Their economic circumstances. States for what about the effects of the tax cuts and job ask what is passed at the end of 2017, they particularly were worried their state Income Tax Revenues would be more volatile and do it hard to predict what the results were going to be due to shifting payments over time and changes in federal deductibility. We encourage all the audience, both those in person and those who might be watching unlighted joint in the in the conversation via social media using the liveaturban as we have on the screen here we have a great panel today ready and willing to discuss all the issues at this time and in the near future. The Panel Discussion will be followed by a questionandanswer session, so you all should write down your questions or remember your questions and youll have an opportunity to ask them of the panelists at the end of the moderated discussion. I would like to introduce the moderator for todays panel, howard gleckman, a senior fellow at the urbanbrookings Tax Policy Center. Use editor and frequent contributor to Tax Policy Center blog on all things cisco. Hes an authority on longterm care issues, which may be helpful today because we will be discussing some states chronic longterm fiscal problems. So let me welcome howard and the panels to the stage and that howard will be introducing our panelists. [applause] thank you, mark here thank you all for coming. This is as mark suggested a very interesting time for states. On the one hand, many iceman in tax revenue extra Strong Economy and benefits of tax cuts and job act, along with many states said they hated. On the other hand, there are states who feel some real risks to their huge revenues. We will talk about revenues, talk about what states are doing with the money and how some at least are thinking about reforming their tax structures. Our panelists today your longer files but very briefly, john hicks is executrix of National Association of state Budget Officers. Kim rueben is fellow at the urban brookings Tax Policy Center of the direct of state and local finance initiative at urban. Next is joseph bishophenchman, executive i present the Tax Foundation finally nick johnson is Senior Vice President at the state fiscal policy at the center on budget and policy priorities. We will have an informal conversation among ourselves for a while and then we will turn over to you for some questions. Let me start with john. I would if you could give us an overview of state revenues for this budget year . Thanks, howard. The word i would use his very improved. We have states Revenue Growth of the you were in and last year as a back to back on the best weve seen since just prior to the Great Recession. And so, but theres a story behind that that makes it more and usual and pass good times and that has to do with the interactivity of the tax cut and jobs act and the timing of personal income tax payments. For states general fund the personal income tax has a group of 50 is the 45 5 of our money. So personal income tax is a very important stream of revenue. Last year we finished fiscal year 18 with personal income tax growth on a beating basis of about 8 which is a really high number. But the story was in december, estimated taxpayers walked down to the tax office and wrote the check in december. It was a check they wouldve written baby in april of the later you. We got whole bunch of money december of 2017. Thank you, kim. Last year fiscal 18 we were waiting in april to may be given bunch of that money back in tax refunds when filers files. We didnt. States talks about the significant amount of nonwage income being the driver of a lot of the increase while withholding has been good, the real boost in income was the result of Capital Gains and dividends and bonuses and other nonwage income. States had revenue surpluses at the end of fiscal 18. Revenue surpluses they didnt count on rf time to act on. The good news is a whole bunch of that went into our rainy day funds as a function of the law of the state of what to do with the yearend surplus. We walk into this year, doing pretty well, going into november. Suddenly in december of 2015, estimated tax payments dropped like a rock, almost like 40 over the the prior period pic in january also a big decline. Revenue collected one whats going on. You do something to with the fact that so long an incentive for wealthier taxpayer to pay their taxes in december because of the 10,000 federal, state and local Tax Deduction limitation. Clearly time is now new to state revenue collections. And so states were speculating that, april we may be all right that we are not sure. April came and we did get back that money, almost 30 increase in s. B. To payments or final payments across the board, still waiting to get some states in. We were rising high in november, and we dropped, and what we done this, right back to where we are from november. And thats about a x. 5 increase in revenues on the income tax side and about 6 increase in revenues total general fund. More than estimated, so were looking at surpluses again, howard, this interview. I will call this late money. We got late by nilesh and were getting late money this year, more than estimated. Only nine states have new revenue estimate for the fiscal 20 that incorporates the april tax receipts. Most of the states have completed the revenue estimates, as a lot of money is going to roll into rainy day funds and ending balances again at the end of this year may come out as a norm of wood. Its been a topsyturvy couple of years. A good period for states. Rainy day funds have been beneficial a lot of this extra money or money greater than budgeted. Before the Great Recession we dropped down to about 2 of our spending intrinsic and out we have in a savings account. We have been slowly building a backup. Beyond that which we were required before the Great Recession, beyond what we were in the early 2000 recession, we had record levels of rainy day funds across the country. Will end up at about 7. 