2020 Fiscal Briefs

9/28/2020

NCSL Fiscal Briefs are snapshots of timely state budget and tax issues. October's Fiscal Brief provides examples of how states are utilizing its COVID-19 relief fund allocation for broadband and technology purposes to help people working remotely, getting treatment through telehealth and students attending school online. 

March Fiscal Brief | A Quick Take on Traditional and Electronic Cigarette Taxes

ncsl fiscal brief logoIt’s rare to find a truly popular tax, but the tobacco tax comes pretty close. Majorities of Democrats, Republicans and Independents support it. Not only can it bring in a decent amount of revenue, but states with higher tobacco tax rates tend to have lower smoking rates. Tobacco is taxed by all levels of government. The federal government does so on a “unit” basis, imposing a tax of $50.33 for every 1,000 units of cigarettes sold ($1.01 per pack). All states levy an excise tax on cigarettes, and a few states allow localities to tax on them, too. Most state cigarette taxes are ad valorem taxes based on the wholesale price (i.e., the price of bulk sales from manufacturers to distributors) rather than retail price, but some are based on weight. Washington, D.C., has the highest cigarette tax rate at $4.98 per pack (roughly one quarter per cigarette), while Missouri has the lowest tax rate of $0.17 per pack ($0.0085 per cigarette). The average state cigarette tax rate is $1.81 per pack

“Sin” taxes including the tobacco tax are meant to cover the costs of negative externalities associated with the consumption or production of a good. Cigarettes are strongly correlated with cancer and other health issues, which are expensive to treat and add to the costs of programs such as Medicare and Medicaid. The excise tax on tobacco consumption helps offset those costs. Increasing the price of tobacco products is also meant to discourage consumption and improve public health. For states facing tight budget conditions, however, the rationale behind increasing cigarette tax rates is more about raising revenue. Because cigarette taxes have such popular support, raising these taxes isn’t as hard of a sell as other, broad-based taxes. In 2019 alone, three states (Illinois, Maine and New Mexico) increased cigarette taxes and at least a few states have enacted increases every year over the last five years.  

The win-win nature of the cigarette tax isn’t always straightforward. If the tax works as advertised and discourages the consumption of cigarettes, then tying the revenue to growing spending categories could lead to funding gaps. Using the tax as a budgetary Band-Aid can also conflict with the tax’s public health aims. Only a few states couple their cigarette taxes with statutory requirements that dedicate the revenue toward tobacco control programs. 

 High cigarette tax rates can also have the unintended consequence of cultivating a growing illicit tobacco market. The Mackinac Center estimated that in New York, the state with the second-highest cigarette tax rate, cigarette smuggling accounts for nearly 57% of total cigarette consumption. States have taken steps to combat black market tobacco products; most require tobacco tax stamps to be affixed to cigarette cartons before they can be sold legally, signifying proof of tax payment. However, most tax stamps are simple paper stamps and can be subject to counterfeiting. Only four states have adopted measures that require tax stamps to include “high-tech” features such as encryption, holograms and scannable barcodes

Attention has centered on the extent of the cigarette tax’s regressivity, and whether tax revenue comes primarily from the poor, who tend to smoke more. Proponents of higher rates claim that because low-income individuals are more sensitive to price increases, higher taxes make them the most likely to quit and, consequently, the primary beneficiaries of the tax. But evidence shows that, in spite of price increases, the gap in smoking rates between lower- and higher-income groups is growing. The New York State Department of Health found that between 2000 and 2009, smoking prevalence in the state declined significantly, yet no changes were noted for adults with low incomes, poor education and poor mental health. CDC data shows that members of these demographics struggle the most to beat their addiction. 

While combating smoking through the tax code yields results, unintended consequences may exist, and the reasons for levying the tax in the first place could be at odds with each other. Yet, smoking is still a public health epidemic, remaining the leading cause of preventable disease and death in the United States, and the growth in electronic cigarette usage has heightened these public health concerns. 

As e-cigarettes have become increasingly popular, states have scrambled to apply taxes to these newer tobacco products. Recent efforts have primarily been driven by young peoples’ growing preference for vape products. According to the University of Michigan’s Monitoring the Future survey, the number of secondary students who have vaped nicotine in the past month more than doubled between 2017 to 2019.  

As of March 1, 21 states and D.C. have enacted new taxes or expanded existing tobacco taxes to include e-cigarettes. States have taken three approaches to taxing these products. Ten states tax this product at a percentage of its price, with rates ranging from 15% to 95%. The majority of states that have taken this approach levy a tax on the wholesale price, but some apply these taxes on the retail price. Proponents for applying this type of tax to vape products have argued that imposing a tax on volume could result in more sales of highly concentrated e-liquid. A second group of states apply a flat rate either based on weight, ranging from 5 cents to 40 cents per milliliter of e-liquid, or per cartridge. Supporters of tax structures based on weight argue that it does not encourage certain products over others. Lastly, several states apply a combination of these approaches.  

Vaping tax map

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Additional Resources

April Fiscal Brief | Looking Back with a Crisis on the Horizon—How States Closed Budget Gaps During the Great Recession

By Jackson Brainerd

ncsl fiscal brief logoThe impact COVID-19 is having on the American economy is unprecedented. The gears of production are grinding to halt as businesses close and workers across the nation engage in social distancing to stop the spread of the virus. Short-term unemployment rates are skyrocketing.

According to S&P Global Ratings: “While economic data for March is just starting to be released, the severity of the blow from the coronavirus leads us to believe that the U.S. is entering recession--if not already in one.” As if this wasn’t enough, an ongoing global oil price war, somewhat hidden from the headlines in the midst of the ongoing public health crisis, is wreaking havoc on America’s energy sector.

While the full economic ramifications of these disruptions are still unknown, it is safe to say that state coffers will soon be under significant distress. Most major revenue sources will be affected. Decreased consumer spending will mean lower sales tax revenues. Travel restrictions will result in lower collections for lodging, car rental, and other tourism-related taxes. Job losses and reduced economic activity will reduce personal income and corporate income tax collections. The fall of the stock market will reduce capital gains collections. Lower oil prices and fewer drivers on the road will reduce gas tax collections. The damage to the oil and gas industry will significantly affect severance tax-reliant states. Gambling tax receipts are sure to be down as casinos across the country close their doors.

Some state revenue problems are more immediate than others. The federal government has sought to provide relief to taxpayers by delaying the filing and payment deadlines, which will have a significant effect on state FY 2020 budgets.

Most states automatically couple their income tax deadlines to the federal government’s. According to the Federation of State Tax Administrators, “the shift from April 15 to July 15 pushes revenues from the current fiscal year, where they have already been budgeted, into the next fiscal year. That budget issue is difficult, but the loss of cash flow creates the larger crisis. States had counted on receiving many billions of dollars in income tax reconciliation payments during April, money that had been budgeted for everything from paying taxpayer refunds to paying the state’s share of Medicaid. That loss of cash on hand cannot be replaced easily or cheaply.” Difficult times are ahead, and states will need to respond as quickly and effectively as possible.

