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Fiscal Affairs



Question: What impact will the new federal cap on state and local tax deductions have on taxpayers in the Midwest?

by Ilene Grossman ~ February 2019 ~ Question of the Month »
The U.S. Tax Cuts and Jobs Act, which became law in December 2017, included a $10,000 cap on the deductibility of state and local taxes from federal taxes, the so-called “SALT deduction.” Prior to the 2018 tax year, there was no cap on the deductibility of state and local income, property and other taxes. Nationwide, the SALT deduction is used by around 30 percent of all taxpayers — a greater usage rate than the mortgage interest deduction (21 percent) or the charitable-giving deduction (15 percent), according to the Government Finance Officers Association. More »



State budgets in the Midwest —  from trends in revenue growth and state spending, to rankings on measures of fiscal health

by Tim Anderson ~ January 2019 ~ Stateline Midwest »
State fiscal conditions were the focus of several recent national studies — here are some of the key findings for the Midwest. More »


South Dakota takes final steps to collect taxes from online sales

by Tim Anderson ~ October 2018 ~ Stateline Midwest »
In September, South Dakota lawmakers met in special session to finalize a policy change that Gov. Dennis Daugaard said was “50 years in the making.” He signed two bills that allow the state to act on its new legal authority to collect taxes from remote and online sales.
Under SB 1, which takes effect on Nov. 1, South Dakota will enforce sales tax collections from online retailers who have at least $100,000 in sales or 200 transactions a year. A second bill approved in the recent special session
(SB 2) requires online marketplace providers such as Amazon to attain a sales tax license and remit sales taxes on behalf of sellers that use their services.
Earlier this year, in its South Dakota v. Wayfair decision, the U.S. Supreme Court overturned previous rulings (Quill Corp. v. North Dakota in 1992 and Hess v. Illinois in 1967) that had barred states from requiring a vendor with no physical presence within their border to collect sales taxes. According to the Tax Foundation, Illinois, Indiana, Michigan, Minnesota, North Dakota and Wisconsin were among the states whose new laws on online sales taxes took effect Oct. 1. Other Midwestern states will begin collections in a few months.


Led by South Dakota, states worked together for new sales-tax authority

by Tim Anderson ~ August 2018 ~ Stateline Midwest »
For the fiscal year that began in July, Illinois assumed a revenue boost that it and most states have long been waiting to get on the books — tax collections from remote sales. The state’s assumption is $150 million, based on the nine months that those collections can begin after Illinois’ “economic nexus” law takes effect this fall. (Spread over the course of a full fiscal year, the estimate rises to $200 million.) In the years ahead, this revenue source is expected to be part of budget estimates and collections in every Midwestern state, thanks to the U.S. Supreme Court’s June 21 decision in South Dakota v. Wayfair (unlike Illinois, most states did not include an increase from online sales tax collections in their FY 2019 estimates). More »


With bipartisan bill, Minnesota shores up its public pension system

by Tim Anderson ~ June/July 2018 ~ Stateline Midwest »
Minnesota has become the latest state in the Midwest to enact major legislative reforms designed to improve the long-term health of its public retirement system. SF 2620 received unanimous support in the state House and
Senate. More »


Do any states in the Midwest have a constitutional ban on an income tax, or require super-majorities to raise any state taxes?

by Jon Davis ~ June/July 2018 ~ Question of the Month »
To the first question, no. In fact, quite the opposite: 10 of 11 Midwestern states have income taxes and the other, South Dakota, allows for the possibility in two different parts of its Constitution. However, since the early 1940s, South Dakota has had no individual income tax. Outside the Midwest, Alaska, Florida, Nevada, Texas, Washington and Wyoming also don’t have one. (New Hampshire and Tennessee don’t tax earned income, but they do tax investment interest and dividends at 5 percent and 6 percent, respectively.) More »


Illinois starts program to help private-sector workers save for retirement

by Tim Anderson ~ June/July 2018 ~ Stateline Midwest »
Three years ago, Illinois became the nation’s first U.S. state with a law to help private-sector workers save for retirement via a state-facilitated savings plan. This summer, the treasurer’s office began its rollout of this potentially groundbreaking initiative, known as Secure Choice. More »


