State & Local Roundup: Governors Unveil Plans for Budget Surpluses

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It’s Friday, Feb. 17, and we’d like to welcome you back to the weekly State and Local Roundup. 

These are heady days to be a governor or a budget director in most states. 

This week, Illinois Gov. JB Pritzker unveiled a budget that would expand pre-K and boost wages for child care workers. Wisconsin Gov. Tony Evers pitched a spending plan to skeptical lawmakers that would use the state’s projected $7 billion surplus over the next two years on “a little bit of everything,” as Wisconsin Public Radio put it, including tax cuts, family leave and funding for a new Milwaukee baseball stadium. New Hampshire Gov. Chris Sununu is eyeing higher Medicaid reimbursement rates, increased pay for state workers and more school funding now that he has grown less worried about the threat of an imminent recession. 

But with more money comes more ideas on how to spend it. State officials are weighing a variety of ways to use the anticipated revenue increases next year. 

One of the most popular options, of course, is tax breaks. At least 27 states are considering tax cuts in the current legislative session, according to the Institute on Taxation and Economic Policy. That continues the widespread interest in tax breaks since the recession. By ITEP’s count, 29 states passed major tax cuts in 2021 and 35 states did so in 2022, which is especially noteworthy because states were also filling up their rainy day funds and shoring up their finances at the time.

In Texas, Gov. Greg Abbott urged lawmakers this week to pass the “largest property tax cut in the history of Texas.” Ohio Gov. Mike DeWine proposed several measures to help new parents financially, including a $2,500 income tax deduction and the elimination of sales tax on items such as diapers, cribs, car seats and strollers.

Other governors are taking aim at income taxes, which are some of the largest sources of revenue for the 43 states that have them. Iowa Gov. Kim Reynolds, a Republican, touted her efforts to lower income tax rates during an event at the conservative Cato Institute in Washington, D.C. “And I can tell you without hesitation, we’re not done,” she said. “My goal is to get to zero individual income tax rate by the end of this second term.”

Mississippi Gov. Tate Reeves, a Republican who faces a potentially challenging re-election campaign this year, has also called for abolishing his state’s income tax. Arkansas Gov. Sarah Huckabee Sanders, a former spokesperson for President Donald Trump, also campaigned on the idea.

But it’s not just Republicans trying to scale back income taxes. Connecticut Gov. Ned Lamont, a Democrat, is also pushing for income tax cuts, which would be the first reduction in those taxes in three decades. “Connecticut’s fiscal health is stronger than it’s been in decades. Considering the state’s strong financial position, it is time to provide tax relief for Connecticut’s residents,” he said.

Moving away from income taxes, though, raises the risk of destabilizing state finances, the National Conference of State Legislatures warned in a recent analysis. 

“States wishing to transition from income toward consumption taxation will eventually need to reckon with long-standing issues facing the sustainability of state sales taxes, which have not kept pace with changes in the economy and have gradually eroded over time,” NCSL fiscal expert Jackson Brainerd wrote recently.

On the spending side, many governors want to dedicate some of their revenue surpluses toward education. The governors of Georgia, Kentucky, Indiana and Minnesota are among the executives proposing a bump in school funding, notes Education Week. 

Another area that could get some attention is water infrastructure and conservation, writes Circle of Blue. Dropping aquifers, the drying up of the Colorado River and the proliferation of PFAS pollution have alarmed legislators and governors. They could use their flush treasuries to hire staff to enforce pollution laws or, in the case of Nebraska, build a canal to connect Nebraska to the South Platte River in Colorado.

Make sure to come back here every Friday for the week’s highlights. If you don’t already and would prefer to get it in your inbox, you can subscribe to this newsletter here. Have a great weekend.

News to Use

Trends, Common Challenges, Cool Ideas, FYIs, and Notable Events

• North Carolina Medicaid expansion. Concerns about the financial viability of rural hospitals have spurred Republicans in North Carolina who long opposed the expansion of Medicaid under Obamacare to give the idea serious consideration. The GOP-controlled House overwhelmingly passed legislation to expand eligibility for the public health insurance program to hundreds of thousands of residents who don’t currently qualify. The measure still faces opposition in the state Senate, though, where leaders want to tie Medicaid expansion with measures to allow for more competition among health providers. North Carolina is one of 11 states that has not expanded Medicaid since 2010. 
• Rail derailment. Pennsylvania Gov. Josh Shapiro blasted Norfolk Southern for the railroad’s handling of the derailment of a train carrying toxic chemicals two weeks ago in the nearby Ohio city of East Palestine. The governor specifically criticized Norfolk Southern for bypassing state and local officials and emergency responders when it vented vinyl oxide from five rail cars. “Norfolk Southern failed to explore all potential courses of action, including some that may have kept the rail line closed longer but could have resulted in a safer overall approach for first responders, residents and the environment,” Shapiro wrote. 
• Confederate monuments. An American Bar Association resolution requesting state and local governments to remove Confederate symbols and memorabilia from courthouses is being met with resistance in Alabama. The Alabama Bar Association says it will not take a position, pointing to its duty as a licensing and regulating body. Meanwhile, Sons of Confederate Veterans representatives say removing such work runs afoul of a 2017 law, the Alabama Memorial Preservation Act, which bans removing works of architectural significance that are 40 years or older and imposes a $25,000 fine.
• Debate accessibility in Denver. City Councilman Chris Hinds debated for his District 10 seat sitting on the apron of the stage because the venue did not have a ramp for his electric wheelchair despite the decades-old Americans with Disabilities Act. Hinds opted to crawl on stage to participate, later telling The Denver Post, “It was a choice between my campaign’s viability or my dignity.”
• Oakland emergency. Interim City Administrator G. Harold Duffey on Tuesday declared a state of emergency to deal with a ransomware attack that started Feb. 8. While the city’s 911 services continue to work, officials took down systems that process payments, collect fees, issue permits and other non-emergency operations. The city also extended an impending deadline for Business Tax Licenses, which are now due April 15. 
• J.F.K. woes. An electrical fire Thursday kicked off a power outage at Terminal 1 of New York’s John F. Kennedy International Airport, causing flights to be delayed, diverted and canceled. Thousands of travelers’ plans have been disrupted, including an inbound flight from New Zealand that was forced to return to Auckland. The terminal remains closed Friday.

Picture of the Week

A photo taken Tuesday illustrates the rebound of Lake Oroville, California’s second-largest reservoir. 

With torrential rains soaking the state at the start of the year, the water level at Lake Oroville has risen from historic lows to 821.15 feet mean sea level, or 69% capacity. It’s a stark difference from a year and a half ago when the west’s extreme drought dropped levels to 28% capacity. 

Government In Numbers

$2 million

The new cap on medical malpractice damages Iowans can receive when suing hospitals for pain, suffering and emotional distress. Lawsuits against clinics and individual doctors face a $1 million cap. Gov. Kim Reynolds signed the law Feb. 16, which does not limit economic or punitive damages.

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