While the current fiscal crisis is unique, it may be helpful to revisit revenue actions during the Great Recession as states once again chart a course towards recovery. NCSL tracked state fiscal actions at the time through databases and our State Tax Action reports.

Budget Cuts

States are limited in their ability to provide fiscal stimulus during economic downtimes. Unlike the federal government, most states have balanced budget requirements and cannot engage in deficit spending. While the federal government is responding to the current crisis by increasing spending to stimulate the economy, states will likely be forced to reduce spending to ensure it does not outpace revenue.

Twenty-nine states had to resort to across-the-board budget cuts in fiscal years 2010 and 2011. Spending cuts will be more difficult in 2020 than they were during the last downturn. According to the Pew Charitable Trusts, “spending levels in many areas that were cut to free up cash during the Great Recession are still not back to pre-2008 levels. For example, adjusting for inflation, state funding for higher education is still down 13 percent from pre-recession levels, and infrastructure spending is at its lowest point relative to gross domestic product in 50 years.” State government employment has been greatly reduced since the last downturn, too. There were 132,000 fewer state government employees in 2018 than there were in 2008.

Rainy Day Funds

The majority of states had to turn to rainy day funds or other special funds to make up for significant budget gaps during the Great Recession. As the National Association of State Budget Officers has noted, these funds were not sufficient to maintain budget stability and most states burned through their reserves in a few months. The good news for states is that many enter the current downturn with generally strong reserve levels and have implemented a number of reforms over the last several years. Overall rainy day fund levels have never been higher.

Use of Temporary Taxes, Targeting High-Income Taxpayers

States tend to increase taxes in economic downtimes to boost revenues and meet required spending amounts. In 2009, in response to the Great Recession, 24 states raised taxes by more than 1% of all revenues, and only one state cut them. Twelve more states raised taxes significantly in 2010, while only one cut them.

The personal income tax was a go-to revenue-raising tool for many states, with several targeting higher-earners. Between FY 2010 and FY 2010, at least 10 states increased personal income tax rates, with eight of them targeting the increases towards those with high or relatively high incomes. In many cases, these rate increases were temporary. Several states also increased taxes on capital gains and repealed or reduced available deductions, as well. It may be harder for states to raise rates on high-earners this time around, as the federal Tax Cuts and Jobs Act of 2017 eliminated the deduction for state and local taxes paid, and thus increased the relative burden of state income taxes on wealthier taxpayers.

Broadening the Sales Tax Base

At least 19 states turned to the sales tax to plug budget gaps after the last recession. A few states raised sales tax rates, but most state actions involved broadening the base, eliminating exemptions and vendor compensation fees, and pursuing revenues lost to internet sales. Similar revenue-raising opportunities exist for state sales taxes in 2020 and the current fiscal crisis may accelerate sales tax modernization efforts. Much has been made of the fact that state sales taxes generally fail to tax consumption of services and digital products. Several states have targeted these potential revenue sources in recent years. Fortunately, most states are now able to collect sales tax on internet sales made by remote retailers, which seem likely to spike as a percentage of overal sales tax revenues in the midst of social distancing requirements.

Business Tax Reform, Elimination of Deductions and Exemptions

Between FY 2010 and FY 2012, several states turned to businesses taxes for revenue. A few states, including North Carolina, Nevada, Oregon and Delaware increased business taxes. Several states broadened the base by modifying deductions for net operating losses and reduced or deferred tax credits. A bit later in the recovery, states began seeking business tax relief/reform measures to spur economic growth. In 2011, 20 states cut business taxes or expanded tax credit programs.

Sin and Other Excise Taxes

Excise taxes and tourism taxes were also used to help make up shortfalls during the last recession. Between FY 2010 and FY 2012, at least 8 states enacted measures to expand casino gambling or lottery offerings to generate more revenue, four states increased rental car taxes, five states increased motor fuel taxes during this time, and twelve raised significant amounts of revenue by increasing fees tied to licensing, registration, and permitting.

Sin taxes proved to be a popular source of revenue as well. At least 25 states raised taxes on alcohol or tobacco products between FY 2010 and FY 2012 (21 raised tobacco taxes, 11 raised alcohol taxes). Again, in some cases, the new taxes or surcharges were applied only temporarily.  Emerging revenue sources like marijuana and electronic cigarettes will likely attract increased attention from states that have not yet chosen to legalize and tax these products.

The current fiscal picture for states is still highly uncertain and changing quickly. NCSL is here to help. We are tracking developments and will help states coordinate with each other to develop the most informed and effective solutions possible. 

April Fiscal Brief | Download the PDF

May Fiscal Brief | State Reliance on Particular Taxes Provides a Peek at Revenue Vulnerability

By Mandy Rafool

Fiscal BriefAs the United States confronts COVID-19 with stay-home orders, economic activity has come to a screeching halt. The result, while beneficial to human health, will be devastating to state fiscal health. Job losses and reduced daily commerce have already drastically reduced state revenue streams, and the longer the economy stalls, the greater the revenue loss. The problem is particularly acute in states that rely heavily on sales and income taxes, which it turns out, is most states.

Nationally, nearly 70% of state revenues come from taxes on personal income and general sales. Personal income collections make up a larger share at 38%, but tax structures vary greatly across the states, with several states relying more heavily on one of these tax sources than others. State property taxes, severance taxes, or other taxes on corporations that in national aggregate appear insignificant, make up larger shares of tax revenue for some individual states.

Individual Income
Corporation Net Income
General Sales and Gross Receipts
Selective Sales and Gross Receipts
License
Property
Other

Compared to other states, Oregon relied most heavily on personal income taxes in fiscal year 2018, with 70% of its total tax collections coming from that category. However, Oregon along wtih four other states--Alaska, Delaware, Montana and New Hampshire--does not have a general sales tax.

Likewise, the seven states--Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming--that don't levy personal income taxes--rely heavily on sales taxes. Florida generates 64% and Texas generates approximately 60% of total revenues from sales tax.

States also levy corporate income taxes, selective sales taxes on goods such as cigarettes and alcohol, statewide property taxes, license taxes and more, including severance taxes, estate taxes and real estate transfer taxes among others. These taxes make up a small share of state revenues in most states but are a significant revenue share in a handful of states. For example, property taxes account for just 1.6% nationally, but they account for 33% of tax revenue in Vermont.

Severance taxes, which are levied on the extraction of natural resources make up a more significant share of revenue in many resource-rich states such as Alaska and Wyoming. For example, severance tax collections make up over 56% of Alaska's total tax collections and nearly 30% in Wyoming.

