U.S. States, Cities Seek Voter Approval for $17 Billion of Debt

States and municipalities across the country are asking voters to approve $16.8 billion in bonds this upcoming election on November 2nd. According to Business Week.com, this represents the lowest amount during a congressional year general election since 1996. Check out a snippet of their story below.

U.S. states and municipalities from Maryland to Alaska will ask voters to approve $16.8 billion in bonds Nov. 2, the lowest general-election amount in a congressional year since 1996, Ipreo Holdings LLC data show.

Lawmakers in Alaska seek to issue $997 million of bonds, the most of any ballot question this year, to fund mortgages for veterans, while voters in Washington state will consider $505 million for energy projects at schools, according to New York- based Ipreo, a market-research company. Issuers asked for authority to borrow almost $67 billion in the general election two years ago and $79 billion in 2006, the largest amounts since 1946, according to data compiled by Thomson Reuters.

In 1996, voters considered $16.6 billion in bonding authorizations, Thomson Reuters data show. General-election ballots typically contain more debt in even years, when congressional elections are held, than in odd-numbered ones. In 2009, governments sought approval for $9.8 billion.

“The public is getting nervous about all the debt being accumulated in this country,” said John Matsusaka, president of the Initiative & Referendum Institute at the University of Southern California in Los Angeles. “The appetite has been diminished.”

The $67 billion sought two years ago was driven by California, which isn’t putting any statewide bond questions before voters on Nov. 2.

Continue reading at Business Week.com…

40 States Bank on Rising Tax Revenue In 2011

According to a new study 40 out of 50 states in the U.S. are anticipating a rise in tax revenue next year. Corina L. Eckl, author of the report and director of the fiscal affairs program at the NCSL, claims that 2011 will be the turning point for many local economies.

The Associated Press reports:

The vast majority of state governments are anticipating a rise in tax revenues this year after two years of sharp drops. Analysts caution that most states will face large budget gaps in the next few years.

Forty states forecast having an increase in tax receipts in the current fiscal year, according to a forthcoming report by the National Conference of State Legislatures. Slow economic growth is boosting proceeds from income and sales taxes.

That could reduce the impact of states' budget struggles on the economy. State budget shortfalls have led to widespread layoffs, tax increases, spending cuts and other measures that have restrained economic growth.

"We do think 2010 is the bottom and we are at a turning point," said Corina L. Eckl, director of the fiscal affairs program at the NCSL and author of the report.

Still, state officials aren't without enormous challenges. States will lose federal stimulus money in coming years and will struggle to close large budget gaps. Tax revenues are well below pre-recession level. High unemployment puts heavy demand on state-run social service programs.

Continue reading at Google.com…

Bankrupt, USA: Why Our Cities Aren't Too Big to Fail

Although President Obama and Congress have assured taxpayers that financial giants will no longer receive bailouts, many economists are worrying that local governments may be in need of federal funds. Cities across the country, including Harrisburg PA, Central Falls RI are facing serious financial troubles.

According to CNN Money, Harrisburg’s city government was scheduled to default on a $3.3 million bond payment. Fortunately Pennsylvania's governor, Ed Rendell, pledged $4.4 million in state funds to help the struggling city.

This gives Harrisburg a chance to fight again another day. But its problems are far from over, and that's bad news for investors in the $2.8 trillion muni-bond market.

States from California to Illinois have been in deep crisis since the recession began, hammered by drastic cuts in tax revenue and inflexible spending demands for things like health care, debt service and pension plans. Forty-eight states grappled with fiscal shortfalls in their 2010 fiscal budgets. Totaling $200 billion, or 30% of state budgets, this fiscal shortfall is the largest gap on record, according to the DC-based Center on Budget and Policy Priorities, which sees at least 46 states facing shortfalls this fiscal year.

Some cities are in even worse shape than Harrisburg. Central Falls, Rhode Island, recently went into receivership when it couldn't pay its bills. San Diego is said to be considering bankruptcy to get out from under its pension obligations. Miami's city council, hoping to avoid Harrisburg's fate, recently used emergency powers to slash city salaries and pensions and is now instituting hefty traffic fines and garbage fees. This year, ratings agencies have cut the debt in several cities -- including Littlefield, Tex., Detroit, Mich. and Bell, Calif. -- to junk.

Continue reading at CNN.com…

States That Received the Most Federal Funds

The Census Bureau released new data this week regarding the total amount of Federal funding each state received in the 2009 fiscal year. Alaska topped the list once again. The state took about twice as much Federal funding as the national average.

NY Times reports:

Obligations for federal domestic spending rose 16 percent in fiscal year 2009 to $3.2 trillion. That comes out to $10,548 per person living in the United States.

