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Review of a challenging year in the Midwest’s legislatures: Several states dealt with big fiscal problems in 2017; lawmakers also passed bills on road funding, opioids and health insurance

by CSG Midwest staff ~ November 2017 ~ Stateline Midwest »
In states such as Iowa, Nebraska and North Dakota, much of this year’s legislative work centered on adjusting to new budget realities — slower-than-expected revenue growth and the need to close budget shortfalls. For lawmakers in Illinois and Kansas, the highest-profile issues involved changes in school funding and increases in the income tax. And across the Midwest in 2017, including in Indiana, Ohio and Wisconsin, many new laws were passed with the hope of stemming a public health crisis related to opioid addiction and overdoses.
Here is a state-by-state review of some of the big issues and new laws that arose out of this year’s legislative sessions.
In Illinois, new budget includes higher taxes; school funding overhaul also approved
By overriding the veto of Gov. Bruce Rauner, Illinois legislators adopted a new budget in July that increases the state’s individual and corporate income taxes. According to the Chicago Tribune, Illinois had gone a record-setting 736 days without a budget. The budget bill raises the state’s individual income tax rate from 3.75 percent to 4.95 percent and the corporate rate from 5.25 percent to 7 percent. Those changes are estimated to bring in an additional $5 billion in revenue to the state.
Another development in Illinois was passage of a revised school funding formula (SB 1947), under which almost all new state dollars will go to high-need schools. Also under this law, an “adequacy target” will be established for every school district based on its demographic profile — the greater the needs of the district’s students, the higher the funding target set by the state. In addition, the new formula accounts for differences in property-rich and -poor districts, with the latter expected to contribute less to the overall costs of educating students. To calculate the cost of providing a quality education, the state will consider 27 evidence-based practices tied to student achievement.
Indiana lawmakers raise revenue for roads, pass bills to prevent abuse of opioids
After several years of legislative work and consideration, Indiana lawmakers approved a plan that began raising more money for the state’s roads and bridges this summer. By 2024, an additional $1.2 billion will be generated every year for the state’s transportation infrastructure.
A 10-cent increase on motor fuels took effect in July; as a result, Hoosier motorists are paying a state tax of 28 cents per gallon of gasoline. In future years, Indiana’s gas tax will be indexed to inflation, though annual increases will be limited to 1 cent per gallon.
Under HB 1002, a $15 transportation infrastructure improvement fee will be paid by car owners (that is on top of an existing motor-vehicle registration fee), and the drivers of electric and hybrid vehicles will pay additional annual fees — $150 and $50, respectively.
Also during its 2017 session, the Indiana General Assembly passed bills that aim to address the problem of opioid abuse: SB 226 limits the amount of opioids a doctor can prescribe to a new patient; HB 1438 allows local governments to set up syringe exchange programs, and HB 1540 strengthened penalties for robbing a pharmacy or pharmacist.

New Iowa laws target ‘nuisance’ suits, change collective bargaining system
Because of a slowdown in revenue growth, Iowa legislators had to make mid-year cuts to the state’s fiscal year 2017 budget, but they also passed several bills as part of what the Republican-controlled Legislature called its “pro-business agenda.”
Prior to this year, partisan control in Iowa had been split. As a result of the 2016 elections, however, Republicans took control of the state Senate while retaining their majority in the House. This change helped pave the way for the passage of a number of bills, including:
Early in session, too, the Iowa Legislature overhauled the rules for collective bargaining among public employees (HF 291). With the exception of police and firefighters, these employees will only be able to bargain over base wages; health insurance, personnel evaluations and other issues are now excluded. In addition, unions will no longer be able to collect dues directly from employee paychecks and will have to be recertified each time they represent workers in contract talks.
Two issues dominate 2017 session in Kansas: taxes and school funding
With the override of a gubernatorial veto, the Kansas Legislature reversed course on sweeping income taxes that Gov. Sam Brownback had championed in 2012. Lawmakers came into the session in January facing a budget shortfall of roughly $1 billion over the next two years (many blamed the tax changes from five years ago as a major contributor to this deficit). SB 30 returned the state to a three-bracket income tax structure.
he new rates will be higher than those in place since tax year 2013, but lower than the rates in place prior to the 2012 changes. According to The Topeka Capital-Journal, this year’s changes will generate an additional $1.2 billion in revenue over the next two years.
Also this year, the Legislature enacted a new school-finance system (SB 19) in response to a Kansas Supreme Court decision that struck down a block grant system for schools. That system had been put in place by lawmakers in 2015.
The new funding model provides a base per-pupil amount of money to each district and includes certain “weightings” for different categories of students to reflect the higher cost of educating them — for example, at-risk and special-education students. The state formula also recognizes various other costs for school districts, including transportation and changes in student enrollment.