From Quill to Wayfair, Midwest’s states at center of legal questions over collection of taxes from remote sales

by Tim Anderson ~ May 2018 ~ Stateline Midwest »
In 2017, because they lacked the authority to require the collection of sales taxes on remote sales, states and local governments lost up to $13 billion. With one Midwestern state leading the way, this legal and fiscal landscape could change soon, depending on how the U.S. Supreme Court rules in South Dakota v. Wayfair. For now, a 1992 decision, Quill Corp. v. North Dakota, is the law of the land. It says that, minus congressional action, a state can only require businesses with a substantial presence, or nexus, to collect and remit the sales tax. That ruling has affected not only state tax bases, but the competitiveness of Main Street businesses as well — particularly with the rise of electronic commerce. More »


Farm-income losses hurting Midwestern states’ budgets; no turnaround for sector in sight

by Carolyn Orr ~ March 2018 ~ Stateline Midwest »
The U.S. Department of Commerce reported that real gross domestic product increased 2.3 percent nationally between 2016 and 2017, but agriculture subtracted from overall economic growth in every state in the Midwest — most notably Iowa, Nebraska and South Dakota. “It’s a big deal in Nebraska when our farmers are hurting,” says Tony Fulton, the state’s tax commissioner and a former state legislator. Last year, Nebraska had to close a nearly $1 billion shortfall for the biennium that began July 1, and lagging tax collections opened an additional $200 million
shortfall. More »


Wisconsin does away with state’s portion of the property tax

by Tim Anderson ~ January 2018 ~ Stateline Midwest »
Wisconsin lawmakers have eliminated a decades-old state property tax that had been used to protect public and private forestlands. This change will result in savings of about $27 for the average homeowner and an annual loss in state revenue of approximately $90 million, the Milwaukee Journal Sentinel reports. The state will instead use general-fund dollars to pay for programs related to fire prevention, pest control, land acquisition, recreation and overall forest health.
According to the Federation of Tax Administrators, in 2016, the property tax accounted for 1.0 percent of Wisconsin’s total state tax collections. It makes up less than 1 percent in most other Midwestern states (some have no statewide property tax at all). The lone exceptions are Kansas (8.2 percent of total state tax collections in 2016), Michigan (7.4 percent) and Minnesota (3.4 percent).
In Kansas, a statewide property tax funds building projects at public universities as well as state institutions for the disabled and mentally ill. Money from the Michigan State Education Tax goes to K-12 schools. Minnesota’s statewide property tax — established in 2001 and levied on businesses as well as resorts and cabins —goes to the state general fund.


Michigan establishes new rules for local retirement systems

by Tim Anderson ~ Janaury 2018 ~ Stateline Midwest »

Michigan will be keeping a closer eye on the long-term fiscal health of its local governments under legislation signed into law in late 2017. SB 686 aims to address concerns about unfunded liabilities in pension and retiree health care systems.
The state’s local governments will be required to conduct independent actuarial audits as well as regularly report on how well their retirement systems are being funded. With the new law, legislators also established criteria for when “corrective action” must be taken — for example, if accrued liability in the retirement system is less than 60 percent funded and more than 12 percent of the local government’s general-fund revenue is going to the system. A newly created Municipal Stability Board (housed within the Michigan Department of Treasury) must approve these corrective action plans.
Elsewhere in the Midwest, the Ohio auditor has begun issuing a “Financial Health Indicators” study, which calls attention to cities and counties showing signs of fiscal distress. According to The Pew Charitable Trusts, Ohio is one of four U.S. states that has recently begun conducting this kind of study and then publishing the results in a report or on a website.


Do any Midwestern states provide for historic-preservation tax credits?

by Laura Kliewer ~ January 2018 ~ Question of the Month »
According to the National Trust for Historic Preservation, 35 states currently offer tax credits for historic preservation (HTCs). Fifteen states, including Michigan and South Dakota in the Midwest, offer no tax credits, while Illinois allows their use in a limited number of cities. More »


Minnesota calls timeout on tax reciprocity with Wisconsin

by Jon Davis ~ August 2017 ~ Stateline Midwest »
Minnesota residents who work in Wisconsin will get an income tax credit from their home state after officials in August called off talks to restore a tax reciprocity agreement. Under the states’ previous agreement, which then-Minnesota Gov. Tim Pawlenty canceled in 2009, each state’s residents who worked in the other state filed state income taxes in their home state only. Wisconsin made annual payments to Minnesota 12 months after the close of each tax year, based on a benchmark study in 1995.
A new study completed in 2013, based on tax returns filed in both states in 2011, showed that Wisconsin would owe Minnesota about $69 million per year. According to the Winona (Minn.) Daily News, the last round of negotiations, in 2015,broke down over Minnesota’s demand for a $6 million payment to recoup what it projected as lost revenue in a new deal.
According to Wisconsin Public Radio, about 20,000 Minnesotans work in Wisconsin while about 50,000 Wisconsinites work in Minnesota. Those Minnesotans will now get an income tax reciprocity credit to make up for Wisconsin’s higher income taxes, a move Minnesota officials estimate will cost the general fund $8 million per year. 