Alaska received nearly twice the national average, taking in $20,351.13 per resident, the most of any American state. The state with the second-highest total in per-capita federal funds received was Virginia, at $19,734.

The District of Columbia, however, received an even higher amount per capita than both those states. The nation’s capital received $83,196.12 per resident, mainly because of salaries and wages paid to the many federal employees who work there.

The state receiving the least federal money per resident was Nevada, which obtained $7,148.49 per capita, followed by Utah with $7,434.65 per capita.

$26 Billion for States Passes Key Test Vote

A measure to send federal aid to cash-strapped states passed a key vote in the Senate, putting it one step closer to becoming law. However, if a final vote is not made by the end of the week, the bill will have wait until the end of the month because the Senate has an August recess scheduled to begin next week.

The measure, which passed by a 61-38 vote, contains $16.1 billion in additional Medicaid money and $10 billion in education funding to prevent teacher layoffs.

State officials have been desperately lobbying their representatives, saying they need the money to shore up their budgets. President Obama weighed in Monday, asking lawmakers to pass the bill.

Senate Democrats needed to garner at least 60 votes for the measure to pass this initial vote, meaning some Republicans had to cross the aisle. That help came in the form of Maine Republicans Susan Collins and Olympia Snowe.

A final vote could come late in the week, just before the Senate is scheduled to recess for the long August break. The measure would then have to go back to the House, which has already recessed. So it might not get to President Obama's desk until September.

Continue reading at CNN.com…

Cities Threaten to Cut 500,000 Jobs

Local government agencies around the country are having ongoing budget and deficit problems, and officials are now saying that unless Congress steps in they will be forced to cut thousands of jobs. As CNN Money.com explains, many of these jobs include government workers and safety personnel.

Cash-strapped cities and counties have been cutting jobs to cope with massive budget shortfalls -- and that tally could edge up to nearly 500,000 if Congress doesn't step up to help.

Local governments are looking to eliminate 8.6% of their total full-time equivalent positions by 2012, according to a new survey released Tuesday by the National League of Cities, the National Association of Counties and United States Conference of Mayors.

"Local governments across the country are now facing the combined impact of decreased tax revenues, a falloff in state and federal aid and increased demand for social services," the report said. "In this current climate of fiscal distress, local governments are forced to eliminate both jobs and services."

The depth of the recession has pushed cities to make reductions in departments that are typically shielded from cuts because they provide core services to residents, including public safety, public works, public health, social services and parks and recreation.

Continue reading at CNN Money.com…

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Soda Tax Uncaps a Fight

Soda taxes are becoming more and more popular among state and local governments. However, as this article on WSJ.com explains, the producers and sellers of sodas and sweetened beverages have increased their efforts to campaign against any new taxes. Check out a snippet of their article below, or for more information on soda taxes you can read this article I posted on my blog last month explaining the pros and cons of soda taxes.

Makers and sellers of soda and other sweet drinks have intensified a fight against proposed taxes on their products, as a growing number of cities and states are weighing the measures to help fill depleted coffers.

A soft-drink bottler offered what it called a $10 million good-will-gesture donation for health and recreation programs in Philadelphia, as city officials there considered a proposal for an excise tax to help plug a budget hole and fight obesity. The tax, proposed by Philadelphia's Democratic Mayor Michael Nutter, would amount to two cents an ounce on soda and other sweet drinks.

Industry officials are also considering trying to organize a referendum in Washington State to repeal a three-year excise tax on carbonated beverages of two cents on every 12 ounces.

The moves come as officials in at least 20 cities and states have proposed new taxes or the removal of tax exemptions on non-alcoholic beverages so far this year. The beverage industry has spent millions of dollars since 2009 on lobbying and advertising against proposed taxes, including a federal tax initially proposed as part of the health-care reform bill.

So far, few such taxes have actually been imposed. The final federal health overhaul didn't include a soft-drink tax. And while several state and city legislators initially expressed enthusiasm for new soda taxes, only Washington State has approved a new excise tax on soda thus far, while Colorado removed a sales-tax exemption.

Hawaiians Rally For and Against Tax Hike Proposal

In response to a proposal for an increase in Hawaii’s excise tax, hundreds of citizens gathered at the States capital to protest. Hawaii is already one of the most taxed states in the country, so it is no surprise that local taxpayers would strongly oppose any increases. The New York Times posted a new article about the protest; you can find a snippet of their piece below.

More than 200 people gathered at the state capitol to ask lawmakers for a 1-percentage point increase in the general excise tax imposed on goods and services. The tax, known as GET, is currently 4.5 percent on Oahu and 4 percent elsewhere in Hawaii.

