Online sales tax ruling could generate billions in new state revenue
Welcome to Governing Market Insights for June.
States and localities could see billions of dollars in new revenue because of the Supreme Court’s online sales tax ruling earlier this month. The decision overturned long-standing precedent that governments can only collect sales taxes on purchases made from retailers with a physical presence in their state. By some estimates, the ruling opens the door to the collection of anywhere from $13 billion to $23 billion annually in online sales tax revenue. Many states already are poised to pass legislation that will enable them to collect taxes on online purchases. The new revenue will be particularly significant in states that don’t have an income tax and rely more on sales tax to fund their budgets.
A recent change in accounting rules makes it easier for governments to finance “green” infrastructure projects such as permeable pavement and rain gardens. New policy from the Government Accounting Standards Board (GASB) allows public agencies to treat green projects similar to water treatment plants, pipelines and other traditional infrastructure assets. That opens the door to bond financing for green infrastructure, which should help states and localities scale up environmentally friendly water and wastewater initiatives.
Unemployment insurance trust funds in more than half the states don’t have enough money to withstand the next recession. A new report from the U.S. Department of Labor says 28 states don’t meet the department’s minimum recommended solvency levels, and 11 states have less than half the amount needed to weather a downturn. The fact that so many unemployment insurance funds are in such bad shape more than a decade after the last recession began is alarming, particularly since many think the nation is overdue for another economic contraction. This is an area that clearly demands attention from state leaders and their partners.
With 36 governors races and nearly two dozen state legislatures up for grabs, 2018 is a pivotal election year. Governing Executive Editor Zach Patton, Staff Writer Alan Greenblatt and Governing Institute Director Julia Burrows recently hosted a free webcast on June 27 to break down the recent primary results and look at how the November elections are shaping up. It’s a great way to understand how ballot results and election trends may impact your priority issues.
Seattle’s corporate “head” tax to fund homeless services may be shelved, but don’t expect homelessness to disappear as a powerful political issue in the nation’s cities. A growing homeless problem may have contributed to the defeat of Salt Lake City Mayor Ralph Becker in 2015. And a pledge to improve affordable housing helped power the campaign this year of newly elected Minneapolis Mayor Jacob Frey. In Seattle, opposition from Amazon and other large employers derailed the city’s tax plan, which would have levied a tax of $275 per employee on companies with at least $20 million in gross annual revenue. Advocates said the tax would have raised about $50 million annually to combat Seattle’s massive homelessness and affordable housing crises. Ultimately the plan failed, but you can expect cities nationwide to continue to search for solutions to this worsening problem.
The decline of the nation’s “middle neighborhoods” is another housing issue that needs more attention. This month, an article from Staff Writer Alan Greenblatt looks at the impact of neglecting solid, working-class neighborhoods that are home to almost half of urban residents nationwide. These neighborhoods aren’t trendy enough to attract new investment — most aren’t especially close to downtown and they often lack the anchor institutions such as universities or hospitals that spur new investment — yet residents aren’t poor enough for assistance from poverty programs. Middle neighborhoods have been off government’s policy radar for decades, and they’re increasingly at risk.
Weathering the next recession is the focus of this year’s Governing Summit on Financial Leadership. In September we’ll assemble finance officials, elected leaders and key industry experts to offer new insights on creative financing tools and performance-driven strategies to help governments prepare for an economic downturn. Among our featured speakers is Andrew Kleine, former Baltimore budget director who put the city on strong financial ground by implementing a 10-year financial plan — a key to helping cities ride out rough economic times. Contact me if you’d like to be involved in this important, invitation-only gathering.
The U.S. will need to spend at least $1 trillion over the next 25 years just to maintain current levels of drinking water service. A new report from the American Water Works Association says more than a million miles of pipe buried beneath the streets of communities throughout the nation is reaching the end of its useful life and needs to be replaced. At the same time, shifting population patterns mean drinking water systems will need to be expanded in high-growth areas. Meeting these demands while keeping water bills affordable will require ingenuity and innovation. The association notes that infrastructure costs alone could triple the cost of water bills for some families. That’s a non-starter for low-income residents already struggling with the price of basic utilities.