In October, however, the Kansas Supreme Court struck down the new funding formula, saying in part that the Legislature had failed to show how its funding levels were “reasonably calculated” to ensure that all students receive an adequate education. Legislators must develop a new formula by April 30.
Michigan revamps teacher retirement system, OKs new business incentives
Michigan legislators continued to make changes to the state’s retirement systems for public employees, this year with passage of a bill that is expected to move newly hired teachers and other school employees into a 401(k)-style retirement plan.
Under SB 401, school employers will contribute an amount equal to 4 percent of each employee’s salary. On top of that amount, the state will contribute 3 percent, using dollars from its School Aid Fund. School employees will put 3 percent of their salaries toward their individual defined-contribution plan, which will be the “default option” for new hires.
A “hybrid” pension plan (part defined contribution, part defined benefit) will still be available to school workers, but under the new law, there is now a 50-50 cost share between the employee and employer. This hybrid plan will be closed if it is less than 85 percent funded for two consecutive years.\
Soon after passage of the teacher-retirement legislation, Michigan lawmakers approved a three-bill package (SB 242-244) designed to attract new businesses and encourage expansions by existing firms. This new incentive plan allows qualifying businesses to “capture” part or all of the income taxes generated by the new people they hire (if certain wage requirements are met). Businesses that get these incentives will be subject to enhanced reporting requirements.

Constitutional showdown, help for health consumers mark Minnesota’s year
A disagreement in Minnesota over tax and budget issues this spring led to a surprising action — a line-item veto by Gov. Mark Dayton of the $130 million appropriation for the House and Senate. In the wake of that move, the legislative and executive branches got involved in a months-long legal battle centering on constitutional questions about separation of powers.
In November, the state Supreme Court upheld the constitutionality of Gov. Dayton's line-item veto, the Star Tribune reports. Legislative leaders previosuly had requested that a county judge, who in July ruled that Dayton’s veto violated the state’s separation-of-powers clause, order the governor to restore funding for the House and Senate.
Earlier this year, Gov. Dayton and the Republican-led Legislature were able to find agreement on two health insurance-related measures.
The first bill signed into law in Minnesota (HF 1/SF 1) in 2017 provides relief to the 125,000 residents who purchase insurance in the individual market and who are not eligible for subsidies under the Affordable Care Act. They are getting a rebate of 25 percent, at a cost of $327 million to the state. Later in this year’s session, lawmakers agreed to establish a $542 million reinsurance program to stabilize Minnesota’s health insurance exchange (HF 5).
Budget shortfall dominates Nebraska session; licensing reforms also approved
Slumping state revenue collections and decisions over how to cut state spending dominated much of Nebraska’s legislative year. “We did something that was unprecedented; no one can ever remember when we have passed two budget bills in one legislative session,” Nebraska Gov. Pete Ricketts said in May as legislators adjourned for 2017.
After starting session having to make cuts to address a shortfall in the biennial budget that ended in June, lawmakers turned their attention to the new two-year budget cycle and the challenge of closing a projected deficit of about $900 million. Strategies included making across-the-board agency cuts and dipping into various cash funds and the state’s rainy-day fund.
Near the end of session, Ricketts line-item vetoed a total of $56.5 million in spending. According to Unicameral Update (a publication of the Nebraska Legislature), those vetoes will result in a 3 percent cut in the rates that providers get for Medicaid, child welfare, behavioral health and developmental disability services.
Proposals this year in Nebraska to change how agricultural property is taxed and to make future cuts in the income tax (tying them to future state revenue increases) did not advance. However, the Legislature did pass a series of bills that aim to improve the state’s regulation of occupational licensing — for example, making licensing optional for executive officers at state-chartered banks (LB 140), allowing credit unions to decide whether their loan officers should be licensed (LB 454), joining interstate compacts on medical and nurse licensing (LB 88), and eliminating requirements for motor vehicle salespeople (LB 346).
In difficult budget year, North Dakota approves major justice reforms
In the wake of dampened oil and food commodity prices, North Dakota lawmakers passed one of the leanest budgets in recent memory. The general-fund budget for the next two fiscal years authorizes $4.3 billion in spending, down nearly one-third from the biennial budget passed in 2015.
But the 2017 session in North Dakota also will be remembered for a series of reforms made to the state’s criminal justice system. The goals of HB 1041 and SB 2015 include long-term reductions in costs, the prison population and recidivism rates. Both measures received bipartisan support, and were preceded by months of interim committee work examining and crafting policy solutions.
