Tax credits aim to create affordable housing in Illinois and Nebraska
Two state legislatures in the Midwest took actions this past year to encourage private investments in affordable housing.
In late 2016, Illinois Gov. Bruce Rauner signed a law (SB 2921) extending a tax-incentive program that has been in place since 2011. It provides a 50-cent tax credit for every dollar donated to a not-for-profit group that is working to create or preserve housing for low-income residents. Since its inception, Illinois officials say, the tax credit has leveraged more than $370 million in private investment and helped create or preserve over 18,000 affordable housing units.
Nebraska’s LB 884 was signed into law in April 2016. Under the newly established program, the owners of a qualified affordable-housing project can receive a nonrefundable state tax credit for up to six years. The state credit is equal to the amount that the project is eligible to receive in federal housing tax credits.
According to the Low Income Housing Coalition, an additional 7.2 million affordable rental units are needed to meet the needs of the nation’s “extremely low income” renter households. In the Midwest, these housing shortages are most pronounced in Illinois, Indiana, Michigan and Wisconsin, the coalition found.
North Dakota lawmakers will use interim study on incentives to improve oversight, policy
In 2015, lawmakers in North Dakota passed legislation (SB 2057) requiring the legislature to undertake an evaluation of 21 of the state’s tax incentive programs at least once every six years.
According to Pew’s Business Incentives Initiative, North Dakota is one of 21 states (four in the Midwest; see map at right) that have passed laws since 2012 requiring regular evaluations of tax incentive programs offered by the state. North Dakota’s evaluation assesses whether the program is achieving intended goals, such as job creation. It is conducted by a legislative committee, which then makes recommendations to legislative leadership. In assessing the effectiveness of incentives, lawmakers are also asked to compare the incentive with alternatives for achieving the same goals. More »
How do states in the Midwest go about collecting the debt owed to them?
One long-standing, widespread state strategy to collect debt has been the use of offset programs — ensuring that any pending payments to individuals or entities (tax refunds, for example) are used to cover their delinquent obligations. More »
Slow economic growth, weak global markets challenge Midwest states
The Midwest, long reliant on manufacturing and agriculture to power its economy, is facing a mix of global conditions that will likely mean continued slow growth for the foreseeable future, regional economist Rick Mattoon warned state legislators in July. Add in the increased volatility of personal income tax collections (a key source of state revenue), he said, and the time seems right for legislative caution on state budgets. More »
Kansas extends ‘angel investor’ tax credit; North Dakota mulls changes to its program
Lawmakers in two Midwestern states have given close scrutiny in recent months to a targeted tax credit that has become an increasingly popular policy tool for trying to help entrepreneurs and startup companies.
Known as “angel investor” tax credits, these incentives encourage investment in early-stage firms by mitigating some of the potential loss if a company fails. Most states in the Midwest have some form of this tax credit. More »
North Dakota leaders having to adjust to new economic realities
North Dakota, whose nation-leading revenue growth was the envy of other states before, during and after the Great Recession, has begun to feel the effects of changes in the global market for oil.
Budget leaders announced earlier this year a revenue shortfall of more than $1 billion in the state’s biennial general fund. In response, Gov. Jack Dalrymple ordered across-the-board agency cuts of 4.05 percent, The Forum of Fargo-Moorhead reports. The state will also close the shortfall by tapping into its budget stabilization fund and ending balance funds from the previous biennium.
North Dakota’s biggest drop in revenue has resulted from a decline in projected collections from sales and use taxes — down close to $750 million from previous estimates.
Because the price of crude oil has fallen, drilling activity in western North Dakota has declined. The state’s economy has also been hurt by a drop in prices for farm commodities, The Bismarck Tribune reports.
According to the Rockefeller Institute of Government, many other U.S. states are also expecting to have weaker growth in fiscal years 2016 and 2017 — though not nearly as dramatic as the changes in North Dakota.
Proposals would use state budget reserves to fund road projects
Governors in two Midwestern states are asking legislators to consider using a new source for funding transportation projects — state budget reserves.
In Nebraska, Gov. Pete Ricketts has proposed creation of a transportation infrastructure bank to accelerate the completion of highway repairs, fix county bridges, and fund projects that help new or expanding businesses. Under LB 960, up to $150 million in cash reserves would be transferred to the infrastructure bank. According to the American Association of State Highway and Transportation Officials, Nebraska is one of four Midwestern states (along with Iowa, North Dakota and South Dakota) that relies entirely on a “pay as you go” model for transportation funding (no bonding).
Indiana Gov. Mike Pence’s $1 billion plan for roads and bridges includes using about $241 million in budget reserves. But legislators are also considering competing proposals. HB 1001, approved by a House committee in January, would increase the state’s cigarette and gas taxes, The Indianapolis Star reports. (This plan would also direct “excess budget reserves” to transportation projects.)
Last year, four Midwestern states (Iowa, Michigan, Nebraska and South Dakota) raised their gas taxes.
