States Work to Stave Off Government Shutdowns

Since today – July 1st – marks the beginning of the new fiscal year for most states, legislators needed to have budgets prepared by yesterday evening. However, California is not the only state government that is facing budget problems. According to a new Associated Press article, “Legislators in more than a half-dozen states, their revenues evaporating in the recession, frantically worked to stave off government shutdowns and devastating service cuts.”

Across the country, lawmakers are feeling the heat as their legislatures began the new fiscal year without a budget in place.

In Illinois, the sputtering drive to come up with a state budget broke down completely Tuesday, leaving the state without any plan for paying its employees or delivering government services. The session ended without any firm plans to return or even for Gov. Pat Quinn and legislative leaders to resume negotiations.

In Pennsylvania, Gov. Ed Rendell said Tuesday night he didn't think an agreement with lawmakers would come soon. The state faces the prospect of not being able to pay state employees if they cannot resolve an impasse.

Although other states in the country are experiencing ongoing budget problems, none of them are expected to have as serious of an affect on the rest of the country as California. They other day I posted an entry explaining how the Golden State’s poor economy could prolong the recession, and this new AP article reiterates that message.

“Fallout from California's budget mess threatened to spread nationwide because of the sheer size of the state's economy. The Senate rejected three bills designed to save $5 billion, including $3.3 billion in education funding cuts that had to be enacted before Wednesday”

Cities and States Press Travel Sites to Collect Hotel Taxes

From The New York Times:

There is a reason some online travel sites can offer cheap hotel rooms: State and local governments contend that the sites are not paying all of their taxes.

And faced with fast-shrinking budgets, those governments want the online travel services like Expedia Inc., Priceline, Orbitz and Travelocity to hand over what could amount to tens of millions of dollars.

The issue arises because the travel sites use a two-step process for billing and paying for hotel rooms. The site first bills the consumer for the cost of a hotel room, plus a service fee. Separately, the hotel pays taxes to local governments based on the price actually paid by the travel company — an amount less than the price the consumer pays.

Lawyers for the various governments argue that the travel companies owe hotel occupancy taxes based on the higher price consumers pay.

“That’s the insidious nature of this scam,” said Patrick O’Connell, a lawyer at Baron & Budd, a firm based in Dallas that represents municipalities seeking tax revenue. “The hotel pays tax on the amount that the hotel was paid. The city doesn’t have a clue that the transaction was actually conducted by the online travel company.”

Anaheim, Calif., is one of dozens of state and local governments trying to collect from the online travel services. This month, a city hearing officer concluded that travel companies owed Anaheim $21.3 million in back taxes, interest and penalties.

“There is no reason why online travel companies should be paying a different amount of taxes than others who book the same hotel rooms,” Mayor Curt Pringle of Anaheim said in a statement.