Sin Taxes: Sobering Reality

Scott Pattison

Executive Director

NASBO

April 2, 2015

Overall

www.nasbo.org

2

▫ Modest Growth (Mirror Economy)

▫ Most States: Good/Decent

▫ Tough Decisions

▫ Some States Very Difficult (Oil prices, etc.)

3

Long Term Spending Pressures:

Medicaid and Health Care

K-12 and Higher Education

Demographic Changes

Corrections

Infrastructure

Pensions

Retiree Health Care

www.nasbo.org

Slow Budget Growth Continues

www.nasbo.org

4

-8

-6

-4

-2

0

2

4

6

8

10

12

%

General Fund Expenditure Growth (%)

*Average

*37-year historical average annual rate of growth is 5.5 percent *Fiscal 2015 numbers are enacted

Source: NASBO Fall 2014 Fiscal Survey of States

GF Spending Expected to Grow for 5th Straight Year,

Although Below Average

www.nasbo.org

5

8.7 9.4

4.9

-3.8-5.7

3.8 3.44.2 4.9

3.1

-8

-6

-4

-2

0

2

4

6

8

10

12

(Per

cen

tage

Ch

an

ge)

Annual Percent Change in General Fund Expenditures

37-year historical average rate of growth is 5.5 percent *Fiscal 2015 numbers are enacted

Source: NASBO Fall 2014 Fiscal Survey of States

States Reserves Haven’t Reached Peak Levels

11.5%

10.1%

8.6%

5.7%5.2%

7.1%

8.4%

10.5%

8.9%

7.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15

Balances as a Percent of Expenditures

Balances as a Percent of Expenditures

www.nasbo.org

6

GF Spending Exceeding Pre-Recession Level

www.nasbo.org

7

Source: NASBO Fall 2014 Fiscal Survey of States *Fiscal 2015 numbers are enacted

$687

$661

$623

$645

$667

$695

$729

$752

$550

$600

$650

$700

$750

$ In

Bill

ions

2008 2009 2010 2011 2012 2013 2014 2015

General Fund Spending: FY 2008-FY 2015

Fiscal Year

GF Spending Still Below Pre-Recession Peak Adjusted for Inflation

$655

$687

$661

$623$645

$667

$695

$729$752

$771

$500

$550

$600

$650

$700

$750

$800

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

General Fund Spending: FY 2007-FY 2015

*

www.nasbo.org

8

Source: NASBO Fall 2014 Fiscal Survey of States; Fiscal 2015 numbers are enacted

*Aggregate spending levels would need to be at $771 billion to remain equivalent with real 2008 spending levels.

GF Revenue Also Below Pre-Recession Peak Adjusted for Inflation

$655

$680

$626$610

$650

$669

$716$726

$748$763

$500

$550

$600

$650

$700

$750

$800

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

General Fund Revenue: FY 2007-FY 2015

www.nasbo.org

9

Source: NASBO Fall 2014 Fiscal Survey of States; Fiscal 2015 numbers are enacted

*Aggregate revenue levels would need to be $763 billon to remain equivalent with real 2008 revenue levels.

Revenue Sources in the General Fund (Percentage)

Sales 31%

Personal Income

42%

Corporate Income

6%

Gaming 1%

Other Taxes &

Fees

20%

Estimated Fiscal 2014

www.nasbo.org

Source: NASBO State Expenditure Report

10

Revenue Sources in GF Relatively Consistent

1998 2014

11

www.nasbo.org

Sales 34%

Personal

Income 39%

Corporate

Income 8%

Gaming 1%

Other Taxes

& Fees 18%

Estimated Fiscal 2014

Sales 31%

Personal

Income

42%

Corporate

Income 6%

Gaming 1%

Other Taxes

& Fees

20%

Estimated Fiscal 2014

Percent Change in FY 2014 and 2015 Collections by

Major Tax

Fiscal 2014 revenues increased by 1.3%, slow growth partly due to federal tax changes▫ PIT grew by 0.9%, sales 4.9%, and CIT 0.7%