Illinois has budget after record-setting impasse; deal includes tax hike

by Tim Anderson ~ August 2017 ~ Stateline Midwest »
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 legislation 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.
Illinois is one of three states in the Midwest with a flat individual income tax. The other two are Indiana and Michigan, which have rates of 3.23 percent and 4.25 percent, respectively, according to the Tax Foundation. South Dakota has no income tax at all. The other seven Midwestern states have graduated-rate income tax structures. Minnesota has the highest marginal rate, 9.85 percent, which applies to incomes of over $156,910 (single filers) or $209,210 (heads of households).
In addition to the recent actions in Illinois, Kansas lawmakers enacted increases to the state's income tax rates this year as part of a budget fix that also eliminates tax exemptions for businesses that date back to 2012. Those changes required the Legislature to override a veto by Gov. Sam Brownback.


State tax collections lagging behind overall growth in economy

by Tim Anderson ~ August 2017 ~ Stateline Midwest »
Eight years have now passed since the Great Recession rocked state finances, and since that time, state policymakers have had to settle for a modest recovery and still deal with a difficult fiscal environment.
In a July presentation to state legislators, John Hicks, executive director of the National Association of State Budget Officers, detailed just how different — and more challenging — this period has been compared to other post-recession eras. More »


Minnesota tax credit provides relief to farmers, greater chance for rural schools to build

by Carolyn Orr ~ May 2017 ~ Stateline Midwest »
In Minnesota, the chances of a local school district getting the money it wants to build a new facility or improve existing buildings can depend greatly on where it is located: In metropolitan areas, most school construction projects get approved by local voters; in rural districts, these proposed tax increases tend to fail. More »


Two Midwest states join South Dakota with ‘Kill Quill’ laws; goal is to collect remote sales taxes

by Tim Anderson ~ May 2017 ~ Stateline Midwest »
A quarter-century has passed since a U.S. Supreme Court decision limited the ability of states to collect taxes from the remote sales of out-of-state retailers. Legislators wanting to secure that taxing authority — which they say is critical to maintaining state revenue bases and helping brick-and-mortar businesses — believe a reversal of Quill Corp. v. North Dakota may finally be on the horizon. More »



Indiana looks to put new budget requirements in state Constitution

by Tim Anderson ~ April 2017 ~ Stateline Midwest »
Indiana voters will decide next year whether their Constitution should be changed to require balanced budgets and actuarially funded public pensions. The proposed state constitutional amendment, SJR 7, received final approval by lawmakers in April. (In Indiana, all constitutional amendments must first receive approval by the General Assembly.) The Indiana Constitution already restricts the General Assembly from assuming debt in most circumstances. SJR 7 adds language to prohibit state spending from exceeding state revenue, unless two-thirds of the legislature agrees that emergency spending is necessary.
According to the National Association of State Budget Officers, most states in the Midwest constitutionally require their legislatures to pass balanced budgets. The lone exceptions are Iowa and Nebraska, where the requirements are in state statute, and Indiana.
Less common is constitutional language on the funding of public pensions. States in the Midwest instead tend to have such requirements in statute, the National Association of State Retirement Administrators notes in a 2013
. The change in Indiana would require the state’s biennial budget to “actuarially fund the accrued liability of all [the state’s] pension funds.”