May Fiscal Brief | Download the PDF

Jurisdiction

Individual Income

Corporation Net Income

General Sales and Gross Receipts

Selective Sales and Gross Receipts

License

Property

Other

United States Average

38.0%

4.7%

30.8%

16.0%

5.6%

1.9%

3.0%

Alabama

35.4%

5.2%

25.2%

24.9%

4.7%

3.7%

0.9%

Alaska

0.0%

12.0%

0.0%

15.4%

8.5%

7.4%

56.7%

Arizona

27.9%

2.3%

47.2%

12.4%

3.0%

6.4%

0.8%

Arkansas

29.1%

4.0%

35.5%

13.6%

4.2%

12.3%

1.3%

California

54.4%

7.1%

20.7%

10.1%

6.0%

1.6%

0.1%

Colorado

50.7%

4.5%

21.7%

16.9%

5.5%

0.0%

0.7%

Connecticut

51.0%

4.1%

23.7%

16.6%

2.5%

0.0%

2.1%

Delaware

39.2%

6.0%

0.0%

13.9%

37.3%

0.0%

3.6%

Florida

0.0%

5.3%

64.3%

19.4%

4.6%

0.0%

6.4%

Georgia

49.3%

4.3%

25.2%

13.5%

3.0%

3.9%

0.7%

Hawaii

31.5%

1.9%

45.7%

15.6%

3.6%

0.0%

1.7%

Idaho

37.9%

5.0%

36.9%

12.5%

7.6%

0.0%

0.2%

Illinois

38.4%

6.5%

28.4%

18.5%

6.9%

0.1%

1.2%

Indiana

30.0%

3.6%

40.2%

22.3%

3.9%

0.1%

0.0%

Iowa

38.6%

4.4%

32.5%

13.9%

9.5%

0.0%

1.0%

Kansas

35.8%

4.6%

34.6%

12.5%

4.5%

7.5%

0.5%

Kentucky

37.3%

4.2%

29.9%

17.5%

4.1%

5.5%

1.4%

Louisiana

28.6%

3.2%

37.4%

23.0%

3.5%

0.5%

3.8%

Maine

36.4%

4.2%

34.7%

16.4%

6.4%

0.9%

1.1%

Maryland

42.4%

4.6%

21.0%

21.6%

3.8%

3.6%

2.9%

Massachusetts

54.9%

8.1%

21.9%

8.5%

3.9%

0.0%

2.6%

Michigan

33.6%

3.6%

32.3%

15.9%

6.4%

7.1%

1.2%

Minnesota

44.5%

5.1%

21.8%

17.9%

5.5%

3.1%

2.1%

Mississippi

23.5%

5.5%

45.1%

18.7%

6.2%

0.4%

0.6%

Missouri

50.0%

2.6%

28.3%

14.2%

4.6%

0.3%

0.1%

Montana

44.2%

6.0%

0.0%

21.5%

12.0%

10.0%

6.4%

Nebraska

43.8%

5.8%

35.2%

11.2%

3.6%

0.0%

0.4%

Nevada

0.0%

0.0%

55.6%

24.4%

7.2%

3.5%

9.3%

New Hampshire

3.6%

27.0%

0.0%

35.1%

14.9%

14.0%

5.3%

New Jersey

42.5%

6.3%

29.6%

14.0%

4.4%

0.0%

3.2%

New Mexico

22.1%

1.6%

36.6%

14.3%

5.6%

1.5%

18.4%

New York

59.6%

4.1%

16.7%

13.1%

2.0%

0.0%

4.5%

North Carolina

45.3%

2.7%

28.8%

15.1%

7.9%

0.0%

0.3%

North Dakota

8.7%

2.6%

21.7%

11.5%

5.1%

0.1%

50.3%

Ohio

29.9%

0.0%

41.7%

20.4%

7.8%

0.0%

0.2%

Oklahoma

36.5%

2.5%

28.5%

14.0%

11.0%

0.0%

7.5%

Oregon

70.2%

6.4%

0.0%

13.1%

8.6%

0.2%

1.5%

Pennsylvania

31.4%

6.1%

26.8%

24.8%

6.7%

0.1%

4.0%

Rhode Island

38.2%

3.4%

30.1%

18.2%

2.9%

0.1%

7.1%

South Carolina

42.0%

4.0%

31.3%

15.6%

5.5%

0.4%

1.2%

South Dakota

0.0%

1.7%

57.6%

25.1%

15.2%

0.0%

0.4%

Tennessee

1.7%

11.5%

52.3%

20.1%

12.4%

0.0%

1.9%

Texas

0.0%

0.0%

59.9%

25.4%

6.0%

0.0%

8.7%

Utah

49.7%

5.0%

28.0%

12.7%

4.2%

0.0%

0.5%

Vermont

24.9%

3.4%

12.1%

21.2%

3.8%

32.5%

2.0%

Virginia

60.1%

3.7%

17.4%

12.8%

3.7%

0.1%

2.2%

Washington

0.0%

0.0%

58.9%

17.6%

7.8%

10.4%

5.3%

West Virginia

36.0%

2.0%

24.2%

26.2%

3.6%

0.1%

7.8%

Wisconsin

43.5%

4.9%

29.3%

14.7%

6.3%

0.9%

0.5%

Wyoming

0.0%

0.0%

37.5%

9.4%

10.2%

13.6%

29.2%

Source: US Census, FY 2018 tax collections

June Fiscal Brief | Healthy Rainy Day Funds Not Immune From Ill Effects of Coronavirus

By Erica MacKeller

ncsl fiscal brief logoHeading into 2020, state budget reserves were as healthy as they had ever been, averaging between 8% and 12% for most states. Yet faced with the coronavirus pandemic and massive revenue reductions from the economic shutdown, those seemingly plentiful rainy day reserves amount to a mere drop in the bucket.

The concept of a rainy day fund is straightforward: Save money when times are good to use when the economy takes a downturn.

Rainy day funds are viewed as an important component of state fiscal health. However, many states also carry forward excess general funds and other funds from year to year that can help address budget shortfalls. These funds, combined with rainy day accounts, make up a state’s year-end balance, which is a better indicator of overall state fiscal health.

Lessons of the Great Recession

During the Great Recession, states used a combination of budget cuts, revenue enhancements and budget reserve funds to close significant budget gaps. As the effects of the recession continued, year-end balances dropped to a low of about 4.8% of state general fund spending in FY 2009.

Rainy Day Funds and Year-End Balances as a Percentage of General Fund Spending

rainy day funds coronavirus chart

While the economic expansion that occurred after the Great Recession was characterized by slow but steady growth, states recognized the importance of their rainy day fund safety nets and took steps to replenish those funds. Since FY 2013, year-end balances have on average hovered between 10% and 12% of general fund spending. This will provide states some flexibility as they grapple with the catastrophic revenue fallout of the COVID-19 pandemic.