They waved colored signs saying ''GET'' and urged lawmakers not to eliminate jobs and services.

''The cuts are too deep. They are damaging the economy,'' the Rev. Bob Nakata, a Methodist minister, told the crowd. ''It's not just the bleeding hearts that are saying this needs to be done.''

Hawaii's money troubles have resulted in less government support for public schools, child protective services, mental health, social service providers and agriculture inspectors. Hundreds of public employees were laid off, and the rest are taking pay cuts through furloughs.

Continue reading at NY Times.com…

Battle Lines Redrawn in Web Sales Tax War

From CBSNews.com:

Jeremy Bray received an e-mail message this morning with an unwelcome surprise: Amazon.com told him it had canceled its affiliate program, which provides small payments for referring customers, for everyone in the state of Colorado.

The reason? A state law, which Democratic Gov. Bill Ritter signed last week, slaps onerous new restrictions on large out-of-state sellers like Amazon, which said it has no choice but to end its marketing program in response.

Bray, a blogger who has lived in Pueblo, Colo., for more than 20 years, told CNET on Monday that he's now trying to "bring as much attention to the issue as possible in hopes of getting Colorado to repeal" the new law.

Colorado is not alone. Fifteen other states have considered or are considering enacting laws targeting Amazon and other e-commerce companies that typically do not charge sales tax for shipments sent outside their home state, according to a report released Monday. Four states including Colorado have already enacted them.

"I see this as a trend moving along - a lot of states are considering doing it," said Joseph Henchman, director of state projects at the non-partisan Tax Foundation in Washington, D.C., which published the report. But, Henchman says, the laws "won't solve short-term budget problems, they signal business-unfriendliness, and they're probably unconstitutional."

States to Senate: Send More Federal Aid

From CNNMoney.com:

States are looking to the federal government for more help balancing their budgets, but the Senate is not heeding their call.

Federal aid to the states was among the top priorities in an early Senate job creation bill, as well as in a $154 billion measure passed by the House in December. But it has fallen off the list as Senate Democrats look to craft legislation that will attract bipartisan support.

Senate Majority Leader Harry Reid, D-Nev., on Thursday unveiled a jobs bill that does not contain state aid. A Senate Democratic aide said Reid hopes to back a state aid measure in the future. Republican support, however, remains questionable.

Experts and state officials say they need to know now whether they'll get more funds. Governors are currently crafting their budgets and, for many, it will be their third year of contending with massive deficits due to declining tax revenues.

Big budget gaps

States are looking at a total budget gap of $180 billion for fiscal 2011, which for most of them, will begin July 1. These cuts could lead to a loss of 900,000 jobs, according to Mark Zandi, chief economist of Moody's Economy.com.

Budget-Strapped States Avoid the Word “Taxes”

From Washington Times.com:

Faced with severe budget shortfalls after a steep economic recession, state legislatures and governors are trying to raise money without raising taxes — at least not technically.

A fee hike, an increased penalty or fine, the elimination of a tax exemption — none of these technically counts as a tax increase, as far as many state lawmakers are concerned. Fiscal conservatives argue that a tax hikes are exactly what they are, but their arguments are likely to fall on deaf ears for legislators and governors wrestling with some of the worst budget deficits since the Great Depression.

"There's a certain American antipathy to raising taxes, so even if these are tax increases, there's an incentive to call them something else," said Joseph Henchman, director of state projects at the conservative Tax Foundation. "It's a trend we always see, but it's certainly going to be one that's stronger this year."

The National Conference of State Legislatures found that 35 states and Puerto Rico are facing deficits for fiscal year 2011, despite the Obama administration's $787 billion recovery package, which pumped tens of billions of dollars into state coffers last year.

California Taxes Fall Short of November Target by $439 Million

My home state of California seems to find itself in one financial mess after another. Reports emerged yesterday that the state’s estimated tax revenue for November was $439 million less then the government had expected. With the fiscal year only have over, the state’s revenue is already short by an astonishing $1 billion. Some financial experts assert the decline is only a preview of what is to come, and that the upcoming year will be even more difficult on California’s budget.

Schwarzenegger is due to release his budget for the coming fiscal year in January. California Legislative Analyst Mac Taylor said in November the state will face a deficit of $14.4 billion beginning in July. That’s in addition to a $6.3 billion gap opening up in the current year as several projections within the budget falter or miss revenue projections.

“In many respects, the steps to close next year’s budget gap will be even more difficult and more challenging than what we’ve just had to do this year,” Department of Finance spokesman H.D. Palmer said yesterday.