Halfway into fiscal year, Illinois still operates without a budget
As the new year began in Illinois, there was still seemingly no resolution in sight to a months-old problem: The state had no budget. But even without one in place, many parts of Illinois government continued to operate, as the result of a mix of judicial, legislative and executive actions. More »
For budget year ahead, states expecting only moderate growth
by Tim Anderson ~ January 2016 ~ Stateline Midwest »
Two recent national studies on budget conditions show that state revenue and spending growth will slow a bit during the current fiscal year. More »
States moving ahead with tax-savings tool for developmentally disabled and their loved ones
by Tim Anderson ~ December 2015 ~ Stateline Midwest »
As the result of legislative action across the Midwest in 2015, individuals with developmental disabilities and their families may soon have a new tax-free savings tool.
According to the National Down Syndrome Society, nine states in this region have passed laws allowing for the establishment of ABLE accounts: Illinois, Iowa, Kansas, Michigan, Minnesota, Nebraska, North Dakota, Ohio and Wisconsin. ABLE stands for Achieving a Better Life Experience.
Late in 2014, federal lawmakers amended U.S. tax code to allow for tax-free savings accounts for individuals with disabilities. These ABLE programs, though, must be implemented at the state level (similar to 529 college savings plans).
Once in place, these accounts can cover qualified expenses such as education, housing and transportation. They will allow disabled individuals to accumulate assets without losing access to Medicaid or Social Security benefits.
To qualify, an Individual must have been diagnosed with a qualified disability prior to age 26. The annual contribution limit to an ABLE account is $14,000.
Three Midwestern states rank near the top in study of fiscal solvency
In a new national analysis of the fiscal health of each of the 50 U.S. states, Nebraska, North Dakota and South Dakota ranked among the top five.
The study was released in July by the Mercatus Center at George Mason University. It ranked states in part on their levels of short- and long-term debt as well as unfunded pensions and health care benefits. More »
Pension woes, pension successes seen in 11-state Midwest
Decisions of the past, as well as the varying laws and rules that govern how state retirement systems are funded, have put state pension systems in very different positions today. More »
First in the Midwest: Lottery revival in this region began in Michigan
With the adoption of Public Act 239 in the summer of 1972, lawmakers in Michigan sought to generate new revenues in support of the state’s public education system by embracing a mechanism with a storied past in American history — the public lottery.
In doing so, the Wolverine State became the first in the Midwest to establish a modern state lottery, following the lead of a handful of northeastern states and helping to usher in a new wave of interest in state-sanctioned gambling across the entire country. More »
Illinois tightening oversight of how state, federal grants are used
Illinois lawmakers are hailing a new set of safeguards that they say will improve how the state oversees grants and will protect against fraud and abuse.
The Grant Accountability and Transparency Act (HB 2747) was signed into law last year. The plan for implementing this act was announced in March.
With passage of HB 2747, state Sen. Pamela Althoff says, Illinois became the first state in the country with legislation requiring a comprehensive set of standards to enforce accountability and transparency throughout the grant process.
The new rules will apply to the administration of state and federal grants. They include conflict-of-interest disclosure requirements for grantees and stricter, real-time auditing of grant-funded programs. The legislation also brings all of the state’s procedures up to federal standards.
The Illinois budget includes 462 individual grant appropriations, ranging from $400 to $4.2 billion. In 2013, the legislature formed a commission to examine the state’s grant process. It found that of the $45 billion in estimated grant spending, 6 percent of it was being lost to fraud, waste and abuse.
Michigan adopts ‘nexus’ law to collect taxes from online sales
Michigan has become the latest state to try and do more to collect taxes from online sales, a move spurred in part by concerns that Main Street businesses have been put at a competitive disadvantage. According to mlive.com, SB 658 and SB 659 extend Michigan’s sales and use taxes to out-of-state companies with a “nexus” or physical presence in the state.
The Michigan Retailers Association pushed for the two bills, saying that online retailers such as Amazon have been getting a “6 percent price advantage” over brick-and-mortar sellers (the state’s sales and use tax rate is 6 percent). In this fiscal year alone, an estimated $444.5 million in taxes from online purchases and other remote sales went uncollected, a Michigan House Fiscal Agency analysis found. But the impact of SB 658 and SB 659 on state revenue will depend in part on the response of large online retailers. Will they, for example, remove their nexus and physical presence in Michigan by eliminating affiliate partners or shutting down warehouses?
According to the Institute for Local Self-Reliance, Amazon already collects sales taxes in about half of the U.S. states, including Indiana, Kansas, Minnesota, North Dakota and Wisconsin. In these states, Amazon has a physical presence (a warehouse or other facility) and/or the legislature has adopted an “affiliate nexus law.”
States differ on rules and practices used to forecast revenue
Every legislature and governor relies on a revenue forecast to build a state budget, but as a recent study shows, the process itself can vary considerably around the country.
Indiana and Iowa were among the U.S. states that employ all five of the Center on Budget and Policy Priorities’ “best practices” in revenue forecasting. Here is a list of those forecasting practices, along with the states in the Midwest that are using them, according to the center.
• Employ a consensus-based approach, one in which the governor and legislature work on forecasting together and agree on a single revenue estimate (Indiana, Iowa, Kansas, Michigan and Nebraska).
• Involve nongovernment experts in the forecasting process (every state in the Midwest except Michigan and Wisconsin).
• Have an open, transparent process and then provide detailed results online (Indiana, Iowa, Kansas, Michigan and South Dakota meet these two criteria).
• Revisit revenue forecasts during session to account for changing economic conditions (every state in the Midwest except Ohio and South Dakota).