State Year-End Balances as a Percentage of State General Fund Spending

state year-end balances chart

Fund volatility

However, rainy day funds and year-end balance amounts vary greatly by state, and no state likely has enough to cover the cost of the COVID-19 pandemic and resulting economic decline.

States with the largest year-end balances as a percentage of their general fund spending tend to be states heavily reliant on volatile severance tax revenues. Alaska had a year-end balance of about 40% of general fund spending in FY 2019, North Dakota’s was 22% and New Mexico’s was nearly 20%. Wyoming has the largest year-end balance as a percentage of its general fund spending at 109%. These states, however, are also dealing with low demand for oil in addition to revenue losses related to COVID-19. In some cases, oil prices per barrel are half of what states budgeted, so even states with the most robust rainy day funds may find them falling short.

While many states reliant on severance taxes tend to have the largest balances relative to their general funds, a number of other states build up above-average year-end balances. These balances will help many states cover short-term costs as most state economies are shut down, but they may not be nearly enough to address the longer-term effects of the expected economic decline.

Will Rainy Day Funds be Enough to Weather the Storm?

There is a lot of uncertainty around the magnitude of revenue losses states will experience for the remainder of FY 2020 and into FY 2021. Revenue estimators do not know what the reopening of businesses will fully look like, or when states will welcome tourists back for conventions, sporting events and other large gatherings that generate significant revenue. But early estimates show states could face revenue losses upwards of 20% between the beginning of March and the end of December, nearly double the average state year-end balance.

Those revenue losses are only part of the equation. As we saw during the Great Recession, the demand for health and social service programs increases during a recession, squeezing state budgets. States have already been working to expand access to unemployment benefits, food assistance programs and health care. They have also been providing grants to small businesses and other assistance to companies affected by the shutdown. These are important steps to protect citizens and businesses during an unprecedented time, but these actions also increase state budget shortfalls.

States also face challenges relating to the use of their rainy day fund reserves. Many states cannot access their reserve funds without an act of the legislature. That may not be a challenge during normal years, but these are extraordinary times.

Several legislatures adjourned or suspended operations due to the COVID-19 pandemic. Other states have a cap on the amount that can be withdrawn in a fiscal year, or requirements that amounts withdrawn be replaced within the current or subsequent fiscal year, which could prove difficult if state revenues continue to decline. NCSL has more information on state rainy day fund deposit and withdrawal requirements in our Rainy Day Fund Structures report.

State lawmakers wisely heeded the call to prepare themselves for another economic downturn after the last recession, but none could have predicted a decline with such immediate and drastic effects on state finances. Rainy day fund and other state reserves may help states soften the blow, but states will still face difficult budget choices in the coming months, and perhaps years.

Budget Stabilization Funds: FY 2018, 2019, 2020 | Millions of Dollars

Jurisdiction

FY 2018

FY 2019 (estimated)

FY 2020 (projected)

Alabama

$609.4

$614.2

$666.4

Alaska 

$2,396.8

$2,274.4

$2,484.4

Arizona

$457.8

$713.4

$1,018.8

Arkansas 

$37.0

$13.1

$58.9

California

$10,807.0

$14,358.0

$16,516.0

Colorado

N/A

N/A

N/A

Connecticut

$1,185.3

$2,278.3

$2,707.8

Delaware

$231.6

$240.4

$252.4

District of Columbia

$1,335.5

$1,337.9

$1,339.7

Florida

$1,416.5

$1,483.0

$1,574.2

Georgia

$2,556.6

$2,556.6

N/R

Hawaii

$374.6

$380.6

$391.7

Idaho

$413.5

$373.2

$373.2

Illinois

$0.0

$0.0

$0.0

Indiana 

$507.7

$519.1

$525.2

Iowa 

$620.3

$762.1

$783.9

Kansas

$0.0

$0.0

$0.0

Kentucky

$93.8

$129.1

$306.2

Louisiana 

$321.1

$405.3

$438.0

Maine

$272.9

$297.2

$297.2

Maryland

$856.8

$882.3

$1,206.6

Massachusetts

$2,001.3

$3,424.4

$3,990.2

Michigan

$1,006.0

$1,155.7

$1,218.3

Minnesota

$2,048.2

$2,424.7

$2,424.7

Mississippi

$295.3

$349.7

$549.6

Missouri 

$616.2

$651.3

$658.8

Montana

$0.0

$60.7

$72.8

Nebraska

$339.9

$333.5

$377.1

Nevada

$179.9

$331.3

$375.8

New Hampshire

$110.0

$115.0

$115.0

New Jersey

$0.0

$401.4

$401.4

New Mexico

$526.8

$968.1

$1,473.8

New York

$540.0

$790.0

$1,218.0

North Carolina

$1,254.3

$1,254.3

$1,169.3

North Dakota

$113.4

$399.9

$479.4

Ohio

$2,034.1

$2,691.6

$2,691.6

Oklahoma

$70.1

$451.6

$806.2

Oregon

N/R

N/R

N/R

Pennsylvania

$22.8

$340.1

$518.3

Puerto Rico

N/R

N/R

N/R

Rhode Island

$198.5

$203.6

$210.2

South Carolina

N/R

N/R

N/R

South Dakota

$159.5

$169.8

$189.1

Tennessee

$800.0

$875.0

$1,100.0

Texas

$11,043.4

$6,912.5

$8,131.7

USVI

N/R

N/R

N/R

Utah

$578.2

$663.5

$757.4

Vermont

$123.3

$224.2

$225.9

Virginia

$283.3

$283.3

$643.8

Washington

$1,369.4

$1,622.1

$1,893.2

West Virginia

N/R

N/R

N/R

Wisconsin

$320.1

$617.7

$630.0

Wyoming

$1,642.0

$1,654.8

$1,667.6

Total

$52,170.2

$58,988.0

$64,929.7

Source: NCSL survey of legislative fiscal offices, 2019.