California has been among the most affected by the recession as a wave of home foreclosures, rising unemployment and the 2008 stock market tumble dissipated expected tax receipts. From February through July, lawmakers worked to close a record $60 billion deficit with spending cuts, temporary tax increases and other one-time fixes. The unemployment rate rose to 12.5 percent in October from 8 percent the year before and 4.8 percent in July 2006.

Continue reading at Bloomberg.com…

Preventing State Budget Crises: Redefining 'Tax Cuts' and 'Tax Hikes'

Earlier in the week, David Gamage of UC-Berkeley published a new paper on how state governments can address their recession related budget problems. You can find a section of the abstract below, courtesy of Tax Prof, or download the full PDF at Preventing State Budget Crises: Redefining 'Tax Cuts' and 'Tax Hikes'.

Forty-nine of the U.S. states have balanced budget requirements, and every state acts as though bound by such constraints. These constraints create fiscal volatility - the states must either cut spending or raise taxes during economic downturns, while doing the opposite during upturns. This paper discusses how states should cope with fiscal volatility on both the levels of ordinary politics and of institutional-design policy. On the level of ordinary politics, the paper applies principles of risk allocation theory to conclude that states should primarily adjust the rates of broad-based taxes as their economies cycle, rather than fluctuating public spending. States should raise their tax rates during economic downturns and lower them during periods of growth. On the level of institutional-design policy, the key question is how we define terms like “tax cuts” and “tax hikes.” By adopting a new baseline for defining these terms, states can increase the likelihood of using tax rate adjustments to cope with fiscal volatility rather than (more harmful) spending fluctuations.

California Boosts Income Tax Collection by 10 Percent

From the Associated Press:

California wage earners will soon notice a little less money in their paychecks.

Starting Monday, employers in the cash-strapped state are required to withhold 10 percent more in state income taxes to help ease the budget problems.

It's part of a plan to artificially inflate state revenue by $1.7 billion through next June.

Brenda Voet, a spokeswoman for the state Franchise Tax Board, says it's technically not a tax increase since workers will get their money back after April 15.

A single wage earner making $51,000 a year with no dependents will get about $4 less a week.

Increased Rental Car Taxes

If you travel and rent vehicles often then you may have noticed that you are paying more for your car then you did last year. This is because many struggling local governments have increased the taxes levied on rental cars in attempt to fix budget problems. According to Gary Stoller of the Washington Post, legislators have been able to pass these increases since they can be sold as 'out-of-towners' taxes.

Anyone renting a car in Maine would be paying the state 12.5% of their bill in excise taxes starting last month if the legislature there had its way.

But residents blocked the state's new tax-reform law — which included a tax increase from 10% to 12.5% on rental car bills — by signing petitions in opposition. If the signatures on the petitions turn out to be valid, the increase will be put to a vote in June, says Sara Lewis, a Maine taxation official.

The action in Maine represents something of a victory for business travelers, corporate travel departments and rental-car companies who are increasingly upset over what's been an explosion in taxes imposed on renting a car.

Airline fees "are bad, but the worst are car-rental taxes," says frequent business traveler Tony Harrison, who has rented cars 75 days so far this year and paid upwards of 20% of his bill in taxes in some cities.

Recession Reality: U.S. Cities, States Close for Days

Across the country city and state offices are showing signs of the recession. Mandatory half days, furlough Fridays in California, and other unpaid workdays, are just some of the tactics being used by local governments to save money. Check out the following article courtesy of Reuters.com explaining how cities all over the US are making cuts to survive the recession.

Frank Giannola drove nearly 40 miles from Lockport, Illinois, to downtown Chicago on Monday, only to find city hall shuttered for the day.

"This is the city that works?" he asked, mockingly referring to a Chicago motto.

The subcontractor, who had taken the day off to obtain a sewer permit, joined a steady stream of residents, contractors and business people who came by car, taxi and on foot at midday looking for city services.

They were greeted with a sign that city hall was closed for "a reduced service day" -- the first of three days this year Chicago will curtail services such as garbage pick-up, libraries and health clinics -- but not public safety -- to save $8.3 million.

The savings is small compared with the $300 million revenue shortfall Chicago expects in its fiscal 2009 budget as the economic recession dramatically slows key tax generators.

"Every dollar we save from these measures helps to save jobs, and in the long term, maintain services for Chicagoans," Mayor Richard Daley said in a statement last week announcing the closures.

For residents in Chicago and many other cities, counties and states, unpaid furlough days are becoming a reality of the recession. Services normally expected to be available may not be accessible on certain days. Or lines for services may get longer if workers can choose the days they are furloughed.

For the governments, it is a sign of how desperate they have become to reduce spending to combat shrinking revenue.