The new law is expected to reduce the number of people incarcerated for lower-level offenses — as one example, barring aggravating factors, probation will be the presumptive sentence for people convicted of Class A misdemeanors and Class C felonies.
In a move intended to reduce recidivism, the state will no longer deny Temporary Assistance for Needy Family benefits to people convicted of felony drug offenses. (There had been a seven-year wait period from the time of conviction.) Legislators also increased access to behavioral health treatment for individuals in the state’s criminal justice system (both in prison and in the community). The state hopes to save $18.1 million in corrections costs by 2022 as a result of the reforms. [ Editor’s note: The CSG Justice Center provided technical assistance to North Dakota on its justice reinvestment efforts.]
Ohio takes series of steps to address health crisis: opioid addictions, deaths
In 2015, Ohio ranked second in the nation in the number of deaths caused by overdose.
Early this year, the Ohio Department of Health released data showing that the problem had worsened in 2016 — overdose deaths increased from 3,050 in 2015 to 4,050 last year (the equivalent of more than 11 deaths each day). Fentanyl and related drugs were involved in 58.2 percent of those deaths.
Not surprisingly, dealing with this public health crisis has been a legislative focus throughout 2017.
At the start of this year, with the passage of SB 319, lawmakers expanded access to naloxone (the drug that reverses the effects of opioids) in homeless shelters, halfway houses, schools and other places with high-risk individuals. The same measure also streamlined regulations for methadone providers and established new limits on high-volume prescription orders.
In August, Ohio Gov. John Kasich issued rules limiting the supply of opiates that can be prescribed for acute pain: seven days for adults and five days for minors. In addition, the state’s new budget contains several provisions along with $170 million in funding to address the opioid problem — for example, giving consumers information about how to access mental health and addiction services, providing more housing for recovering addicts, and arming local law enforcement with one.
Along with these legislative initiatives, Ohio’s Third Frontier Commission is investing $20 million in projects that focus on scientific breakthroughs to combat the opioid problem.
Voter-approved ethics law repealed in South Dakota, replaced with 9 bills
Voter approval in November 2016 of new campaign-finance and lobbying regulations set the stage for perhaps the most closely watched action of the South Dakota Legislature this year — its repeal of Initiated Measure 22.
Among other provisions, this ballot initiative created a program to publicly finance political campaigns, established a new ethics commission, instituted new lobbying restrictions on state officials once they leave office, increased disclosure and reporting requirements, and set new limits on campaign contributions.
By March, South Dakota lawmakers had not only repealed Initiated Measure 22, but replaced it with nine new bills that Gov. Dennis Daugaard said were “constitutional” and “workable.”
For example, SB 151 creates an ethics-complaint process for individuals to report wrongdoing by elected officials and other public employees, while SB 131 increases the amount of time that must pass before elected officials and certain state employees can register as lobbyists (two years instead of one). Other measures in the package of nine bills established a campaign finance task force, placed limits on lobbyist gifts and created a government accountability board.
Some of these bills reinstated parts of Initiated Measure 22. However, another proposal related to campaign finance and ethics may once again appear on South Dakota ballots in 2018.
This past year, too, lawmakers addressed two long-standing issues related to water policy. During a June special session, the Legislature passed a measure (HB 1001) to resolve a conflict over use of the state’s “non-meandered waters” (see page 9 for details). Another bill (SB 66) provides tax breaks for private landowners who help protect the state’s water resources from agricultural runoff.
Wisconsin lands Foxconn plant, holds special session to address opioids
In Wisconsin, one of the biggest stories of the year involved a Taiwanese manufacturer of LCD screens and its plans to build a new manufacturing facility. To help land the Foxconn plant, the Legislature met in special session this summer and passed a $3 billion incentive package, which includes income tax credits for capital investment and job creation as well as sales and use tax exemptions.
The new factory could employ up to 13,000 people in the southeastern Wisconsin town of Mount Pleasant.
Along with the Foxconn deal, two other legislative issues captured considerable attention: delay of a deal on the state budget and a special session to address the state’s problem of opioid addiction.
The budget delay was due to differences over transportation funding and taxes. In September, however, an agreement was reached and Gov. Scott Walker signed the state’s $76 billion budget.
Wisconsin’s special session on opioids resulted in the signing of 11 different bills. Under SB 1, for example, school employees will be protected from lawsuits if they administer drugs designed to treat opioid overdoses. Other new laws in Wisconsin authorize the opening of a charter high school for students struggling to overcome addiction (AB 6) and fund training for school personnel to identify and help students struggling with mental health, alcohol and drug issues (AB 11).
In November, AB 335 was signed into law. It adds fentanyl analogs to the “synthetic opiates” category of controlled substances. This change will make it easier for prosecutors to go after manufacturers.