 

State Year-End Balances as a Percentage of State General Fund Expenditures

Jurisdiction

FY 2019

FY 2020 (projected)

Alabama ETF

9.2%

6.7%

Alabama GF

45.9%

46.1%

Alaska 

39.1%

44.5%

Arizona

13.9%

9.1%

Arkansas 

3.3%

1.0%

California

13.8%

12.1%

Colorado

9.3%

7.8%

Connecticut

17.7%

16.2%

Delaware

13.8%

9.1%

District of Columbia

42.6%

36.6%

Florida

9.1%

7.7%

Georgia

11.0%

0.0%

Hawaii

11.9%

10.9%

Idaho

13.4%

14.0%

Illinois

1.2%

1.5%

Indiana 

8.2%

8.0%

Iowa 

12.2%

13.9%

Kansas

12.2%

7.1%

Kentucky

1.1%

2.7%

Louisiana 

4.2%

4.5%

Maine

11.8%

10.4%

Maryland

8.9%

6.7%

Massachusetts

9.3%

9.0%

Michigan ETF

0.4%

0.6%

Michigan GF

17.2%

18.5%

Minnesota

13.1%

10.8%

Mississippi

6.3%

9.6%

Missouri 

13.6%

8.1%

Montana

10.6%

11.9%

Nebraska

13.9%

8.2%

Nevada

13.2%

15.2%

New Hampshire

20.9%

6.0%

New Jersey

4.4%

3.3%

New Mexico

19.2%

26.4%

New York

10.6%

9.1%

North Carolina

12.5%

14.0%

North Dakota

20.6%

22.5%

Ohio

18.3%

19.2%

Oklahoma

7.3%

12.1%

Oregon

N/R

N/R

Pennsylvania

1.0%

2.0%

Puerto Rico

N/R

N/R

Rhode Island

5.8%

5.2%

South Carolina

N/R

N/R

South Dakota

11.4%

11.4%

Tennessee

11.2%

7.1%

Texas

18.5%

13.7%

USVI

N/R

N/R

Utah EF

2.1%

0.9%

Utah GF

33.8%

30.2%

Vermont

14.0%

14.9%

Virginia

2.4%

2.9%

Washington

14.9%

13.8%

West Virginia

N/R

N/R

Wisconsin

9.2%

7.9%

Wyoming BRA

N/R

N/R

Wyoming GF

108.1%

109.0%

Average

11.4%

10.0%

Source: NCSL survey of Legislative Fiscal Offices, summer 2019

June Fiscal Brief | Download the PDF

July Fiscal Brief | Late State Budgets

By Erica MacKellar

ncsl fiscal brief logoState lawmakers consider all sorts of laws during a typical legislative session, but the only task required of them is to complete a balanced state budget. Enacting a state budget and determining policy priorities are never easy, even when state revenues are healthy. This year was particularly challenging because the coronavirus pandemic interrupted the budget process and caused revenues to plummet.

State Budget Requirements

State budgets are not all the same. For some states, it’s an annual spending plan approved each year while for others, it’s a biennial budget covering two fiscal years. One thing they all have in common is that they must be balanced by the start of the new fiscal year, which begins July 1 in all but four states (Alabama, Michigan, New York and Texas).

Every state but Vermont has a balanced budget requirement, though Vermont traditionally also balances its budget. Balanced budget requirements vary by state in terms of stringency and at which point in the process the budget must be balanced. 

In the aftermath of the Great Recession, balancing the budget on time became a challenge for some states. And with many states facing plummeting revenue declines in the wake of the COVID-19 pandemic, states may face difficult budget decisions and confront late state budgets.

What happens when a budget is not enacted on time? It depends on the state.

Late State Budgets

In many cases, a government shutdown occurs if a new budget is not in place. New Jersey’s government shut down for three days in 2017 leading up to the Independence Day holiday, closing state beaches and other tourist attractions during a busy vacation week. Minnesota experienced a particularly disruptive 20-day shutdown in 2011, which furloughed 19,000 state workers and closed state parks at the height of the summer travel season. Workers deemed essential to public health and safety are largely exempt from furloughs when states experience shutdowns.

In some states, such as Illinois and Pennsylvania, court cases have ensured that at least some government services continue, resulting in a partial shutdown. Illinois currently holds the record for the longest budget stalemate. The state failed to enact a budget for FY 2016 or FY 2017, though disruptions were minimal for the average citizen because of court rulings and stopgap funding mechanisms.

Three states, North Carolina, Rhode Island and Wisconsin, have provisions in place to automatically continue funding at the previous year’s spending levels until an agreement on a new budget is reached.

Budgeting in 2020

The COVID-19 pandemic created new challenges to passing a budget this year. Several states were forced to suspend sessions in the middle of budget negotiations, and it was unclear whether a budget deal would be reached before the start of the fiscal year. Several states chose to enact stopgap spending plans, or temporary budgets, anticipating special sessions this fall when states will have more accurate revenue forecasts. These states technically have late state budgets, but there will be no disruption in state services. However, state statutes governing the budget process vary greatly from states to state, and stopgap spending was not an option in all states.

Louisiana, for example, had just begun its budget process when the legislature was forced to postpone its session. The state’s constitution does not allow funding to continue into the next fiscal year without a complete budget, so lawmakers were unable to consider a short-term spending plan. The state scrambled to bring legislators and staff safely back to the capital to complete a budget before the July 1 deadline. 

Perhaps the most interesting method to avoid a late state budget occurred in New Jersey, which extended the FY 2020 fiscal year. The state now has until Oct. 1 to complete a full FY 2021 budget.

There are technically several late state budgets as states move into FY 2021, but there will be no immediate government shutdowns. However, states are not out of the woods yet. Many states will be debating spending priorities as temporary spending plans expire later this summer, so it remains to be seen whether there are more disruptions in the budget process.

July Fiscal Brief | Download the PDF

August Fiscal Brief | How States Are Spending Coronavirus Relief Funds

By Emily Maher

ncsl fiscal brief logoThe economic shutdown to curb the spread of COVID-19 wreaked havoc on state budgets. By the end of April, more than 20 million Americans had abruptly lost their jobs, and state revenue projections across the country had nosedived.

Enter the federal government.

To ease the financial strain of state spending on COVID-19 mitigation and response measures, the federal government passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which included $150 billion in direct assistance for state governments, territories and tribal governments.These funds are known as the Coronavirus Relief Funds (CRF). Each state received a minimum allocation of $1.25 billion. Local governments with a population of at least 500,000 were eligible for direct payments.

Spending Guidelines

By now, the CARES Act is a household name in state capitols. But the real grit work for policymakers has been determining how to allocate the funds. Deciding who can spend these funds and how is not a walk (socially distant, of course) in the park.

The funds were deposited into state coffers by late April. The U.S. Treasury issued guidance on eligible expenses. Periodic updates are published on an FAQ page. The funds are restricted in three primary ways.

  • Only expenditures related to COVID-19 are allowable.
  • The expenses were not already accounted for in the budget approved prior to March 27.
  • Funds must be spent by Dec. 30, 2020, or they revert back to the federal government.

Much to the dismay of those with budget responsibilities, the funds may not be used for most states’ greatest need, which is to backfill lost revenues. In addition, all unspent funds must be returned to the federal government if not allocated by the end of the year.

Even with the U.S. Treasury’s guidance, there is still uncertainty in interpreting it and concern that any misinterpretation could lead to repayment of the money.

The difficulty in understanding what is deemed an eligible expense led some states to delay CRF spending. There were many who held out hope for additional flexibility in spending, which has not yet come into fruition, although a new federal stimulus package is being debated in Congress.

Who Has Spending Authority?