"It's turned into a very wide-spread tactic for dealing with shortfalls this year," said Ron Snell, director of state services at the National Conference of State Legislatures.

With states facing projected cumulative budget shortfalls topping $348 billion from 2008 through 2012, at least 12 have turned to furloughs to save money, according to the legislative group.

A deal enacted late last month to erase California's massive $24 billion budget deficit included three furlough days a month for state workers to save $820 million.

Michigan, which has sprung numerous budget holes due to the ailing automotive industry, has scheduled six days on which it won't pay about 37,400 employees to save $21.7 million by September 30.

Facing Budget Gaps, U.S. States Shuffle Tax Codes

From Reuters.com:

Caught with near-chronic budget shortfalls, U.S. states are scrambling to change their tax codes and bring in more revenues, the Tax Foundation said on Wednesday.

The foundation has compiled an annual index on 37 categories of states' taxing and spending since 1937. This is the first time that it has had to update the report in the middle of the year.

"Many states have started the new fiscal year with tax codes that are vastly different compared to just a few months ago," Tax Foundation President Scott Hodge said in a statement.

Hawaii, for example, has recently increased its top marginal tax rate to 11 percent, making it tied for first in the country with Oregon. New Jersey, New York, Wisconsin and Delaware also increased individual income taxes for high earners in recent months.

"It's a bit of a troubling trend to see," Mark Robyn, the foundation's staff economist, said on a conference call with reporters. "One of the problems we see with taxing high income individuals is that high-income individuals tend to have volatile incomes."

Their business and capital gains income fluctuate with the economy "even more than the average person's income," he said, adding they shy away from starting businesses in states with higher income tax rates.

On the other hand, Maine, North Dakota and Vermont have cut income taxes since January, the foundation found.

Ten states have pumped up their taxes on cigarettes, while four have increased sales taxes.

California raised its sales tax to 8.25 percent this year, the foundation said. The state, which finalized its budget this week after a drawn-out battle in Sacramento, also allows local governments to add to the sales tax.

In the Los Angeles area, five communities have sales taxes of 10 percent, according to the group.

California has also moved up one spot to No. 2 in the rankings of states with the highest gasoline taxes, as it has raised its levy to 39.9 cents per gallon from 35.3 cents. New York remains the state with the highest gas tax, with an increase to 42.5 cents per gallon from 41.3 cents in January.

According to the National Governors Association, U.S. states will likely face deficits totaling at least $200 billion over the next three years, and most are required to eliminate any gaps at the end of their fiscal years.

US State Budgets Hit by Shrinking Tax Take

From FT.com:

Sharply falling tax revenues across the US have left states facing fresh budget shortfalls and threatening further painful spending and service cuts following previous multiple rounds of belt-tightening.

In the first quarter of the calendar year, tax collections dropped by 11.7 per cent, the largest fall on record, according to the Rockefeller Institute of Government. Of 50 states, some 45 reported declines.

Early figures for April and May show an overall decline of nearly 20 per cent for total taxes, “a further dramatic worsening of fiscal conditions nationwide”, says the institute.

Billions of dollars of federal stimulus funds, combined with cuts to state employee jobs, school districts, healthcare and even the US prison system, have so far failed to close the budget gaps.

“The states are constantly trying to recalibrate their budgets to deal with a shrinking revenue base,” said Susan Urahn, managing director of state policy initiative at the Pew Center on the States.

It raises questions about how deep the decline in services may go, the direction of tax rates, and whether the federal stimulus measures are working.

California Government Doles Out More IOUs

Another 12,500 IOUs were issued by California on Tuesday, as a way to make up for bills they were unable to pay. This decision brings the total number of California’s IOUs issued to over 72,000, and that number is only expected to rise. Check out the following clip from a new Sacramento Bee article discussing this disastrous situation below.

Last week's decision by state Controller John Chiang to issue "registered warrants" instead of checks to taxpayers owed refunds, vendors and other groups was the most dramatic step a state has taken this year to confront billions of dollars in budget shortfalls. A total of 72,000 IOUs have been written since last week.

Gov. Arnold Schwarzenegger, a Republican, and the Democratic-controlled Legislature have been unable to agree on a package of spending cuts and tax increases to close a massive budget gap.

The result is a standstill — and IOUs that reached a total of $109 million Tuesday.

California issued IOUs in 1992 during a 61-day budget impasse. Some states issued IOUs during the Great Depression. The notes, now worthless, can be bought at antique shops, says Chicago bankruptcy attorney James Spiotto, an expert in government finance. Spiotto says he doesn't know of any state other than California to issue IOUs since the Depression.

Continue reading this article, here.