The Music City Meltdown

Link: https://www.wsj.com/articles/the-music-city-meltdown-11619649990

Excerpt:

Like many cities, Nashville is also in hock to pensioners, with $4.3 billion in unfunded promises for retiree healthcare. And though Nashville’s pension system is well-funded, it is also expensive to maintain because employees contribute almost nothing, leaving taxpayers on the hook for about $110 million in annual contributions—and potentially more when investments tank. Despite the burden, the city resisted adopting reforms the state enacted in 2013, when Tennessee switched to a pension plan that requires employees to contribute 5% of their wages.

Nashville’s balance sheet wasn’t in any shape to endure a massive pandemic hit. Led by a 50% decline in tourism, the city’s economy slumped last spring, and unemployment soared above 15%. That punched a $332 million hole in the fiscal 2021 budget, prompting then-Tennessee Comptroller Justin Wilson to warn in September of a state takeover. The city could become “kind of like a teenager coming to their parent asking for $20 to go to the movies,” he said.

Author(s): Steven Malanga

Publication Date: 28 April 2021

Publication Site: Wall Street Journal

So, Can States Cut Taxes or Not?

Link: https://www.governing.com/finance/So-Can-States-Cut-Taxes-or-Not.html

Excerpt:

Most observers believe that the Treasury will interpret the law narrowly. Rather than seeking to claw back funds from any states passing tax cuts or credits, the feds are considered likely to challenge only those states that clearly use federal dollars to pay for them. “Nothing in the act prevents states from enacting a broad variety of tax cuts,” Treasury Secretary Janet Yellen wrote in a response to the AGs. “It simply provides that funding received under the act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law.”

But the fact that the law blocks federal money from being used even indirectly to pay for tax cuts has state officials not just worried but angry. “Democrats in Washington and in the White House are not going to tell me, or the Georgia General Assembly, that we can’t cut taxes for hard-working Georgians,” Gov. Brian Kemp complained at a news conference last month.

….

That prohibition lasts as long as the stimulus dollars are spent, which will be into 2024. And there are limits, Walczak notes, on where and how states can spend federal aid. They can use the money to address pandemic and health needs, for example. While those are clearly ongoing, much of the cost of vaccine supply and distribution has been underwritten by the feds. Other costs in these areas have already been addressed by last year’s federal CARES Act, which some states struggled to spend.

Author(s): Alan Greenblatt

Publication Date: 7 April 2021

Publication Site: Governing

NYS Comptroller DiNapoli: Wall Street’s 2020 Bonuses Rose Amid Volatility

Link: https://www.osc.state.ny.us/press/releases/2021/03/nys-comptroller-dinapoli-wall-streets-2020-bonuses-rose-amid-volatility

Excerpt:

The average bonus paid to employees in New York City’s securities industry grew by 10 percent in 2020 to $184,000, in line with the city’s most recent 9.9 percent projection, likely allowing the city to meet or exceed its income tax revenue projections in FY2021, according to annual estimates released today by New York State Comptroller Thomas P. DiNapoli.

….

As a major source of revenue, DiNapoli estimates that the securities industry accounted for 18 percent ($15.1 billion) of state tax collections in state fiscal year (SFY) 2020 and 6 percent ($3.9 billion) of city tax collections in city fiscal year (CFY) 2020.

Pretax profits in 2020 for the broker/dealer operations of New York Stock Exchange member firms (the traditional measure of securities industry profits) increased by 81 percent to $50.9 billion. It was the fifth consecutive year of growth in profits, which are up 256 percent since 2015. Profitability in 2020 was the second highest on record, trailing $61.4 billion recorded in 2009.

Author(s): Thomas DiNapoli

Publication Date: 26 March 2021

Publication Site: Office of New York State Comptroller

Mass Federalization: How Washington is Bailing Out Failed States, Decapitating Competitive Ones and Ending America As You Knew It – Wirepoints

Link: https://wirepoints.org/mass-federalization-how-washington-is-bailing-out-failed-states-decapitating-competitive-ones-and-ending-america-as-you-knew-it-wirepoints/

Excerpt:

Don’t think that might ease your state and local tax burden. The downpour of cash on cities and states, most of which don’t need it, is all tied to a provision in ARP that bans tax cuts. It’s a mandate for statism – big government – whether states with small government philosophies like it or not.