Emergency declarations, coupled with the unique nature of these federal funds, muddied the waters over federal relief spending authority in some states. Because of some contentious moments and to provide more clarity, all 50 states and territories created or proposed oversight measures to monitor the CARES Act funds.

Where Are States Targeting the Funds?

States have allocated funding to various relief efforts. In some cases, the legislature convened in special session to decide how and where to spend the federal funds. NCSL created a database tracking state actions on CRF. The database categorizes allocation into 12 categories, including local governments, small business relief and housing assistance. In addition to spending on public health and safety, state policymakers have looked at ways to address other unexpected spending needs. Some of the more creative measures are listed below:

  • National Guard’s Role in the pandemic.
  • COVID-19 response app.
  • Airport screening programs.
  • To local governments for special purpose taxing districts.
  • Broadband infrastructure to support distance education, remote work and telehealth.
  • Short-term education, training opportunities, career coaching and navigation for those who need help figuring out employment next steps.
  • Tax rebate program for grocery store employees, nurses, bus drivers and workers for a one-time hazard pay payment.
  • Child care provider business grants to support reopening and safety measures.
  • Supporting survivors of domestic violence.
  • Livestock producer’s stabilization grant.
  • Purchase software and hire staff to resolve backlogs in processing unemployment claims.
  • Occupational Safety and Health Administration response grants.
  • Funding for 211 to maintain referral services during the pandemic.
  • Cultural and museum preservation grants.
  • Food relief access grants to increase access to healthy, affordable grocery food options.
  • Adult day care services.

This list is by no means exhaustive. It is meant to provide some insight into how states are thinking about spending CRF funds. It is also important to keep in mind that state allocations differ in each state based on population size. Since the virus is unpredictable, response efforts vary according to the virus's impact and each state is in a different phase in their response efforts. As a result, CRF spending looks different across the board.

August Fiscal Brief | Download the PDF

September Fiscal Brief | Internet Gambling: Expansion on the Horizon

By Jackson Brainerd

ncsl fiscal brief logoThe coronavirus pandemic has changed the way we use the internet. Whether it’s remote work, online shopping, online learning or remote health care, new methods and changes in consumer behaviors will likely continue after the virus has run its course. Internet gambling is another area that may soon see a COVID-19 bump.

Most states do not allow internet gambling. Of the 44 states with lotteries, only 11 allow some form of internet play, either permitting lottery tickets to be sold over the internet or offering online lottery subscriptions. Of the 25 states with commercial casino gambling, internet gambling (that is, traditional casino games played electronically over the internet, usually distinct from online sports betting) is only available in Delaware, Nevada, New Jersey, Pennsylvania and the U.S. Virgin Islands. Michigan and West Virginia have recently legalized iGaming but are not yet offering it. While there are only a handful of states that have considered iGaming or iLottery measures during coronavirus-dominated 2020 sessions, there are signs that a shift may be underway.

One of the primary reasons that legal gambling has been slow to embrace the internet despite a sizable online gambling black market, is a fear that online gambling would rob brick-and-mortar casinos and surrounding establishments of visitors and revenue. This fear no longer appears to be widespread across the casino industry, and many stakeholders now point to evidence that internet gambling will actually help casinos. Those who are more inclined to bet online tend to be younger and are not necessarily active casinogoers; iGaming may offer an opportunity to appeal to a broader market.

On recent webinars hosted by the National Council of Legislators from Gaming States, industry representatives expressed confidence that online gambling would benefit brick-and-mortar casinos rather than cannibalize their revenues. Thomas Winter of the Golden Nugget, a land-based casino chain that also runs an online gaming platform, called this fear a misconception. Jay Snowden of Penn National Gaming pointed to the increase in both traditional casino revenue and online gambling revenues in New Jersey and Pennsylvania after the introduction of iGaming in those states as potentially indicative of its win-win nature.

The widespread adoption of sports betting may also be helping to pave the way for iGaming. Since the Professional and Amateur Sports Protection Act was struck down in 2018, 22 states and the District of Columbia have approved sports betting. In 12 states, intrastate mobile sports betting has been implemented or authorized, so bettors can place bets from their phone or computer. While states have largely approached mobile sports betting in isolation, the move to expanded iGaming seems inevitable given this new inconsistency. Why allow people to bet on sports over the internet but prohibit them from playing internet poker or buying lottery tickets?

For states, however, the more enticing justification for internet gambling is likely to be the potential boost it could give to struggling state budgets, and the states that have authorized mobile sports betting have shown promising early results. In New Jersey, where sports betting brought in roughly $43 million in tax revenue, mobile betting has accounted for roughly 80% of the total amount wagered in the state. In Indiana, which launched sports betting at the start of 2020, revenue from mobile sports betting was 81.3% of total handle in March, before the pandemic; in July, it rose to 91%, despite all physical casinos reopening in mid-June.

The size of the U.S. online gaming market is generally estimated to be in the tens of billions of dollars, and the revenue potential exceeds that of sports betting, which is generally a low-margin venture. iGaming is also partially immune to pandemics. When casinos across the country were forced to shut their doors, the states that had adopted various forms of internet gaming were still able to keep bringing in revenue, albeit at a reduced rate. Gambling only represents around 2% to 2.5% of state budgets, on average, and revenues from expanded gambling are not enough to fill significant budget gaps and often fail to keep pace with state spending. Nevertheless, it is generally easier to raise excise taxes than broad-based taxes, and expanded gambling is often a relatively low-hanging fruit when states need to shore up their budgets. At least eight states expanded gambling to plug budget shortfalls created by the Great Recession.

Nationwide, in the few states that offer it, iGaming brought in $402.7 million in gross gaming revenue during the second quarter of 2020, a 253% year-over-year increase and a more productive quarter than national sports betting operations have had to date, according to the American Gaming Association. In Pennsylvania, for example, iGaming brought in $64.4 million in state tax revenue during fiscal year 2020 compared with $49.7 million in state sports betting collections. States that have recently turned to iLottery saw record revenues leading up to the pandemic, and lottery directors in states across the country are clamoring for internet lottery ticket purchases and online lottery games.

Of course, while expanded internet gaming may benefit the gambling industry and state revenue collections, there are still concerns over whether making gambling opportunities so readily available will lead to increased gambling addiction. Minnesota, for example, began selling lottery tickets online in 2014 only to suspend sales the next year after opponents raised concerns about predatory gambling. There are technologies internet gaming operators can use to mitigate problem gambling, such as transactional controls and betting limits, “know your customer” protocols that require players go through an age/identification process, and self-exclusion programs that problem gamblers can place themselves in. None of these are bulletproof preventative measures, however. The most recent responsible gaming report for New Jersey’s Division of Gaming Enforcement noted that uptake of voluntary responsible gaming protocols among online gamblers was declining and that lengthier, overnight online gambling sessions were increasing. The National Council on Problem Gambling reported that the average per capita allocation for problem gambling prevention was only 23 cents in 2016, so the shift toward internet gambling may warrant a renewed focus on problem gambling measures and additional educational outreach.