Indiana expands access to information on state
A few months after it ranked first in a national study of state spending transparency, Indiana has taken another step to provide more information online to the public.
The Management and Performance Hub opened this summer. It includes details on the state budget, public retirement system and tax revenue. The site also lists and tracks indicators of performance for various state agencies.
Indiana received its No. 1 ranking in April. The U.S. Public Interest Research Group graded states based on two broad criteria: the amount of spending information made available online and ease of use in accessing that information. Across the country, the study concludes, states have improved online access to spending data. For example, six states now provide “checkbook-level” information on spending via their business-incentive programs. This level of detail allows the public to track the return on investment from each business that receives an incentive.
Indiana received an A- in the PIRG study, as did Iowa and Wisconsin (though with slightly lower overall scores). Here are the other grades for the Midwestern states: B+, Illinois and South Dakota; B, Michigan; B-, Nebraska; D+, Minnesota; D, North Dakota; and D-, Kansas and Ohio.
Question of the Month: How do states in the Midwest tax and regulate the sale of alcoholic beverages?
Most states in the region have a private license system for the sale of alcoholic beverages. Private enterprises, including liquor and grocery stores, apply for a license to sell alcohol. The licenses are granted at the discretion of the licensing authority in the state.
Three states in the region — Iowa, Michigan and Ohio — are called control states. None of these states operates retail liquor stores, but they do control the sale of distilled spirits at the wholesale
level. More »
Lawmakers hear how and why to better plan for revenue volatility
When the Great Recession began to hit states, they had a total of $59.9 billion in reserves. A year later, total budget gaps were nearly double that figure, $117.3 billion. “States found themselves woefully short in terms of the amount of savings they had to offset the budget shortfalls created by the crisis,” Robert Zahradnik of The Pew Charitable Trusts told lawmakers at the Midwestern Legislative Conference Annual Meeting. “A lot of that is because savings is not the highest priority when it comes to making state budgets.” More »
MLC session focuses on how states can spend tax dollars more wisely
State budgets are filled with funding for hundreds, if not thousands, of programs that cover everything from juvenile justice to early education.
But do those programs work? That’s the question state policymakers should be asking, said Gary VanLandingham, director of the Pew-MacArthur Results First Initiative. He was one of the featured speakers during a session on smart spending at the Midwestern Legislative Conference’s 2014 Annual Meeting in July. The Results First Initiative, he says, is a “Consumer Reports guide” to state budgeting. More »
Three states in Midwest
expanding their earned
income tax credits
Low-income workers in Ohio will get additional tax relief as the result of changes made in June to the state’s biennial budget. Following last year’s creation of an earned income tax credit, the legislature chose to expand it — from 5 percent of the federal credit to 10 percent.
Nearly every state in the Midwest now has some type of EITC in place. It generally is some percentage of the federal credit for lower-wage workers. Ohio is the region’s only state with a nonrefundable EITC: individuals don’t receive cash refunds if the credit exceeds their tax liability.
The refundable EITCs in other Midwestern states are as follows: 10 percent in Illinois and Nebraska; 9 percent in Indiana; and 17 percent in Kansas. In Iowa, the credit rose to 15 percent this tax year as the result of 2013 legislation.
Earlier this year, Minnesota lawmakers increased their state’s unique Working Family Tax Credit and expanded it to more families. According to the Center on Budget and Policy Priorities, Minnesota’s credit currently averages to about 33 percent of the federal EITC. The benefit varies from household to household based on factors such as income levels and household size. Wisconsin’s EITC is only extended to families with children. It is 4 percent of the federal credit for one child, 11 percent for two children, and 34 percent for three children.
Illinois lawmakers put freeze on tax breaks, scrutinize business climate
A series of high-profile requests by companies wanting special tax breaks from Illinois in order to stay in the state have raised questions about whether the state’s business incentive programs actually result in job and economic growth. So many questions have emerged, in fact, that lawmakers have agreed not to grant any tax breaks until hearings are held to evaluate the state’s tax environment and the effectiveness of business incentives. More »
Ohio plans on more borrowing, more aid for local infrastructure
A nearly 30-year-old initiative that provides state dollars for local infrastructure projects has bipartisan support inside the Ohio Capitol.
But for the state to continue issuing these infrastructure bonds, voters will have to give the OK when they go to the polls in May. Since first becoming part of the Ohio Constitution in 1987, the State Capital Improvement Program has been renewed twice, with 62 percent of voters approving it in 1995 and 54 percent in 2005.
The plan proposed by legislators (SJR 6) would boost funding over the next decade, with annual spending of $175 million in the first five years and $200 million in the last five. Current funding is set at $150 million per year, The Columbus Dispatch reports. Proceeds from the state-issued bonds help pay for roads, sewers and other local projects. Through the work of 19 different public-works districts, local leaders decide the projects they want funded.
According to the National Association of State Budget Officers, bonds accounted for an estimated 2.0 percent of total spending by Ohio in fiscal year 2013. Nationwide, they accounted for 2.9 percent of state expenditures. Bonds made up close to 3 percent of state expenditures in Illinois and Kansas (highest totals in the Midwest), NASBO says. Indiana, Nebraska and Wisconsin reported no bonds-related spending.
Do states in the Midwest require fiscal notes that estimate the impact of proposed legislation on local governments?