“Thou shalt be statists and big spenders” – that’s what ARP might as well say as a direct federal mandate.

Most of ARP commentary about cities and states has wrongly focused only on the $350 billion that’s will go directly to them. That’s a small part and entirely misses the bigger picture.

Author(s): Mark Glennon

Publication Date: 22 March 2021

Publication Site: Wirepoints

Fact-checking a GOP talking point on state, local relief in the American Rescue Plan

Link: https://www.politifact.com/article/2021/mar/19/fact-checking-gop-talking-point-state-local-relief/

Excerpt:

• The American Rescue Plan signed by President Joe Biden allocates state and local aid based on the extent of unemployment in a state in late 2020. Critics say this punishes states that opened their economies earlier, under the assumption that their unemployment levels were lower.

• It’s not so clear-cut. Preliminary academic research shows that government policies on reopening had only a modest impact on unemployment. States that depend on especially hard-hit industries like tourism and oil and gas show high unemployment regardless of the government policy.

• Experts say that no method for targeting aid to the states is perfect; each has pluses and minuses.

Author(s): Louis Jacobson

Publication Date: 19 March 2021

Publication Site: PolitiFact

State Aid in American Rescue Plan Act Is 116 Times States’ Revenue Losses

Excerpt:

Forty-three states and the District of Columbia have now published revenue data for all 12 months of 2020; in those states, revenues are up $3.2 billion in aggregate compared to the previous calendar year, thanks to robust gains in financial markets and federal assistance that has kept businesses afloat and provided benefits to individuals. Some of those are, indeed, taxable benefits, in the case of enhanced and expanded unemployment compensation benefits. For the remaining seven states, it is necessary to project revenues through the end of the calendar year based either on U.S. Census Bureau data through the three quarters, or, in Nevada and New Mexico, state data running through October and November respectively.

These adjustments yield an aggregate $1.7 billion decline in state revenues. Under the American Rescue Plan Act, states would receive $195.3 billion in aid, divided according to each state’s share of national unemployed workers. Under Senate amendments, a further adjustment is made to ensure that each state receives, at minimum, the amount it was allocated for purposes of the Coronavirus Relief Fund under the CARES Act. While some conservative lawmakers have criticized this allocation model (which benefits states with steeper job losses) on the grounds that different state policies and approaches may yield some of this variation and that the federal government should be neutral to these decisions, we have argued previously that using the change in unemployment is a more efficient targeting method than allocating aid per capita. Far less defensible, however, is the notion that aid to states should be 116 times the decline in state revenues—especially since the federal government has already provided over $200 billion in fungible aid to subnational governments.

Author(s): Jared Walczak

Publication Date: 3 March 2021

Publication Site: Tax Foundation

Democrats make low-tax states an offer they should refuse

Link: https://thehill.com/opinion/campaign/543992-democrats-make-low-tax-states-an-offer-they-should-refuse#new_tab

Excerpt:

States are discovering and news outlets are reporting some surprising features of the new law. For starters, the President Biden-approved American Rescue Plan tweaks the funding formula to distribute funding based on average unemployment during the three final months of 2020 — rewarding Democratic-controlled states like New York, California and Illinois for their draconian COVID policies that resulted in the nation’s highest levels of unemployment. And it offers states billions more in Medicaid funding if they agree to boost their own Medicaid spending. 

Perhaps the most troubling is a legislative rider barring states that accept the aid from using the funds “to either directly or indirectly offset a reduction in the net tax revenue” derived “from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.” 

Author(s): MICHAEL G. FRANC

Publication Date: 19 March 2021

Publication Site: The Hill

The Tax Cut Ban and the Constitution

Link: https://www.wsj.com/articles/the-tax-cut-ban-and-the-constitution-11616107345?mod=opinion_lead_pos1

Excerpt:

The $1.9 trillion bill marketed as Covid relief includes $350 billion in federal aid to states and localities. While states can use the money to increase spending, Congress decreed that they can’t use it to cut taxes. “A state or territory shall not use the funds,” the bill says, “to either directly or indirectly offset a reduction in the net tax revenue” from a new law or regulation.

