State legislators from each of the New England states attended the annual Economic Perspectives on State and Local Taxes seminar at the Lincoln Institute last month, a convening organized in partnership with the New England Public Policy Center of the Federal Reserve Bank of Boston. Tax and fiscal experts from across the country discussed revenue volatility, property taxes, infrastructure funding, and state tax reform.
Scott Pattison, executive director of the National Association of State Budget Officers, provided an overview of revenue volatility in state budgets across the country, noting that in FY2015 revenue collections have outpaced projections in seven states, are on target in 26 states, and are coming in below estimates in 10 states. Yolanda Kodrzycki, vice president and director of the New England Public Policy Center at the Federal Reserve Bank of Boston, presented research that showed state tax revenues have become more cyclical -- less stable over business cycles -- during the 2000s than in the 1990s and 1980s for 39 of the 50 states, including Connecticut, Massachusetts, Rhode Island, and Vermont. Bo Zhao, senior economist at the New England Public Policy Center at the Federal Reserve Bank of Boston, noted that rainy day funds, one solution to revenue volatility, were generally too low in many New England states.
Addressing current trends in property taxation, Phyllis Resnick, lead economist at the Colorado Futures Center, documented shifts in funding responsibilities and reduced accountability in Colorado's experience with TABOR and the Gallagher Amendment. Adam Langley, senior research analyst at the Lincoln Institute, spoke about two tools policymakers can use to provide direct property tax relief to homeowners: homestead exemptions and circuit breakers. Although all New England states use these mechanisms, they often cover small groups of taxpayers and provide modest benefits. In an update on tax increment finance (TIF), David Merriman, a visiting fellow at the Lincoln Institute, and professor at the University of Illinois at Chicago, predicted that government budget transparency will become a more prominent issue and that there will be increased opportunities to re-engineer TIF.
Frank Shafroth, the director of the Center for State and Local Government Leadership at George Mason University, highlighted challenges in funding infrastructure. He focused primarily on the federal government’s inability to fund needed infrastructural repairs, and emphasized that states will be heavily affected due to this inaction.
In a final discussion of state tax reform. Billy Hamilton, executive vice chancellor and CFO of Texas A&M University Systems, and columnist for State Tax Notes, explored the usefulness, or lack thereof, of tax commissions. He argued that the tax studies of 25 years ago used to consider the state’s tax system as a whole but more recently states have made use of tax studies that focus on a specific issue, such as tax competitiveness. Joseph Henchman, vice president of Legal and State Projects at The Tax Foundation, described recent tax reform initiatives including those in the District of Columbia, Indiana, New York, and North Carolina. Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, concluded the seminar with a discussion of tax fairness. ITEP’s recently released report Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, Fifth Edition found ten states that had the most regressive tax systems: Arizona, Florida, Illinois, Indiana, Kansas, Pennsylvania, South Dakota, Tennessee, Texas, and Washington. All presentations are available for download.