Through either statutory provisions or legislative rules, most states in the Midwest have policies to ensure that lawmakers understand the monetary impact of proposed bills on local governments. More »
Illinois restructures cost-of-living benefit to save on pension costs
Years of legislative efforts to shore up the worst-funded state pension system in the country culminated in early December with the passage of a bill in Illinois estimated to save $160 billion over the next 30 years.
According to the Chicago Tribune, the cost savings in SB 1 include raising the retirement age for younger workers and capping the salary level used to calculate benefits. But the biggest savings will come from reducing or delaying retirees’ cost-of-living increases. Retired workers have been receiving compounded cost-of-
living adjustments of 3 percent a year. Lawmakers crafted a new formula that scales back this benefit, though protections are provided for retirees with small pensions.
Other Midwestern states have also chosen to reduce cost-of-living adjustments in recent years. In 2010, South Dakota lawmakers eliminated a guaranteed yearly increase of 3.1 percent. Now, the adjustment can fluctuate between 2.1 percent and 3.1 percent, depending on inflationary changes and the retirement system’s funding status. That same year, Minnesota lawmakers reduced the yearly increase for retired public employees until their pension plans are 90 percent funded.
Those states’ changes withstood legal challenges; a court battle over Illinois’ SB 1 is expected.
Illinois’ Internet sales tax law struck down, adding to uncertainty
In a legal setback for states seeking to collect taxes from Internet sales, the Illinois Supreme Court in October struck down the legislature’s 2011 Main Street Fairness Act. According to USA Today, the decision marks the first time a state’s Internet sales tax law has been invalidated. Illinois’ measure is known as an “Amazon” law, named after the online retailer.
Twelve other states, including Kansas and Minnesota, have such laws, which establish in statute what is known as a “click-through nexus.” If potential customers are referred to an out-of-state seller via the website of an in-state small business or blogger (“click through”), a nexus is established. Internet retailers such as Amazon commonly employ these types of performance-marketing agreements.
The U.S. Supreme Court has limited a state’s ability to collect sales taxes from Internet retailers who do not have a physical presence in the state. However, a third party can create the “substantial nexus” that a state needs — hence the passage of these “click through” laws. Due in part to conflicting state court rulings (Illinois’ measure was overturned while New York’s was upheld), the U.S. Supreme Court may eventually weigh in on the constitutionality of these “Amazon” laws.
Midwest reliant on federal spending, but not as much as some
For better or worse, federal spending makes up a large portion of state economies — a point underscored by the recent federal government shutdown as well as recent data released by The Pew Charitable Trusts.
Just how reliant are states on federal expenditures? The answer can vary significantly from state to state and region to region, at least when using Pew’s measurement tool: total federal spending in each state relative to each state’s gross domestic product. Percentages range from a high of 35.8 percent in New Mexico to a low of 12.3 percent in Delaware, Pew found. More »
After Detroit's filing: A look at bankruptcy laws in the Midwest and state oversight, aid for local governments in financial distress
Detroit’s bankruptcy filing was a milestone in the 79-year history of Chapter 9. Municipal filings have been rare and, for the most part, inconsequential because they have involved small taxing bodies. Detroit’s case is much different and more consequential, leading to new questions for state legislators about their bankruptcy laws and their policies and programs for intervention when political subdivisions are in financial distress. More »
Do state laws in the Midwest allow local units of government to levy sales taxes?
by Tim Anderson ~ September 2013 ~ Question of the Month »
With the exceptions of Indiana and Michigan (which allow for local income taxes), all Midwestern states give local governments the statutory authority to impose a local-option sales tax — revenue collected for use by a city and/or county. More »
In many Midwest states, new
budget years began in July with big changes in tax policy in place
The start of new fiscal years across the Midwest is also marking a new era in tax policy for many states as the result of actions taken during the 2013 legislative sessions. More »
First in the Midwest: A century ago, Wisconsin adopted a new kind of revenue source — the income tax; its decision has had a lasting impact on state governments
When Wisconsinites went to the polls in 1908, they had tax reform on their minds. The existing state revenue system was perceived by many as being unfair, and reformers, including former Gov. Robert “Fighting Bob” La Follette, had been calling for change for years. More »
North Dakota joins states with performance-based model for funding higher education
Ever since he joined the legislature more than a decade ago, North Dakota Sen. Tim Flakoll says, lawmakers have been looking to change how the state funds its higher-education system. This year, he says, “We were finally able to crack the code.” The result: Two-year colleges, regional campuses and research universities will no longer receive dollars based on enrollment or historical funding levels, but instead on the credit hours earned by students. More »
Do states in the Midwest provide property tax exemptions or credits to disabled veterans?
Every Midwestern state offers property tax breaks to certain disabled veterans, though the scope and amount of these credits and exemptions vary. More »
Indiana gives its inheritance tax an early end, leaving 4 states in Midwest with inheritance or
by Tim Anderson ~ May 2013 ~ Stateline Midwest »
Indiana lawmakers have decided to hasten the demise of the state’s inheritance tax.
A year after passing legislation to phase out the tax over the next decade, the state General Assembly agreed at the end of its 2013 session to a full, immediate repeal. The tax, imposed on the beneficiaries of an estate, brought in about $150 million a year, the Evansville Courier & Press reports.
According to The Tax Foundation, Iowa and Nebraska are now the only two Midwestern states with an inheritance tax.