Fiscal 2015 revenues projected to increase by 3.1%▫ PIT projected to increase by 4.7%, sales 4.0%, and CIT 1.7%

www.nasbo.org

12

Source: Fall 2104 Fiscal Survey of States

General Fund Collections Compared to Projections

Fiscal 2014 ▫ Revenue collections outpaced projections in 25 states

▫ Were on target in 5 states

▫ And came in below estimates in 20 states

Fiscal 2015▫ Revenue collections have outpaced projections in 7 states

▫ Are on target in 26 states

▫ Are coming in below estimates in 10 states

www.nasbo.org

13

*Only 43 states reported collections compared to projections for fiscal 2015.

Fiscal 2015 Enacted Revenue Changes by Major Tax

Sales Taxes (-$248M): 5 states enacted increases,

13 enacted decreases

Personal Income (-$747M): 1 increase, 14 decreases

Corporate Income ($207M): 2 increases, 9 decreases

Cigarettes/Tobacco ($8M): 2 increases

Motor Fuels ($33M): 1 increase

Alcohol (-$0.2M): 1 increase, 1 decrease

Other Taxes (-$698M): 4 increases, 9 decreases

www.nasbo.org

14

Source: NASBO Fall 2014 Fiscal Survey of States

Number of States Increasing Tobacco &

Alcohol Taxes from 2000-2015

www.nasbo.org

15

42 3

1915

10 10

48

1

16

73 4 3 2

1

2

4

3 2

1

1

4

31

1

00 01 02 03 04 05 06 08 08 09 10 11 12 13 14 15

Tobacco Alcohol

Source: NASBO Fiscal Survey of States

Changes in Tobacco & Alcohol Taxes

(2000-2015)

www.nasbo.org

16

111

23

48

Tobacco Alcohol

Increases

Decreases

Source: NASBO Fiscal Survey of States

Tobacco and Alcohol Revenue

According to Census, state and local tobacco

tax revenue was $17.6B in fiscal 2012

State and local alcohol revenue was $6.5B

Total state general fund revenue alone was

$672.8B in fiscal 2012, according to State

Expenditure Report

www.nasbo.org

17

State Gambling Revenue

Gambling revenue totaled $27.3 billion in fiscal 2014, according to Rockefeller Institute of Government▫ Lottery $18.1B, Casino $5.3B, Racino $3.2B, Video

Gaming $582M, Pari-mutel $140.5M

By comparison, total general fund revenue was $729.7 billion, according to State Expenditure Report

Gambling revenue increased 0.6% in fiscal 2014, but declined 0.8 percent after adjusting for inflation▫ Lotteries grew 0.6%, casinos declined 1.4%

www.nasbo.org

18

Colorado Marijuana revenue

Colorado is projected to receive $47.7M in medical and retail marijuana revenue in fiscal 2015▫ Original projection was $134M

By comparison, Colorado’s total projected general fund revenue for fiscal 2015 is $9.6B▫ Marijuana revenue would then represent 0.5%

January marijuana sales yielded $2.3M for schools▫ Colorado spent $7.9B on K-12 from all fund sources in

fiscal 2014

www.nasbo.org

19

Washington State Marijuana revenue

Washington State Economic and Revenue

Forecast Council is projecting $222M in

marijuana revenue over the next two-year

budget for fiscal 2016-2017

By comparison, Washington’s general fund

revenues are projected to be $16.8B in fiscal

2015 alone

www.nasbo.org

20

Budget View

Sin Taxes Not a Solution for Major Budget Problems

Good for: ▫ Some Extra Funds

▫ Pay for Regulatory Environment

▫ Discourage Use

Reasons and Justification Should be Discussed

Distraction from Major Fiscal Challenges

Marijuana Issue: Colorado Gov. John Hickenlooper stated that he thinks legalization was a bad idea (1/23/15 CNBC interview)

www.nasbo.org

21

www.nasbo.org

Scott D. Pattison

Executive Director

NASBO

202-624-8804

spattison@nasbo.org

22

www.nasbo.org