With many states facing revenue declines in FY 2021, the proponents of online gambling will be promoting it as part of the potential fiscal solution. All bets are off on whether there will soon be a sea change.

September Fiscal Brief | Download the PDF

October Fiscal Brief | Broadband Spending: Bridging the Digital Divide

By Heather Morton 

ncsl fiscal brief logoThe COVID-19 pandemic and its impact on distance learning and working from home has helped illuminate the digital divide, the gap between those who have access to high speed internet and devices and those who do not. Despite some evidence that the divide is narrowing, the dramatic shift to a virtual world shows a large gap still exists. During the COVID-19 pandemic, people working remotely, getting treatment through telehealth and students attending school online, amplifies the need for consistent, quality broadband in all areas of the country. More importantly, those without access to broadband and devices run the risk of being left farther behind the longer the pandemic continues.

According to its 2020 Broadband Deployment Report, the Federal Communications Commission (FCC) reported that the number of Americans lacking a connection of at least 25 Mbps/3 Mbps dropped from 55 million in 2014 to 18 million by the ed of 2018. However, some challenge that the deployment numbers reported by the FCC are being overstated because the numbers are calculated by census blocks. If service is provided anywhere within the census block, then deployment can be counted, even if service is provided in only one connection within the census block.

In contrast to the FCC calculation method, a recent report published by Common Sense and the Boston Consulting Group found that approximately 15 million to 16 million K-12 public school students, or 30% of all public K-12 students, live in households without either an internet connection or device adequate for distance learning at home. Of these students, approximately 9 million students live in households without an adequate connection and devices for distance learning.

The digital divide impacts more than just students. The Common Sense report found that 300,00 to 400,000 K-12 teachers—roughly 10% of all public school teachers—live in households without adequate internet connectivity and 100,000 teachers lack adequate home computing devices.

The digital divide is not limited to rural areas alone. The National Digital Inclusion Alliance (NDIA), using FCC data and the U.S. Census American Community Survey data, found that urban counties—those with few than 5% rural residents—accounted for more than 35% of Americans living in households with no broadband while rural counties—those with at least 75% rural residents—accounted for less than 8%. Looking at the numbers more closely, NDIA reports that substantial majorities of the residents in households without broadband in the urban data sets were people of color while 76% of residents in the most rural third of U.S. counties are white and non-Hispanic.

Furthermore, in New Mexico, the state Public School Facilities Authority reports that 23% of the student population does not have internet service at home. In Seattle, a leading technology hub, more than one out of five households with incomes under $25,000 do not have internet access where they live while nearly all households with incomes over $50,000 have internet access according to a survey performed by Seattle’s Technology Access and Adoption Study.

State legislators and other policymakers have been working to expand broadband access. In the 2020 legislative session, at least 500 bills address broadband. For comparison, in 2019, nearly 400 bills were introduced addressing broadband.

In response to the pandemic, to ease the financial strain of state spending on COVID-19 mitigation and response measures, Congress included $150 billion in direct assistance for state governments, local and tribal governments as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act. Known as the Coronavirus Relief Funds (CRF), each state received a minimum allocation of $1.25 billion and local governments with a population of at least 500,000 were eligible for direct payments.

Provided the funds are spent by Dec. 30, states and other government recipients may use their CRF to expand broadband capacity for distance learning and telework if they are necessary for the public health emergency as specified by the U.S. Treasury guidance.

Here are examples of how states are utilizing its COVID-19 relief fund allocation for broadband and technology purposes:

Alabama

  • The governor allocated $100 million in CARES Act funding for a public-private partnership to increase access to internet for K-12 students attending school in the fall who may need internet service for distance learning. The program, called Alabama Broadband Connectivity (ABC) for Students, will provide vouchers for families of students currently eligible for free and reduced-price school meals, or other income criteria. The vouchers will help cover equipment and service costs for high-speed internet service from the fall through Dec. 31, 2020. Providers will contract with the state to provide the service using existing lines and technologies.

Georgia

  • $6 million of the state’s CARES Act funding is allocated to purchase equipment for local school systems to improve connectivity options for students who do not have sufficient internet access at home. The funds will be used to purchase a variety of connectivity solutions for school districts, including Wi-Fi transmitters on school buses and other connectivity options as needed. For districts implementing a school bus Wi-Fi program, transmitters can be placed on buses that may be deployed for food delivery or on other vehicles that can be placed for one to three or more hours in students’ neighborhoods. Some districts may also choose to permanently affix WiFi transmitters onto residential buildings where a high prevalence of students live (i.e. apartments/multifamily housing).
  • Over $3 million to improvements to telework capabilities of public employees.

Idaho

  • $1,967,680 to the Office of Information Technology Services to improve the state's firewalls.
  • $50 million to the Department of Commerce for broadband infrastructure to support distance education, remote work, and telehealth.

Maryland

  • To address the digital divide, $100 million is allocated to local school systems to ensure that students have access to the most up-to-date devices and connectivity. It is estimated that student devices need to be replaced when they are over four years old. Local school systems must also take into account having the staff necessary to deploy and maintain devices.
  • $5 million is allocated to make Maryland’s wireless education network for students available in urban centers, where access to the internet can be scarce for underprivileged populations. The state plans to use a phased, targeted approach to ensure the populations who lack access will be connected first.
  • The Governor’s Office of Rural Broadband will construct a wireless education network for students’ use in Western Maryland, Southern Maryland, and on the Eastern Shore. This network will initially be constructed in the areas that currently lack broadband service but could be expanded to cover other areas of the state where access may be limited for other reasons. The state is proposing a wireless, Long-Term Evolution (LTE) network using frequency provided by the Federal Communications Commission (FCC) for educational purposes, or available unlicensed frequencies.

New Hampshire

  • $50 million allocated to the Connecting New Hampshire Emergency Broadband Expansion Program. The Connecting New Hampshire – Emergency Broadband Expansion Program will address challenges for students participating in remote learning, individuals working remotely, as well as other Granite Staters utilizing the internet to access telehealth services, including vital mental health services.

Oregon

  • The Oregon Legislative Assembly Joint Emergency Board allocated $3.5 million for the Public Utility Commission, Residential Services Protection Fund, for funding to provide a greater discount on telephone and broadband services for eligible low-income households needing assistance due to the COVID-19 pandemic.
  • In addition, the board allocated $20 million for the Oregon Business Development Department, for funding for a grant program for the Rural Broadband Capacity Program.