Iowa’s applies to the inheritors of an estate with a net value of more than $25,000; surviving spouses, parents and grandparents, and children and grandchildren are exempt from the tax. In Nebraska, the tax is levied at the county level. The first $40,000 of the inheritance is exempt for close relatives, who then must pay 1 percent of the market value. The exemption is lower and rates are higher for more-distant relatives and others.
Two other Midwestern states, Illinois and Minnesota, impose estate taxes, which is levied on the estate of a deceased individual. The first $4 million of the estate is exempt under Illinois law, and the first $1 million is not taxed in Minnesota. Ohio’s estate tax ended this year.
Illinois becomes early user of new financing model — social impact bonds
by Tim Anderson ~ May 2013 ~ Stateline Midwest »
Illinois has become only the second U.S. state to enter into a unique kind of bond market — one in which “social impact bonds” are bought and sold.
If it works, this financing model has the potential to be a win-win for taxpayers and private investors: The state can begin tackling a complex social problem without the need for up-front public dollars, and the investor gets money if the program launched via the social impact bonds is successful.
An article in the March/April edition of CSG’s Capitol Ideas magazine notes that New York City has been a national leader in pursuing the use of social impact bonds. Under a project financed by the firm Goldman Sachs, a behavioral-therapy program has been launched for young people in the city’s prison system. A reduction in recidivism rates would result in Goldman Sachs getting rewarded for the investment and the city reducing its incarceration costs.
Social impact bonds are also known as “pay for success contracts.” Targets are agreed upon by both sides to determine the program’s success, and the state and investor settle on the amount owed to the investor if the targets are reached.
A $275,000 grant from the Dunham Fund will be used to launch the bond program in Illinois, where ideas for the use of social impact bonds include increasing graduation rates, lowering hospital readmission rates and reducing recidivism rates.
Minnesota goes from paper to plastic with tax refunds on debit cards
Starting next year, Minnesota will begin issuing individual income-tax refunds via debit cards instead of paper checks. While most refunds are deposited directly into checking accounts, the state has still been printing 1 million paper checks each year, according to the Minneapolis Star Tribune.
Money on the new debit cards can be spent at stores or withdrawn at banks.
State officials say the transition to plastic will save about $400,000, reduce check fraud, and deliver refunds to taxpayers a month earlier (paper checks have had to pass through three state agencies). The change in state policy is also expected to help individuals who don’t use banks and, as a result, have had to incur check-cashing fees.
Minnesota is the first state in the Midwest to move from paper to plastic, according to the Federation of Tax Administrators. Georgia was the first state to issue debit cards, in 2011, and five other states followed suit last year. The FTA reports that states have seen savings when issuing banks take on the cost of printing and mailing the cards.
Critics point out, however, that debit cards can include fees. And some people, such as the elderly, are not accustomed to the technology.
Video gaming spreads in Illinois, yielding revenue for state
The start of video gaming in Illinois netted the state $1 million in November, and those figures could climb much higher in the months and years ahead.
Under a law passed in 2009, up to five video gaming terminals are allowed at truck stops and at Illinois businesses with licenses to sell alcohol onsite, the Quad-Cities Times reports. The rollout of video poker, blackjack and other games began in October. In November, wagering activity on the more than 1,400 terminals in the state totaled $50.2 million.
Income from the video gaming terminals is taxed at a rate of 30 percent — with that revenue divided between the state (which gets most of it) and the municipality where the video gaming activity takes place. According to the Chicago Tribune, state officials estimate that 75,000 machines will evenutally be up and running, generating $375 million in annual revenue. That money will be used to fund construction projects.
In fiscal year 2009, gaming revenue accounted for 3.1 percent of Illinois’ own-source revenue, according to the Rockefeller Institute of Government. The national state average that year was 2.4 percent. In the Midwest, it ranged from a high of 6.2 percent (South Dakota) to a low of 0.2 percent (North Dakota).
Indiana law, surplus trigger automatic refund for taxpayers
When the state closed its books on the 2012 fiscal year, Indiana had the largest budget reserves in its history.
And thanks to a law enacted one year earlier, two things happened automatically: Half of the $721 million budget surplus went to shore up state pension funds, and the other half will be delivered to residents when they pay their 2012 income taxes. The refund, allocated on a per capita basis, will result in a $111 income tax credit for single filers and $222 for joint filers, The Indianapolis Star reports.
Under a state law passed in 2011, the extra payments to the pension system and the tax refund occur for state reserves exceeding 10 percent of spending. (Under legislation passed this year, HB 1376, the automatic trigger in future years will be reserves of 12.5 percent.)
Indiana’s new approach is an alternative to the tax-and-expenditure limitations typically instituted by states — restricting yearly revenue increases or spending growth. Wisconsin, for example, has a cap on spending tied to personal income growth in the state. Michigan limits state revenues to a proportion of total personal income (9.49 percent), and in Ohio, year-over-year spending can increase by no more than 3.5 percent.
Illinois OKs hike in license fee to bolster state parks funding
Concerned about the condition of the state’s parks, Illinois lawmakers voted in November to boost funding for the system through a $2 increase in license-plate fees.
Over the past 10 years, the Chicago Tribune reports, staffing and budget levels for the Illinois Department of Natural Resources have been cut by more than half.
