State Revenues Continue to Improve

The latest reports coming out of state capitals continue to show strong growth in tax revenues.  For the three months ending in June, state tax revenue was up 13.3 percent over a year ago, according to the Rockefeller Institute.  Growth is solid across all tax categories – personal income, sales and corporate income taxes – and all regions of the country experienced strong growth.  View the Rockefeller Institute’s September report on state tax revenue at http://rfs.rockinst.org/exhibit/9029/Full%20Text/RR_61.pdf.

NCSL Sees Improved State Fiscal Picture

An August report by the National Conference of State Legislatures confirms states’ improving fiscal conditions.  For fiscal year 2005 (which ended June 30 for most states), year-end balances for 46 reporting states totaled $35.7 billion, or 7 percent, twice what lawmakers had expected.  31 of the 46 states ended fiscal 2005 with balances above 5 percent.  Fiscal 2005 revenues grew 6.8 percent for the reporting states over the prior year.  These improved revenues allowed states to avoid raising taxes in most cases.

State legislators predict challenging fiscal conditions in 2006.  Spending needs are still expected to grow faster than revenues, resulting in lower year-end balances next year.  State revenues are projected to grow by 2.7 percent above 2005 levels.  However, state Medicaid costs are expected to grow 7.2 percent in 2006; K-12 education spending is projected to rise by 6 percent; higher education by 5.7 percent, and corrections by 3.8 percent.  The rising cost of these services is expected to put pressure on states despite the improved revenue picture compared to recent years.

The report, “State Budget & Tax Actions 2005: Preliminary Report,” is available at http://www.ncsl.org/programs/fiscal/presbta05.htm.

U.S. Supreme Court Agrees to Review Tax Incentives

The U.S. Supreme Court announced September 27 that it will review a case that invalidated state tax incentives for businesses.  In DaimlerChrysler Corp. v. Cuno, the U.S. Appeals Court for the 6^th Circuit found that these incentives are unconstitutional.  Every year, states and local governments give away more than $50 billion to businesses promising to create or keep jobs in the area.  The problem is that many times, the jobs don’t materialize or don’t stay, and the tax burden gets shifted to individuals and small, local business taxpayers.  Many states and local jurisdictions recognize the folly of using public funds on false promises of economic development, but elected officials are afraid to be the first to ‘unilaterally disarm’ in this ‘economic war between the states.’

The Supreme Court review gives all states a chance to take a step back from these bad deals.  It would be better for all states if these incentives were redirected toward investments in education, infrastructure and the other public services that really do drive economic development.  But big businesses are lobbying Congress to preserve the deals with federal legislation that would pre-empt the Supreme Court’s review.  A Cincinnati Post editorial reviewing the case and highlighting the problems with business incentive deals can be accessed at http://news.cincypost.com/apps/pbcs.dll/article?AID=/20050928/EDIT/509280324/-1/all.

Local Fiscal Concerns Remain

Local government officials are still concerned about fiscal conditions, according to a July survey by the National League of Cities.  Fiscal pressures caused in part by unfunded mandates and cuts in funding by the federal and state governments will lead to future cuts in services, respondents said.  The survey results suggest that AFSCME members again will face the impact of these pressures at the local government level.  The most likely target for cuts was “general government,” cited by 63 percent of respondents, far higher than the next most likely target, “culture and leisure” (51 percent).  On the revenue side, 77 percent of respondents expected to raise user fees, but only 37 percent expected to raise property tax levies and fewer expected to raise other types of taxes.  The full report, “Local Budget and Tax Policy in the U.S.: Perceptions of City Officials,” can be accessed at www.nlc.org/content/Files/RMPLocalBudgetTaxrprt05.pdf.

AFSCME’s “Sensible Solutions” State Legislative Agenda for 2006

AFSCME has released its 2006 State Legislative Agenda, “Sensible Solutions for State Government.”  This year’s agenda includes measures that affiliates can use to play smart defense and aggressive offense, organized around three themes:

·        ‘Truth In Spending’ to reveal hidden waste in contracting out, special-interest tax breaks and development subsidies;

·        Health Care to reform and protect Medicaid and expand health insurance coverage while reducing costs; and

·        Fair and Adequate State Revenues to close corporate loopholes, modernize the sales tax and make state taxes more progressive.

The agenda also offers strategies to fight unwise tax cuts, tax and expenditure limits and property tax ‘revolts.’  You can access the 7-page “Sensible Solutions” brochure along with examples of state legislation, fact sheets and other supporting information at www.afscme.org/SensibleSolutions.  Hard copies of the brochure can be ordered by calling the Research and Collective Bargaining Services Department at (202) 429-1215.

AFSCME Report Exposes Florida Privatization Follies

The AFSCME Research and Collective Bargaining Services Department has prepared an in-depth review of the failures of privatized state government in Florida.  “Shady Deals in the Sunshine State: The Florida Model of Privatization” examines Florida Gov. Jeb Bush’s rush to privatize state government and create government office buildings “empty of workers.”  The study finds that state officials failed to protect from predictable risks in four massive private contracts, then ignored warnings that things were not going as they had planned.  In the final analysis, Florida’s experiment with privatization has made things worse, not better, for state residents.  Money has been wasted in contract cost overruns, favoritism and fraud have plagued the process, services have suffered, and some of the state’s most vulnerable citizens have been put at risk.

The report will be of interest to AFSCME members and leaders in all states facing the privatizing of public services, and should be read by elected officials and their staffs.  “Shady Deals in the Sunshine State” can be accessed at www.afscme.org/wrkplace/shady.pdf, or ordered in hard copy from the Research and Collective Bargaining Services Department by calling (202) 429-1215.

New GASB 43 and 45 Rules

The Governmental Accounting Standards Board (GASB) has imposed new rules that state and local government employers must report the funding status of retiree health insurance and other benefits.  GASB Statements No. 43 and No. 45 will require that employers determine the actuarial unfunded liability of these future benefits.  The new rules take effect beginning in 2007 for states and the largest local governments, and later for smaller jurisdictions.

Public employers are concerned that large unfunded liabilities on their financial statements will impact their credit ratings.  And AFSCME is concerned that such fears may prompt employers to eliminate or reduce these retiree benefits or force employees to pay more of the cost for them.  The Research and Collective Bargaining Services Department has developed a fact sheet on GASB Statements 43 and 45.  “Protecting Your Retiree Health Benefits: A Brief Explanation of the New Accounting Rules Affecting Post-Retirement Health Plans,” is available at www.afscme.org/wrkplace/hcgasbfaq.htm, or you can call for hard copies of the 3-page fact sheet at (202) 429-1215.