South Carolina

  • $50 million for the Office of Regulatory Staff Broadband Mapping and Planning, Infrastructure and Mobile Hotspots. As specified in legislation, the Office of Regulatory Staff is directed to secure a vendor for the development of a broadband statewide county-by-county mapping plan and to secure a vendor for the development of a statewide broadband infrastructure plan. The infrastructure plan shall identify and prioritize communities in the state where access to broadband has impeded the delivery of distance learning, telework, and telehealth for the most vulnerable population of South Carolinians impacted by COVID-19. The plan must identify the role that public and private broadband operators can play in addressing the state's broadband plans. And, the Office of Regulatory Staff, in consultation with the State Department of Education and the Commission on Higher Education, shall procure mobile hotspots and monthly service through December 2020 for distribution to a minimum of 100,000 households. Eligibility shall be limited to households with an annual income of 250% or less of federal poverty guidelines that also have an individual attending a public or private K-12 school or a public or private college, university, or technical college. School districts, private schools, and institutions of higher learning will be responsible for distributing the hotspots and ensuring that appropriate security measures are installed on each hotspot. Priority should be given to households in counties that contain a school district that has been defined by the Department of Education as having a poverty rate greater than or equal to 86%.

For additional information regarding the ways states are utilizing its CRF allocations, please review the NCSL database, State Actions on Coronavirus Relief Funds.

October Fiscal Brief | Download the PDF

November Fiscal Brief | 2020 General Election: Tax and Other Revenue-Related Ballot Measures

By Jackson Brainerd 

While the presidential vote is at the top of most people’s minds heading into the 2020 election, citizens will also being making their voices heard on a litany of ballot measures. Per usual, tax-related measures figure prominently in states across the country and, given the difficult budget situations many states have found themselves in due to the economic impact of the coronavirus pandemic, the fiscal significance of many of them has been magnified. There are at least 30 tax and revenue-related ballot measures being voted on in 16 states and the issue areas run the gamut, from property and income taxes to excise and severance taxes. Some will not increase or decrease revenues by a substantial amount, but there are a handful that stand out in terms of the size of their potential fiscal impact. 

Property Tax Measures

Seven states are considering property tax-related measures. Proposition 15 in California is particularly significant. The state has an existing constitutional property tax limitation, commonly known as proposition 13, that was implemented in 1978. Proposition 15 would partially repeal proposition 13’s existing tax limitations (just for commercial property) and would implement a split roll property tax system. The assessment on certain commercial and industrial property would rise annually based on market value instead of being capped at a 2% increase per year as it is under current law. According to the state voter guide fiscal analysis, “beginning in 2025, total property taxes from commercial land and buildings probably would be $8 billion to $12.5 billion higher in most years.”

In Colorado, a proposed constitutional amendment would repeal an existing property tax limitation known as the Gallagher Amendment. This has required the state to maintain a constant ratio between residential and business property tax collections. The goal was to limit residential property taxes and force businesses to pay a larger tax share, and it has been very effective in that regard. Whenever statewide total residential property values have increased faster than business property values, their assessment rates have been cut so that the 45%-to-55% ratio is maintained. This has been a boon for homeowners, but assessment rate cuts have eroded local property tax revenues, which help pay for all sorts of government activities, especially education. It has been estimated that if the Gallagher Amendment isn’t repealed, residential property tax rates will continue to fall, and K-12 education alone will lose $500 million next year.

Income Tax Measures

In Illinois, the legislature referred a constitutional amendment to voters that would repeal the existing constitutional requirement that the state personal income tax be levied at a flat rate. The state passed a measure in 2019 (SB 687) that provides for a graduated income tax structure if voters approve this amendment. The newly structured income tax would raise about $3.6 billion a year.

Arizona voters will be considering proposition 208, which would increase income taxes on higher earners to raise revenue for education funding and teacher salaries. The law would add a 3.5% tax surcharge on taxable annual income over $250,000 for single filers and $500,000 for joint filers (the current marginal rate is 4.5%). The state Joint Legislative Budget Committee estimated that it would generate $827 million in the first full year of implementation.

In contrast to Illinois and Arizona, Colorado is considering reducing personal and corporate income tax rates as part of proposition 116, which would lower the state’s personal and corporate income tax rates from the current flat rate of 4.63% to 4.55%. This comes with a price tag by $154 million in fiscal year 2022, or 1.2% of general fund revenue.

Sales Tax Measures

Arkansas Issue 1 would permanently extend a half-cent sales tax for highway and road projects that was initially approved by voters in 2012. (The overall sales tax rate in the state is 6.5%.) If the measure passes, it will generate about $290 million annually. About $205 million would go to the Arkansas Department of Transportation, and about $85 million would go to cities and counties.

Severance Tax Measures

Alaska’s Ballot Measure 1 would increase oil production taxes on fields in the state’s North Slope. The potential changes are estimated to increase the state’s share of production revenue from the three fields by about $1 billion annually when oil prices are normalized in the $55- to $65-per-barrel range. Alaska has been dealing with underperforming revenues for several years now and has been looking for ways to stabilize the state budget. Proponents say these are low-cost, high-profit fields that should be paying Alaskans more. Opponents worry about the impact it could have on the industry, which is very important to the state economy. 

Excise Tax Measures

Many states will be considering raising revenue from various excise tax sources. Arizona, Montana and New Jersey are considering raising revenue through marijuana legalization. Proposition 207 in Arizona would implement a 16% excise tax on recreational marijuana sales, in addition to the regular sales tax, and it is estimated that it would raise $166 million annually. Montana’s Initiative 190 would create a 20% tax on recreational marijuana sales and would generate 38.5 million annually by FY 2025. Public Question 1 in New Jersey would only subject legal marijuana to state sales taxes and authorize local taxes as well. Regulations and additional taxes will be legislated if it is approved, but the state office of legislative services estimated the measure would bring in $125.6 million annually at the current 6.625% sales tax rate.

Colorado and Oregon are each considering measures to implement new e-cigarette/vaping taxes and increase existing tobacco taxes. In Colorado, proposition EE would phase in tax increases on tobacco products. Cigarette taxes will rise $1.80 by 2027, from $0.84 per pack to $2.64. A new tax on the purchase price of nicotine products like e-cigarettes will be implemented, starting at 30% in 2021 and growing to 62% by 2027. The rate for other tobacco products will increase from 40% to 62% in that time period as well. The increases are expected to generate up to $175.6 million in budget year 2021-22, the first full year the measure will be in effect, and up to $275.9 million beginning in budget year 2027-28 when the new tax rates are fully phased in.

In Oregon, measure 108 would implement a tax on nicotine vape products at 65% of a product’s wholesale price, raise cigarette taxes by $2 a pack, from $1.33 to $3.33, and double the tax on cigars to $1 each. The state legislative revenue office has projected it would raise $111 million during the 2019-21 biennium and $331 million during the 2021-23 biennium.

Come Nov. 3, most attention will naturally be focused on the results for political office, but don’t forget about the tax measures! The results will not only be significant for each state’s respective budget situation, but could serve as a bellwether for other states looking to raise revenue in a politically palatable manner in 2021.