Along with the additional dollars that will come from the higher license-plate fee, the DNR is exploring other revenue options as well, including charging out-of-state visitors to the parks. Illinois is one of three Midwestern states (along with Iowa and Ohio) that don’t charge park entrance fees, according to a 2012 National Association of State Park Directors survey.
The same survey found that every state uses a unique mix of revenue sources to fund its parks. Michigan, for example, is the only state in this region where general fund dollars are not used. It instead relies largely on park-based revenue, including a $10 “recreation passport” that motorists can purchase when renewing their vehicle licenses. The passport allows entry into all Michigan state parks. In Minnesota, a significant portion of the state parks budget comes from lottery sales. In addition, some proceeds from a sales tax hike approved by Minnesotans in 2008 go to state parks.
Do states truly balance their budgets? New study says most in the Midwest do not
All 11 Midwestern states have laws on the books to keep their budgets balanced from year to year.
But very few of them are living up to the intent of these constitutional or statutory requirements, says Sheila A. Weinberg, founder and CEO of the Institute for Truth in Accounting, which earlier this year published its second edition of “The Financial State of the States.” More »
In Indiana, lottery sales and marketing put in hands of private firm
Indiana lottery officials announced in October that they were handing over day-to-day operations of sales and marketing to a private contractor.
This decision to outsource services is designed to boost state revenue from the Hoosier Lottery, with officials projecting an annual increase of $100 million during the first five years of the integrated services agreement.
Gov. Mitch Daniels noted in a press release following the decision that his state’s lottery revenues “lag far behind most states.” GTECH, the company handling sales and marketing for Indiana, will receive performance incentives. According to The Wall Street Journal, Hoosier Lottery officials expect revenue to increase when they begin to sell tickets at grocery stores, big-box stores and discount stores. Illinois was the first state to hand over management of its state lottery.
The Chicago Tribune reported in July that in the first year of this new arrangement, the lottery turned a record profit. Net revenue, though, was still less than promised.
According to the most recent U.S. Census Bureau data, ticket sales from state-administered lotteries in the Midwest range from $2.3 billion in Ohio to $23 million in North Dakota.
States look to weed out use of automated “sales-tax zappers”
Concerned about the potential of “sales-tax zappers” to sap state and local governments of revenue, lawmakers are exploring new measures to stop this method of tax evasion. Earlier this year, the Michigan Legislature approved two bills (SB 768 and SB 769) that make it a felony to sell or use devices that skim cash sales. These automated sales-tax devices are installed in electronic cash registers or point-of-sales systems. Zapper software gives retailers the ability to hide the amount of cash transactions.
The Michigan bills were passed following a federal investigation into a chain of Detroit-area restaurants, which allegedly “zapped” more than $20 million in sales over a four-year period.
Sales-tax zappers have also gotten the attention of Indiana lawmakers, who explored various policy options in September. One idea is to join Michigan and seven other states that now explicitly ban the devices. (The Council of State Governments’ latest docket of draft bills under its Suggested State Legislation program includes a Utah measure banning automated sales-suppression devices.)
New gaming in town: With gambling already expanding, technology brings more games, and policy questions, to Midwest states
Several states in the Midwest have expanded gambling in recent years, and policymakers now face new questions as the result of technological advances and legal decisions that pave the way for online lottery sales, more electronic gaming, and online gaming such as Internet poker. More »
PDF of timeline of gambling expansion in Midwest »
Illinois creates fund for sexual assault services with ‘strip club tax’
Over the past five years, state funding for Illinois’ 32 rape crisis centers has declined by 28 percent.
State lawmakers took actions in 2012 to reverse that trend, by creating a new revenue source that will be dedicated to funding these centers.
The “skin tax,” as it is sometimes called, imposes a $3 per patron surcharge on strip clubs that serve alcohol or a flat fee based on a club’s taxable receipts.
Under HB 1645, signed into law in August, money from the tax will go toward a new Sexual Assault Services and Prevention Fund. Dedicating revenue from the tax to rape crisis centers is appropriate, proponents of the bill say, because alcohol consumption at strip clubs has been linked to sexual assault, sexual harassment and prostitution.
Lt. Gov. Sheila Simon noted in a March press release that Illinois is following the lead of Texas, which passed a similar law in 2007. The Texas measure has since withstood a legal challenge that it was an unconstitutional violation of free speech.
According to the Chicago Sun-Times, Illinois’ new tax is expected to raise up to $1 million a year.
Big changes coming to teacher retirement system in Michigan
Under a restructuring of the state’s retirement system for public school employees, Michigan teachers will be paying more for their benefits. SB 1040 was signed into law in August. Proponents of the measure hailed it as a necessary cost-saving move, noting that the rate that school districts pay toward employee retirement benefits has doubled since 2002. Opponents said the measure takes away an earned benefit and will dissuade young people from entering the teaching profession.
According to the Detroit Free Press, SB 1040 will require school employees to either make larger pension contributions or receive reduced pensions. It also calls for a cost-benefit analysis of moving new hires into a 401(k)-style defined-contribution plan.
Michigan is changing the retiree health care system for teachers as well. Most current retirees will have to pay more (20 percent of their premiums rather than 10 percent), and retiree health care was eliminated for new hires. Instead, employees will have to save for the costs of health care through a 401(k)-style plan. Over the past decade, Indiana and Minnesota are among the other states that have set up tax-free accounts for public employees to save for post-retirement health care.