5 or more at the end of this fiscal year and 7. 4 what was estimated in governance budgets. We were probably exceed that. The good news about late money is sometimes its nonrecurring. Theres caution but how much of that nonwage income would repeat itself next year. They acreages of one that moneyo store it away, to prepare for the next recession, which has been one of the highlights of governors and legislators Budget Proposal as they are pleading their work now is improving. Gill, governor signed his budget the other day and touted the billion dollars that will be in the rainy day fund. The Arizona Governor and legislature came to agreement on some big things and that was another highlight they made is another billion dollars in rainy day fund. So something as a look past the last 30 years, states would pay more attention to that now, Lessons Learned from the last recessions and as i call this late money has really been a nice way to increase that. And yet save, allow the legislature for the subsequent year to be delivered about how much of that is recurring and what we should do with it. Kim, he talked about the income tax. Give us more of a sense of where else this route is coming from. Of income taxes, thats one of the uncertainty was. But because there were other things going on, states get my from other places if there was the wafer for decision, Sports Betting. Theres new marijuana taxes. States are expanding the Revenue Sources into other things that are new and then i think like to just highlight what john was talking about, i think governors and legislators doing a good job, and much better job than what youre doing right after the Great Recession that we went into the recovery originally were think a lot of states saw money improving with a lot of her drastic tax cuts. Like in my mind i feel like what weve seen over the last couple of years and starting with what was a really hard budget year, which was the one not in the 2019, so if about to get into the 2020 budget year this year, fiscal year, last year was 2019 fiscal year, the 20102010 fiscal year was a really hard year for states were a lot of state actually were late getting to budgets done but it did is they made a lot of improvements where they took seriously the fact that unexpected shortfalls and actually changed a couple of things. We have places like kansas that we visited the income tax cuts, oklahoma did some of the same thing. In some ways the 2019 fiscal year was a bonus, and this year was a bonus because they were already doing things that look like it was smarter budgeting. The fact this year a lot of states starting with last you got more money and also have these Court Decisions that basically authorize Sports Betting and authorized their way for decision was basically means they can tax wayfair tax internet sales. It means they have other needs of revenue coming in and if you sort of terror that pair that with the fact the economy is doing pretty well, their budgets, their money seems pretty good. There is a sense of uncertainty and malaise that if you talk to people, like part of the reason theyre putting money into the rainy day funds is their time to figure out how long it will last and whats going to happen at the federal government to go forward. Joe, give us more of a sensf how this revenue is changing funding priorities. Joe and kim john and kim have talked about how a lot of this goes into rainy day funds but not all of it. Give us a sense of what else theyre doing with this money. And let me add my congratulations to you and this wonderful space. Very fitting at the urban institute and its important mission, so its very nice. As john and kim both suggested, whatever the opposite of a a crisis is, thats kind of the situation right now at the state level. I took over state policy of the Tax Foundation in in 2009, andy outgoing predecessor who is on his way to go beat Mitch Daniels as budget director, so pretty nice job, and he said very busy during the first third of the human state legislators are in session and then the summer its very, not a lot going on and you can get caught up on longterm stuff, event it starts wrapping up after the election. None of the years ive been at the Tax Foundation have been like that. We have been in kind of crisis mode since 2009 and probably a little before that. Ive never really experienced this is all brandnew for me, this year. There really are not states giving with major crises, and even the states that have like systemic, unsolvable budget problems like illinois or louisiana were able to make it through the year okay without actually addressing them. And then so you have i think states looking at this as an opportunity to look at longterm structural things. Its not so much how it would balance the budget this year, how do we get to the year, but we have the time and in many cases the money to be able to do some pretty dramatic things. It varies by state what that dramatic thing is. Texas and nebraska, their big thing that theyve tried is offer a long time is property taxes. Utah is looking more at sales tax structure and broader structure taxes as a whole, which park as i was able to tackle this year, overall. Eleanor ilsley of income tax. Some of these were able to result in legislation. Most of them didnt because these are kind of longterm structural big things, kind of white whales of various constituencies in those varies state that they were able to talk about those because there wasnt any of the kind of larger crisis over biting those, which is been the case for a long time. The only thing i would add to that we will leave this program on Budget Priorities for whats expected to be a brief