Earned Income Tax Credit enjoys bipartisan support, and may soon get a boost in some Midwest states

by Laura Kliewer ~ April 2017 ~ Stateline Midwest »
Since its inception in the 1970s, the federal Earned Income Tax Credit (EITC) has enjoyed wide bipartisan support. Designed to encourage and reward work, a low-wage worker’s EITC grows with each additional dollar of earnings until his or her wages reach a maximum value — an incentive for people to leave welfare for work and for low-wage employees to increase their work hours. More »


Question of the Month: Which Midwestern states apply a sales tax to streaming audio and video services?

by Katelyn Tye ~ April 2017 ~ Question of the Month »
At least 20 states, including five in the Midwest, have enacted taxes on the “streaming” of media, such as music, movies or TV shows. Known colloquially as a “Netflix tax,” the taxes allow states to adapt to new, Internet-based trends in entertainment consumption. More »


Several Midwest states get high rankings for budget management

by Tim Anderson ~ March 2017 ~ Stateline Midwest »
Indiana, Wisconsin, North Dakota and Iowa have made the top-10 list in a recent U.S. News & World Report study that explores how well state governments are being administered across the country. Four metrics were used to evaluate all 50 states: fiscal stability, government digitalization, budget transparency and state integrity.
U.S. News & World Report also explored state economies, education and health care systems, crime rates and infrastructure to come up with an overall ranking for “how well states are performing for their citizens.” Minnesota ranked third overall (highest in the Midwest), the result of factors such as low poverty and incarceration rates, a strong education system, and widespread health care access.


Tax credits aim to create affordable housing in Illinois and Nebraska

by Tim Anderson ~ January 2017 ~ Stateline Midwest »
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

by Laura Tomaka ~ January 2017 ~ Stateline Midwest »
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?

by Tim Anderson ~ October 2016 ~ Stateline Midwest »
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 »


Kansas extends ‘angel investor’ tax credit; North Dakota mulls changes to its program

by Laura Tomaka ~ June/July 2016 ~ Stateline Midwest »
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 »


Halfway into fiscal year, Illinois still operates without a budget

by Katelyn Tye ~ January 2016 ~ Stateline Midwest »
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 »


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

by Tim Anderson ~ July/August 2015 ~ Stateline Midwest »
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

by Tim Anderson ~ June 2015 ~ Stateline 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

by Mike McCabe ~ June 2015 ~ Stateline Midwest »
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

by Tim Anderson ~ March 2015 ~ Stateline Midwest »
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

by Tim Anderson ~ January 2015 ~ Stateline Midwest »
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

by Tim Anderson ~ October 2014 ~ Stateline Midwest »
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 spending, performance

by Tim Anderson ~ September 2014 ~ Stateline Midwest »
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?

by Ilene Grossman ~ July/August 2014 ~ Question of the Month »
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

by Tim Anderson~ 2014 MLC Annual Meeting Edition ~ Stateline Midwest »
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 »


Illinois lawmakers put freeze on tax breaks, scrutinize business climate

by Laura Tomaka ~ April 2014 ~ Stateline Midwest »
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 »


Do states in the Midwest require fiscal notes that estimate the impact of proposed legislation on local governments?

by Tim Anderson ~ December 2013 ~ Question of the Month »
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

by Tim Anderson ~ December 2013 ~ Stateline Midwest »
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.


Midwest reliant on federal spending, but not as much as some other regions

by Tim Anderson ~ November 2013 ~ Stateline Midwest »
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

by Tim Anderson ~ October 2013 ~ PDF of Stateline Midwest article »
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

by Tim Anderson ~ July/August 2013~ Stateline Midwest »
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

by Mike McCabe ~ June 2013 ~ Stateline Midwest »
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

by Tim Anderson ~ June 2013 ~ Stateline Midwest »
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?

by Tim Anderson ~ June 2013 ~ Question of the Month »
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
estate taxes

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

by Kate Tormey ~ March 2013 ~ Stateline Midwest »
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

by Tim Anderson ~ January 2013 ~ Stateline Midwest »
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

by Tim Anderson ~ December 2012 ~ Stateline Midwest »
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.


New gaming in town: With gambling already expanding, technology brings more games, and policy questions, to Midwest states

by Tim Anderson ~ September 2012 ~ PDF of Stateline Midwest article »
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’

by Tim Anderson ~ September 2012 ~ Stateline Midwest »
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.


After lost decade for pension systems, states enact series of reforms aimed at
fiscal turnaround

by Tim Anderson ~ July/August 2012 ~ Stateline Midwest »
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 »


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 »


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

by Tim Anderson ~ April 2011 ~ PDF of Stateline Midwest article »
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?

by Ilene Grossman ~ April 2011 ~ Stateline Midwest
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 fiscal
planning. More »


Which states require supermajority votes in the legislature to pass tax increases?

by Laura A. Tomaka ~ March 2011 ~ Question of the Month
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 »