Tax Cuts, Whale Funding and Pay Bonuses Among the Priorities in Governors' Proposed Budgets

Governors in at least eight states as of last week had rolled out their latest budget plans, with proposals ranging from roughly $1 billion in Washington state to protect endangered whales to $200 million of sales tax cuts in Utah combined with possible new taxes on services.

The state chief executives are putting forward their plans at a time when a robust economy and changes to federal tax policy have helped to strengthen the financial position of many states.

Enacted state budgets for the current 2019 fiscal year, which runs until July for 46 states, mark the ninth year of moderate state spending and revenue growth, the National Association of State Budget Officers said in a report released earlier this month.

States where governors had, as of last week, unveiled budget proposals for the next fiscal year, or in some cases two-year budgets, include: Arkansas, Hawaii, Mississippi, Montana, North Dakota, Oregon, Utah and Washington state.

John Hicks, NASBO's executive director, noted in an email that Virginia’s governor, Ralph Northam, a Democrat elected in 2017, on Dec. 18 released a substantial number of new items for the state's fiscal year 2019 and 2020 budgets enacted last year.

And Hicks added that Alaska, Colorado and South Dakota’s outgoing governors had submitted budget recommendations as they are required to do, while incoming governors would put forth their own plans when they take office.

Gov. Jay Inslee, a Democrat now in his second term who is seen as a possible contender for his party's 2020 presidential nomination, called for increasing spending across Washington's general fund and education accounts to $54.3 billion in the 2019-2021 budget cycle.

That would be a hike of about 21 percent, from $44.8 billion, compared to the last two-year budget for 2017-2019.

The proposal notes that in the past three biennial budgets, "near general fund" spending has increased by about $13.4 billion, but that about $9.2 billion of that sum has gone to K-12 education.

State lawmakers in Washington in recent years sought to comply with a 2012 state Supreme Court ruling that said the state was running afoul of its constitution by underfunding schools.

Inslee's budget says that, despite the state's strong economy, revenues aren't keeping up with education funding requirements and demands in other areas—such as mental-health, housing and the environment.

To raise revenues, he is proposing a new capital gains tax on the sale of assets such as stocks and bonds. Washington is one of seven states that does not levy an individual income tax.

He's also pushing for an increase in a state business tax on services, such as those provided by architects and lawyers, as well as altering the state's real estate excise tax so it is graduated, and higher for property sales valued at $1 million or more.

K-12 spending in the governor's budget plan is between $28.1 billion and $30.1 billion, depending on whether capital costs are included.

Among his spending proposals is $1.1 billion (spread across programs in the state's operating, capital and transportation budgets) to aid the recovery of the struggling local orca whale population. 

He is also seeking to fund a $675 million plan to overhaul the state's mental health system, and a $273 million clean energy package.

In Utah, Gov. Gary Herbert, a Republican who has been in office since 2009, has put forward a $19 billion one-year budget plan.

A spending proposal he is emphasizing is $100 million in one-time funding to improve air quality. The funds, his plan says, could support projects like wood-burning stove replacements, electric vehicle infrastructure and other efforts to cut down on vehicle emissions.

Herbert's budget also calls for nearly $50 million to upgrade water infrastructure and would direct $4.7 billion in state spending toward public education, including $444.8 million in new funds. The plan also includes $30 million for teacher bonus pay.

The governor says that sales tax in Utah has slid from covering about 70 percent of the economy in the 1980s, to around 40 percent today.

In light of this, he is urging the legislature to cut $200 million in revenues by reducing the general sales tax rate, while considering imposing taxes on services that are now untaxed. Limousines, lawyers and liposuction were examples he offered.

Northam, in Virginia, wants to add $46 million, on top of $4 million in base funding, to a grant program that supplements the construction costs for extending broadband service into unserved areas.

Other amendments he's offered include a 1 percent bonus for state and state-supported local workers that would cost about $40 million, and funding increases to help improve Chesapeake Bay water quality.

Northam is also seeking to set aside $1.1 billion in reserve funds, including a surplus from last year. "This will set us on a path to having eight percent of our budget expenses set aside in reserves when I propose my outgoing budget to you," he told lawmakers in an address last week, according to a copy of his prepared remarks.

North Dakota Gov. Doug Burgum, a Republican, released his 2019-2021 two-year budget in early December. It includes $14.3 billion of spending, about $4.6 billion from the state's general fund.

The plan proposes moving $315 million from an oil revenue supported account, into a budget stabilization, or "rainy day," fund that was drained in the last legislative session. Gas and oil production is an important part of the North Dakota's economy and key source of state tax revenues. But the sector took a hit in recent years as prices fell.

As a result, the state in 2017 had to slash its general fund budget by about $1.7 billion, from $6 billion to $4.3 billion.

The governor's fiscal plan recommends using $1 billion of oil tax revenues to directly support general fund spending, an amount it says would be about 20 percent of general fund revenues and describes as conservative based on revenue collections even in sluggish years.

Burgum's plan also recommends a $90 million increase in higher education funding, as well as a 4 percent increase in the first year for state salary budgets, and a 2 percent increase in the second year.

The governor's budget also proposes aligning 145 full-time employees across 17 cabinet agencies into a single IT service and $16.4 million to help pay for efforts to centralize the state’s approach to cybersecurity.