pro forma session of the u. S. Senate. No votes schedule today. The chamber has been convening every three Business Days during this summer, postit work. Mick to legislative business will resume monday, september 9, and of the u. S. Senate here on cspan2. The presiding officer the senate will come to order. The clerk will read a communication to the senate. The clerk washington, d. C. , september 3, 2019. To the senate under the provisions of rule 1, paragraph 3, of the standing rules of the senate, i hereby appoint the honorable ted cruz, a senator from the state of texas, to perform the duties of the chair. Signed chuck grassley, president pro tempore. The presiding officer under the previous order, the Senate Stands adjourned until 8 30 a. M. On friday, september 6, 2019. Without putting a particular partisan spin, thats not been what states to do when they set up their revenue structures whether its good or bad. Its not something that is expected and its not something that has happened so you started in the introduction talking about looking for other Revenue Sources. That is something that the states do to, they need to find more revenues, the first are not looking to do is raise their sales tax or their income taxes unless theres really a punctuation that happens such as a Supreme Court decision declaring your k12 System Unconstitutional which has and across the country in several places. It was the last time i stayed in Kentucky Rate income and sales taxes because the Supreme Court said that so it is just not the rule, whether there an opportunity there or not is true but its not the way the state chose to set themselves up. I guess i would be more in mixed camp that we do see this bifurcation. Weve done some work there, ive done some work where we actually found that states responded differently to unexpected deficits after the Great Recession than they did before and it was largely related to whether republicans were in control or not and basically didnt raise taxes to find sort of maintain services, they cut things and they did that more and we did have to shift to more republican control. And we have seen in the aftermath of thisrecession , the Great Recession, in my mind weve seen this bifurcation. Weve seen some states which have basically set on arguing that they need to expand the sales tax and income tax and you get all this growth, the whole texas miracle that doesnt reallypan out for other states. But then weve seen other states like california and new york and new jersey and dc and maryland actually increase many millionaires taxes rates that we might see more movement especially as income inequality becomes a thing to try and figure out whether there is a way to rebalance things and whether there is a way to collect more money for certain groups. Now, i dont know if you rub some salt in. I do think there is this difference, i also want to go back to be relatively optimistic about over the three budget cycles but then thats different, part of that is whether were at a global peak or a local peak and i feel like in some way im really impressed with what states are doing right now in part because i was so unimpressed. Like, that were some of the things they did the first time they got money coming in after the Great Recession but increased, there were certain states that basically taxes, that is what they did rather than source some spending. I find it just an interesting change in the rhetoric and im also sort of interested in how were going to see legislatures and the executive work going forward. We have seen more, weve seen a decline in the number of states that have all republican controls and weve seen an increase in the number that are democrats. Weve also seen this interesting mix where the ones that are split, we basically see as opposed to the houses being different, we see governors of one party and houses largely both of the other party except for minnesota so there is sort of this interesting discussion and description of whats going on where is it that you have anexecutive who is negotiating with people who are very different than them. Even states like illinois where were talking, youve got also the problems but im interested in their tax reform proposal. I want to go to a graduated income tax and the legislature is aboutto pass it and it will go to referendum. Is there any future in graduated income taxes ormore graduated income tax . Its the present. Most states have graduated rate income tax, they may be more or less equally graduated but illinois is one of the few stathose constitution is borrowing them from head to having a graduated rate so all theyre doing is proposing to the voters they change the state constitution to allow them to do what every other state income taxes allowed to do. And i also think that states that you already have the ability to have more graduated income taxes probably will consider more and more having a new top bracket for the wealthiest taxpayers. Or consider increasing the rate at the top of the income spectrum the cause theres so much money now at the top of the income spectrum that to leave that aside sort of doesnt make sense. Its one of the reasons why i think Income Tax Revenues generally at the state level have not kept pace with this economic expansion because a lot of the economic expansion has occurred at the top of the income spectrum and estate tax codes collect an awful lot of revenue at the middle of the income spectrum so theres a disconnect. I also think that you could and we already are seeing a reaction against the tax cuts and the jobs act. The tax cuts and job act puts an enormous tax windfall to the quite well off households and to corporations and so i think in a lot of cases you are seeing essentially well, maybe we can roll back a little bit of that revenue. The federal government exploding budget