Because the mandate applies to “indirect” revenue offsets, states are at risk of violating the law for any tax reduction “during the covered period,” which stretches through 2024. Ohio’s lawsuit by Attorney General Dave Yost argues that “this coercive offer of federal funds violates the Constitution.”

Author(s): Editorial board

Publication Date: 18 March 2021

Publication Site: Wall Street Journal

Schumer spokesman: Federal pandemic relief eliminates NYS deficit

Link: https://nypost.com/2021/03/08/schumer-federal-pandemic-relief-eliminates-nys-deficit/

Excerpt:

The $1.9 trillion COVID-19 relief package passed by the US Senate wipes out New York State’s projected budget deficit — possibly negating the need for hefty tax hikes or spending cuts, Senate Majority Leader Chuck Schumer’s office said Monday.

“Ok. Thanks to @SenSchumer NYS budget deficit for this year is…..Zero, nada, niete, zilch (NY terms),” Schumer spokesman Angelo Roefaro tweeted.

The American Rescue Plan provides state government coffers with $12.6 billion in unrestricted aid, a measure championed by Schumer, the New York senior senator. The measure passed the Senate in a 50-49 vote and is expected to clear the Democratic-led House of Representatives on Tuesday and delivered to President Biden for approval.

Author(s): Carl Campanile, Bernadette Hogan

Publication Date: 8 March 2021

Publication Site: NY Post

State Revenue Is ‘Virtually Flat.’ Local Government Revenue Is Up Slightly. Congress Wants To Give Them $350 Billion Anyway.

Excerpt:

Indeed, an analysis from the National Taxpayers Union’s Andrew Lautz has found that when accounting for states’ rainy day funds and steady revenues, only about $6 to $16 billion (not the proposed $195 billion) would be needed to make those governments whole.

Lautz also argues it’s inappropriate to divvy up money to states based only on their number of unemployed residents, given that the jobless are already receiving targeted benefits and that those benefits are themselves helping to prop up states’ tax revenues.

“Individuals who want a job and don’t have one are certainly struggling right now, but the [$900 billion] December bill and the proposed COVID-19 relief package support them with a $300 or $400 per week boost to their regular unemployment benefits,” writes Lautz. “The $600-per-week benefit from the CARES Act helped prevent major state revenue dropoffs in part because it allowed unemployed people to continue spending at rates similar to before they lost their jobs.”

Author(s): CHRISTIAN BRITSCHGI

Publication Date: 8 March 2021

Publication Site: Reason

Testimony Before a Subcommittee of the U.S. House Ways and Means Committee

Link: https://www.manhattan-institute.org/hendrix-tax-tools-local-governments-ways-and-means

PDF of testimony: https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/Michael%20Hendrix%20Testimony.pdf

Excerpt:

While America’s real GDP fell in 2020, states and local tax receipts actually increased—once you add in federal aid, revenues actually grew by nearly 10 percent. As their costs from fighting the pandemic grew and layoffs loomed, Congress rightly stepped up to help. There’s been $360 billion in direct relief for Covid-19 and hundreds of billions more in indirect aid—all told, Washington sent more than $1 trillion to states and localities last year.

Author(s): Michael Hendrix

Publication Date: 11 March 2021

Publication Site: Manhattan Institute

Schumer spokesman: Federal pandemic relief eliminates NYS deficit

Link: https://nypost.com/2021/03/08/schumer-federal-pandemic-relief-eliminates-nys-deficit/

Excerpt:

The American Rescue Plan provides state government coffers with $12.6 billion in unrestricted aid, a measure championed by Schumer, the New York senior senator. The measure passed the Senate in a 50-49 vote and is expected to clear the Democratic-led House of Representatives on Tuesday and delivered to President Biden for approval.

Asked if the geyser of pandemic relief eliminates the needs for tax hikes or spending cuts, Roefaro told The Post, “the statement speaks for itself.”

Roefaro continued, “How NY decides its budgetary policy is a matter for the state legislature and the administration. Our job was to deliver resources to help NY confront and overcome Covid and it’s impacts, including the fiscal impact. And we did that fully and completely.”

Author(s): Carl Campanile, Bernadette Hogan

Publication Date: 8 March 2021

Publication Site: NY Post