The Williams Report: October 2018
Alaska’s persistent funding crisis continues as the state is forced to underfund entitlements and state law enforcement. The Alaska Permanent Fund will loom large as legislators flirt with lowering the yearly dividend below what state law requires.
In budget requests for FY 2020, state agencies requested larger budgets for more staff and higher pay after workers did not receive cost of living adjustments this year. But more money to state agencies will clash with increases in state spending on K-12 education, higher ed, and Medicaid.
An increase in corporate income tax receipts has led to $127 million more in state revenue for FY 2018. A growing economy has also led to personal income tax and sales tax revenue being higher than expected.
Described by Comptroller Peter Franchot as “a tidal wave of new cash,” federal tax reform and the strong economy created a surge in tax revenue beyond what Maryland forecasted for FY 2018. Low unemployment coupled with wage growth also led to higher-than-expected income tax revenue.
Governor Pete Ricketts will push for property tax relief and increased aid to K-12 education during the 2019 legislative session. Nebraska may be able to cut taxes and increase education spending through a revenue windfall resulting from economic growth and federal tax reform.
Rather than prioritizing broad-based tax relief, Governor Phil Murphy aims to auction tax incentives to existing corporations and inject the resulting money into targeted tech-related startups.
State Representative Seth Grove is pushing for consensus budget forecasting to depoliticize the forecasting process. By moving from three separate revenue estimates to one, from a Joint Revenue Estimation Committee, Rep. Grove expects to increase forecast accuracy and reduce deficits.
At the midpoint of Washington’s two-year budget cycle, the Economic and Revenue Forecast Council revised projections to show a $348 million increase in revenue. If the forecast is accurate and state spending remains at expected levels, Washington will have $3.2 billion in reserves at the end of the current budget cycle.
Public pension boards face negative incentives that encourage short-term gains in exchange for much higher long-term costs. Often comprised of political appointees and elected representatives, public pension boards chase high rates of return in exchange for riskier investments that don’t hold up over time.
Hired in 2016, Marcie Frost claimed to be “not degreed yet” when hired as CEO of CalPERS, the nation’s largest public pension fund, and allegedly misrepresented her enrollment at Evergreen State College. CalPERS did not list a college degree as a necessary qualification for the position when searching for the next CEO to replace outgoing Anne Stausboll.
Pension reform bill SB 151, passed by the Kentucky General Assembly and signed by Governor Matt Bevin, was declared unconstitutional by lower courts as the bill did not follow proper legislative procedure in the Senate. The Kentucky Supreme Court heard oral arguments in late September and the court is expected to announce a decision in late 2018.
A key recommendation from Senate President Steve Sweeney to move state employees with less than five years of experience to a new 401(k)-like pension system has public unions mobilizing opposition. The proposal is expected to save New Jersey billions of dollars and help fund a state-estimated $115 billion pension funding gap.
The Pennsylvania Public School Employees Retirement System (PSERS) and the State Employee Retirement System (SERS) underreported 33 percent of fees paid to private equity firms amounting to $3.8 billion. The fees were paid as a charge for investing in riskier assets that promise higher returns, but tend to be more expensive.