After lost decade for pension systems, states enact series of reforms aimed at
In 2000, more than half of the U.S. states were fully funding their state pension systems. By 2010, Wisconsin stood alone as the only state that had set aside enough money to meet 100 percent of its long-term pension liabilities. Perhaps most concerning of all, funding levels in 2010 were below 80 percent in 34 states, including Illinois, Indiana, Kansas, Michigan, North Dakota and Ohio. That 80 percent threshold is used as a barometer to gauge the health of a state’s pension system. More »
Minnesota becomes latest state to OK public financing of
new NFL stadium
After many years of debate, the Minnesota Legislature has approved a plan to build a new stadium for the Vikings, the state’s National Football League team. More »
Idea of cash balance plans gains traction as states consider fixes to retirement systems
Since 2003, newly hired workers for the state of Nebraska have been enrolled in a “hybrid” retirement plan — part defined contribution, part defined benefit.
It is known as a cash balance plan, and a decade later, some states in the Midwest were close to following in Nebraska’s footsteps.
Under legislation passed this year in Kansas (HB 2333), a cash balance plan will be used for new hires beginning in 2015. Upon their retirement, employees enrolled in the plan will be eligible to receive a lump-sum payment or annuity, with the amount in the final account balance based on employee contributions as well as the payment amount pledged by the employer. The employer also guarantees a certain return on investments; in Kansas, lawmakers settled on guaranteeing an annual return of 5.25 percent, the Lawrence Journal-World reports. In Nebraska, the guarantee is set at either 5 percent or a rate based on the yield of U.S. treasury notes, whichever is greater.
A cash balance plan is also part of pension legislation (SB 1673) in Illinois. According to The Springfield State Journal Register, the guaranteed rate of return was expected to range from 4 percent to 10 percent, depending on the value of U.S. treasuries. The bill had not passed as of May.
Tax season a time for giving through voluntary checkoffs
Anderson ~ February 2012 ~ Stateline Midwest »
The number of voluntary tax checkoff programs in the Midwest has close to doubled over the past decade, and at least one more may soon be added to the list.
Legislation introduced in Kansas this year (HB 2454) would allow taxpayers to check off a donation to the Kansas Arts Commission.
According to The Wichita Eagle, the measure is an attempt to raise private funding for the commission, which had its funding cut out of last year’s state budget. If the legislation is adopted, Kansas would become the region’s first state to create a tax checkoff program for the arts.
Starting this year, Ohio becomes the first state in the region to raise money for its historical society through a tax checkoff program. States have most commonly used tax checkoffs to raise money for wildlife conservation. Every Midwestern state but Michigan will still offer this checkoff option in 2012, and in Indiana and Minnesota, wildlife conservation remains the sole option. In contrast, taxpayers in Wisconsin have 10 different choices (highest total in the Midwest) — from helping with Lambeau Field renovations to assisting military veterans and their families. The latter is one of the more common types of state tax checkoff programs, as are cancer research and child abuse prevention.
Illinois to be among first states to sell online lottery tickets
Anderson ~ January 2012 ~ Stateline Midwest »
Illinois will be one of the first states to take advantage of a recent U.S. Justice Department opinion that could mark the start of a new era in how states run their lotteries.
The Peoria Journal Star reports that an online version of the
Illinois Lottery will be launched this spring, with state residents 18 and older eligible to play. In 2009, lawmakers approved legislation allowing lottery tickets to be sold via the Internet.
Illinois and New York were the two states that sought clarification from the federal government on the legality of online lottery operations under the Wire Act. They likely won’t be alone in exploring new gambling-related policy options and reven-reue sources in 2012 and beyond.
According to the Minneapolis Star Tribune, Minnesota and North Dakota are among the states that already offer online lottery ticket subscriptions.
The issue of online gambling has also attracted the attention of Iowa legislators, who passed a bill in 2011 (SF 526) requiring a study of state-regulated, intrastate Internet poker. A final report of the Iowa Racing and Gaming Commission was issued in December. It explored the societal impact of legalized, state-regulated Internet poker as well as the boost it would give to state revenues — estimated to be between $3 million and $13 million a year.
A unique tax landscape: Most states rely heavily on income tax, but South Dakota hasn’t had one in 70 years
by Mike McCabe ~ November 2011 ~ Stateline Midwest
South Dakota, like most other states, adopted a statewide tax on personal income early in the last century — only to abandon it during World War II, when sales tax revenues soared nationwide. More »
Michigan ‘deduction’ for retiree health care rejected by court
A Michigan law that reduced the pay of current state workers to offset the state’s retiree health care costs has been ruled unconstitutional.
If the decision stands, lawmakers will have to find a way of making up for the annual loss of $75 million — the amount estimated to come from the 3 percent paycheck “deduction,” the Detroit Free Press reports. (A similar measure affecting teachers is also being challenged.)
The Michigan Appeals Court ruled that the Legislature had wrongly encroached on the constitutional authority of the state’s Civil Service Commission. Only a two-thirds vote of the Legislature can override a wage increase, as set by the commission via the collective bargaining agreement reached with state employees. The 3 percent deduction, or “contribution,” was passed by a simple legislative majority and amounted to a pay cut, the judges ruled, noting the money would go toward paying the health care costs of retired, rather than current, workers.
