Finance

State Lawmakers Urge Washington to Reach Budget Deal

Congressional negotiators are supposed to deliver the outline of a budget deal next week. State officials are urging them to produce.
by | December 5, 2013
The U.S. Capitol in Washington, D.C.
The U.S. Capitol in Washington, D.C. FlickrCC/dbaron

Dozens of state lawmakers are lobbying in Washington this week, urging members of Congress to reach a budget deal by their self-imposed deadline next week.

State officials are reiterating an argument they've been making for years: Washington's failure to pass budgets in recent years -- and a culture of crisis that's played out through debates about sequestration, default and shutdowns -- have made it almost impossible for state lawmakers to budget on their own.

They're urging federal lawmakers to agree to the terms of a budget agreement by Dec. 13, the date Congress agreed to as part of the deal that ended the shutdown earlier this fall. Federal lawmakers face a hard deadline of Jan. 15, 2014 to pass a spending package or risk yet another shutdown.

State officials are hoping that doesn't happen and instead want federal officials to agree to a plan that dictates two years of spending levels that would give state lawmakers and budget officials the stability they need to conduct their own planning.

They're also urging the feds to preserve their most important grant programs as they figure out what, exactly, will be cut in order to reduce the deficit.  "We believe everything should be on the table, but there should not be a disproportionate impact on states," says Sheri Steisel, federal affairs counsel for the National Conference of State Legislatures.

State officials are also making the case for the Marketplace Fairness Act, federal legislation that would allow states to collect sales taxes from online purchases. The legislation passed in the Senate earlier this year but has stalled in the House. State lawmakers are arguing that if the feds cut funding for state programs, they should grant states the ability to raise more funds on their own to help close the gap.

"If we're moving towards reductions (in funding), we've also got to look at areas where the federal government can restore fairness," Steisel says.

As the possibility of tax reform legislation also looms, state lawmakers are telling members of Congress to preserve the tax-exemption for municipal bond proceeds, which allow state and local governments to issue bonds at a lower cost than the private-sector. They're also working to preserve the ability of federal taxpayers to deduct state and local taxes they've paid from their federal tax liability. Some House Republicans may be targeting that provision.

Both provisions are considered priorities for states, but they come at a cost to the feds by reducing the burden of federal taxpayers.

Steisel noted that state lawmakers face a bit of a challenge as they take their message to Capitol Hill because states saw an increase in revenue in FY 2013. That might make it difficult to plead poverty. "In some ways, it makes it easier for the federal government to say 'states are doing well, they can handle the burden.'"

Indeed, states saw a 5.5 percent increase in revenue in FY 2013. But budget experts widely acknowledge that was likely an anomaly that was the result of taxpayers shifting the timing of their income in order to avoid federal tax hikes.

NCSL's forecasts show state revenue will once again remain relatively stagnant this year, increasing just 1.3 percent.

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