUSFTA has enabled these plants to get cheaper parts from South Korean suppliers, which helps keep down the price of your new Hyundai Santa Fe and Kia Sorento and enables the plants to keep their employees working fulltime. The same is true for the coming Samsung manufacturing plant set for South Carolina.

    U.S. TRADE DEFICIT IS WIDEST SINCE JANUARY: The U.S. trade deficit widened in October to a nine-month high on record imports that reflect steady domestic demand, Commerce Department data showed Tuesday. The surge in imports probably reflected merchants preparing for the holiday-shopping season. Consumer goods imports increased almost $800 million, including a $303 million gain in cell phones and other household goods, as well as more inbound shipments of furniture, applianc...