Three Midwestern states (Michigan, along with Illinois and Ohio) cover most or all of the health care premiums of retired state workers. The other eight states in the region require workers to take on much of this cost burden, though retirees in states such as Wisconsin and Iowa can “cash in” their unused sick leave to pay for their premiums.
Nebraska plans to re-route part of sales tax for highways
~ Stateline Midwest
Nebraska will soon add another dedicated revenue source for maintaining, repairing and building roads — the sales tax.
Under LB 84, signed into law in May, a 0.25% sales tax for roads will take effect in 2013. According to the Unicameral Update (a publication of the Nebraska Legislature), the state’s overall sales tax rate of 5.5 percent will remain unchanged, but instead of all proceeds going to the general fund, some will be diverted to two highway funds.
Last year, Kansas legislators increased the sales tax rate (from 5.3 percent to 6.3 percent) and dedicated more money from this revenue source to transportation. Traditionally, states have relied primarily on two revenue sources for financing highway projects: federal funds (nationally, they make up 25.5 percent of the total) and user fees, such as gas taxes, tolls and motor vehicle taxes. In 2009, user fees accounted for a majority of own-source state revenue for highways in every Midwestern state — from a high of 96.8 percent in North Dakota to a low of 54.5 percent in Kansas, according to Federal Highway Administration statistics.
Seven Midwestern states used bond proceeds as well, the federal data show; Iowa, Nebraska, North Dakota and South Dakota were among the 15 U.S. states that did not.
Michigan tax overhaul cuts business taxes, eliminates many credits
~ Stateline Midwest
Michigan lawmakers have adopted a new tax structure that proponents believe will encourage business growth but opponents say will unduly burden the elderly and low-income residents of the state.
The state is doing away with the Michigan Business Tax, which included a tax on business transactions and a corporate income tax rate of nearly 5 percent. The state also levied a 22 percent surcharge on businesses. Instead, a 6 percent income tax will be levied only on the state’s roughly 40,000 corporations.
The remaining 95,000 Michigan businesses will not have to file corporate tax returns (they will still pay taxes on profits under the individual income-tax code). At the same time, many corporate tax credits, such as one for filmmakers, are being eliminated.
Overall, the new tax structure will provide a $1.7 billion tax cut for businesses, the Detroit Free Press reports, but individual income taxes will increase by about $1.5 billion statewide. Pension income will now be taxed, and many individual tax credits and exemptions will be eliminated. In addition, the state’s Earned Income Tax Credit for low-income workers will be reduced.
Most Midwestern states levy a corporate income tax. The two exceptions are Ohio, which has a Commercial Activity Tax, and South Dakota.
State-local relations get tested in new fiscal era: More reductions in state aid and calls for efficiency
by Kate Tormey ~ May 2011 ~ Stateline Midwest
Even as the U.S. economy shows signs of a turn-around, local governments across the Midwest and nation are preparing for what Jacqueline Byers calls the “double whammy” set to cut into their primary source of revenue.
Property taxes, which account for 72 percent of local tax collections, have been affected for a few years now by the mortgage crisis that began in 2007.
But Byers says the revenue outlook will only worsen as communities face a new wave of foreclosures (due in part to high unemployment rates) and as decreased property values begin to be reflected on local property tax rolls. More »
Big split over unions: Debate over collective
bargaining puts eyes of the world on Midwest, and fight over future of state
laws has just begun
From the moment a restructuring of Wisconsin’s collective bargaining system
was introduced, it became clear to legislators that state politics and
policymaking — and their own jobs — were going to change as well. More »
Another type of budget debate: Annual vs. biennial budget cycles — Which is most advantageous to legislatures?
State leaders are always looking at ways to save money, especially when budgets are tight.
The most obvious way to save money is through budget and program cuts. But some states are also exploring options to refine their budget processes in hopes of spurring more-effective long-term
planning. More »
Which states require supermajority votes in the legislature to pass tax increases?
As most states continue to struggle to balance their budgets, state lawmakers will be weighing tough decisions regarding spending cuts and tax increases. In a number of states, increasing taxes takes more than gaining the simple majority vote required to pass most legislative proposals. More »
South Dakota searches for new solutions to sales tax collection problem
~ Stateline Midwest
No state in the Midwest relies more heavily on the sales tax than South Dakota.
And in a state where more than half of total tax collections come from this revenue source, it comes as no surprise that lawmakers are trying to address a growing collection problem: the inability to bring in sales and use taxes from purchases made over the Internet. According to the Pierre Capital Journal, the state is now losing an estimated $35 million due to remote sales.
How can the state try to capture more of this lost revenue? Two different approaches will be tried under bills that received overwhelming legislative approval. SB 146 requires online retailers to post on their website a reminder to customers that a use tax is due on Internet purchases. SB 147 more broadly defines a “business presence” in South Dakota. Retailers that maintain “a distribution house, sales house, warehouse, or similar place of business” would be included in the new definition — and, as a result, be required to collect the state sales tax.
South Dakota is one of nine Midwestern states (all but Illinois and Ohio) that are full members of the Streamlined Sales and Use Tax Agreement — an attempt by states to simplify sales-tax collection and to encourage remote sellers to collect taxes. Only a change in federal law, however, will require remote sellers to do so.