Amidst Fat, Happy Neighbors, Four States Tighten Belts

The axiom about rising tides lifting all boats apparently doesn’t apply to states. Because while much of the country is awash in budget surpluses, Alaska, Louisiana, Tennessee and Wyoming have struggled to surmount shortfalls.

The reasons behind their fiscal doldrums vary an outmoded revenue system in Tennessee, fluctuating crude oil prices in Alaska. One similarity all four states share, though, is a dearth of personal income-tax revenue. Three of the four — Alaska, Tennessee, and Wyoming — make no effort to collect income taxes.

Louisiana does, but its collection mechanism is perceived as so weak that Pelican State lawmakers passed an income-tax reform measure last week.

“The best way to be part of the rising tide is to have a dinghy, and in this case a dinghy is an income tax,” says John Petersen, director of the Arlington, Va.-based Government Finance Group, an organization that studies state fiscal policies.

Further compounding Louisiana’s muddled financial picture, legislators failed to craft a nearly $14 billion operating budget before their legislative session expired last week. As a result, a special session will probably commence June 19, the New Orleans Times-Picayune reports.

Pelican State lawmakers did manage to approve $220 million in taxes before they left the Capitol in Baton Rouge. So instead of facing a $250 million shortfall when they return for their special session, they’ll grapple with a $30 million deficit.

Louisiana’s Legislature voted to raise taxes on food and utilities, but efforts to raise taxes on riverboat casinos and alcohol fell short. Republican Gov. Mike Foster wants to scuttle the food and utility tax increases, but was elated to see the Legislature’s income tax restructuring proposal.

If it passes at the polls Nov. 7, the measure would help raise more than $400 million and would give Louisiana teachers the pay raise they demanded earlier this year, the Times-Picayune reported.

In Tennessee, lawmakers mulled directing the state’s share of the tobacco settlement toward the Volunteer State’s budget deficit. Tennessee is slated to receive $202 million in tobacco money this year, but plans to put it toward the deficit were shot down in the Senate.

That preceded a proposal to slap a 2 percent tax on the heating and cooling bills of state residents, generating nearly $50 million. After the plan was okayed by the House, Republican Tennessee Gov. Don Sundquist threatened to veto the measure if the Senate passed it. The measure also called for raising taxes on liquor, cigarettes, wine and beer.

Heeding Sundquist’s warning, a Senate panel rejected the House’s proposed utility taxes June 6, while approving new taxes on higher-income Tennesseans and business profits.

Critics of the heating and cooling taxes said they’d put an unfair burden on senior citizens and the poor.

Tennessee began the year with a budget deficit pegged around $382 million, which was later upgraded to roughly $350 million.

One of the country’s more dramatic budget fluctuations played out in Alaska, where a shortfall that was around $1 billion this time last year had shrunk to roughly $350 million by the beginning of 2000. Depressed crude oil prices and sluggish production had wreaked havoc with a state economy dependent upon oil drilling. To the relief of Alaska budget officials, however, crude oil prices are now about triple what they were last year.

Although oil prices have rebounded, Alaska isn’t totally out of the woods. A few weeks ago the director of the state Division of Park and Outdoor Recreation said that proposed budget cuts could cause some parks to be shut down. The agency then produced a list of state parks that could be closed.

Alaska has a powerful fiscal ally in Washington, D.C., in the person of Republican U.S. Sen. Ted Stevens. He chairs the Senate Appropriations Committee and has been generous to his home state.

Thanks in part to Stevens’ effectiveness in sending federal money to Alaska, Democratic Gov. Tony Knowles proposed a $6.7 billion 2001 budget that topped the previous budget by $198 million. At the same time, Alaska’s GOP-dominated Legislature sought $30 million in budget cuts for fiscal 2001, compared with fiscal 2000.

When the 2000 session ended a few weeks ago, Alaska lawmakers had again spent more than the state rakes in, and again dipped heavily into the state’s oil-settlement savings accounts to make up the difference. For fiscal year 2001, $377 million will be siphoned from the Constitutional Budget Reserve, compared with $305 million for fiscal year 2000.

“It is irresponsible on the part of the Legislature to not produce a long-range, comprehensive plan,” Republican Rep. Jim Whitaker told the Anchorage Daily News in April. “We shouldn’t leave here until we do.”

When Wyoming’s 55th Legislature ended in March, a disgusted Republican Gov. Jim Geringer refused to sign the budget bill state lawmakers crafted

“My long-term goal would be that the revenue base be broadened to encompass new revenue not in place today,” Geringer told the Wyoming Eagle-Tribune. “Our state revenues depend largely on taxes and income sources that are not tied to the economy or the demand for services. Without linkages to the economy or the sense of ownership that comes from paying part of the bill, we will continue to be plagued by uncertainty and volatility in the budget process.”

Wyoming depends heavily on fees paid on minerals and oil extracted from its borders. Geringer was irked that state lawmakers began their most recent session confronting a budget deficit, but lucked into a surplus situation partially because oil prices rose.

Even though the governor failed to sign Wyoming’s spending bill, the 2001-02 biennium budget still becomes law July 1.

At least Wyoming can cling to a small silver lining — it led the nation in per capita income growth in 1999 with a 7 percent increase, according to U.S. Department of Commerce statistics. Even so, the Equality State still ranked 31st among states in terms of per capital income.

Alaska and Wyoming are probably No. 1 and No. 2 among states that depend heavily on mineral extraction taxes, says Arturo Perez with the National Conference of State Legislatures.

“Not having personal income taxes in their quiver of arrows makes those states that much more reliant on single (revenue) sources,” Perez says. “They basically lack the balance that other states have that allow them to weather uncertainties or unexpected drops in one particular tax.”

Elsewhere, Kansas lawmakers were notified in April that the state is running a $20 million deficit for fiscal year 2000, compared with a $73 million shortfall the previous fiscal year.

State officials blamed slower than anticipated collections of corporate income taxes and sales taxes for the fiscal year 2000 miscalculation.

Mississippi’s overall economy is said to be healthy, but state budget officials recently cringed when health care claims for an estimated 100,000 employees and retirees exceeded available cash by $30.7 million, the Biloxi Sun Herald reported.

In Massachusetts, where the fiscal picture is also presently good, a government watchdog group called the Massachusetts Taxpayers Foundation (MTF) is warning that the Bay State’s budgetary practices could trigger a long-term disaster.

The activist organization is worried that Massachusetts tax cuts, along with spending increases, will eventually lead to trouble, according to the Boston Globe.