The Biggest Issues for States to Watch in 2018
Even though it's an election year, these policies and problems are too important and timely for legislatures to ignore.
Nothing big happens in election years. At least, that’s the conventional wisdom on legislative action in many state capitols.
And in a year when 36 states will choose governors and 44 will elect state lawmakers, that feeling is understandable. Political paralysis in Congress is also keeping many states in a holding pattern, as their officials try to judge how best to react to potential changes from Washington.
But many state issues are simply too important or too timely to wait. Here are a few that will likely draw a lot of attention this year.
Federal Tax Revision
Few developments in Washington will have as direct an effect on state budgeting as the Republican efforts to revise the federal tax code. As of press time, lawmakers were still working to reconcile the House and Senate tax plans. But the Republicans’ priorities are clear.
One of the main GOP goals is to simplify tax returns for most Americans. This would be done in part by increasing the amount of the standard deduction while eliminating certain itemized deductions. The idea is to give taxpayers an incentive to use the uncomplicated standard deduction rather than undertaking the often thorny process of itemizing deductions.
But in the 43 states with their own income tax, the idea has more sobering implications. A dozen states automatically use the same standard deduction as the federal government. They risk losing out on revenue because residents will have less taxable income. Meanwhile, 31 states and the District of Columbia use the federal list of itemized deductions. Congress is considering eliminating a few of those, such as the student loan interest paid and medical expenses. States that stay linked to federal itemized deductions could see revenues increase. This all means that lawmakers in each state will have to determine how their revenue will react to tax reform and whether or not to stay linked to federal tax definitions.
Republican leaders in Congress have also proposed ending the federal deduction for state and local income taxes and capping the deductibility of local property taxes. Proponents argue that this would give high-tax states some incentive to hold down their own rates. But the results might not be so straightforward. In California, for example, the state has a 40-year-old constitutional amendment known as Proposition 13 that artificially caps local property taxes. A new federal tax scheme that favors property taxes over income taxes could spur debate in Sacramento over whether to repeal the measure and lower state income taxes.
These proposed changes to the federal income tax, of course, would not directly impact the seven states that don’t have one of their own. But the more indirect effects of federal tax revision will impact every state.
For instance, some Republicans support eliminating so-called private activity bonds, a move that could affect economic development around the country. State and local governments use these tax-exempt bonds to finance projects built and paid for by private developers. Low-income housing advocates, nonprofit hospitals and infrastructure associations have warned that eliminating private activity bonds would significantly hamper needed projects because it would increase government borrowing costs by as much as 30 percent.
-- Liz Farmer
The Republican crusade to repeal the Affordable Care Act (ACA) fell short in Washington in 2017, but big changes could still be in store for the nation’s health-care system this year. That’s especially true for Medicaid, the joint state and federal health insurance program that covers 74.6 million low-income and disabled Americans.
Seema Verma, the administrator of the Centers for Medicare and Medicaid Services (CMS), announced in November that she will usher in a “new day for Medicaid.” Verma, who was named to her post by President Trump, outlined a stricter, market-based vision for the program, which has grown by 30 percent since Barack Obama signed his signature health law. Verma is talking about curbing that growth. Many people who gained coverage under the ACA’s Medicaid expansion, she said, “are individuals who are physically capable of being actively engaged in their communities, whether it be through working, volunteering, going to school or obtaining job training.”
Several states have already proposed changes that would address these concerns. As of December, 18 states were waiting for CMS to decide whether to approve substantive waivers to reshape their Medicaid programs, many of them by making it harder for people to qualify for or maintain their benefits. Wisconsin wants to implement drug testing. Six states want to impose work requirements, even though 59 percent of adult Medicaid recipients are already working.
Maine’s request would be the most far-reaching. The state’s Republican governor wants to impose premiums, require Medicaid recipients to work or volunteer, and impose upfront asset tests to prove that the applicants are poor enough to receive Medicaid. The ACA specifically prohibits asset tests, so a waiver allowing them would mark a major change in policy. At the same time, though, Maine voters in November overwhelmingly supported a measure to expand Medicaid. Gov. Paul LePage said he would block the move until the legislature finds funding for it, setting the stage for likely clashes there this spring.
Meanwhile, the Trump administration has taken steps that could undermine the success of another key piece of the ACA: state insurance exchanges. The administration shortened the open enrollment period for health coverage under the act by six weeks, cut the outreach budget by 90 percent and stopped funding cost-sharing reductions, which keep out-of-pocket costs down for those whose incomes are between 100 and 250 percent of the federal poverty line. But initial data showed that more -- not fewer -- people were seeking out ACA coverage: 600,000 signed up for coverage on HealthCare.gov during the first week of the open enrollment period in November, breaking a record.
-- Mattie Quinn
States are increasingly being asked to referee fights between mobile phone carriers and local governments, as the wireless industry sets out to build the next generation of data networks.
The reason for the clash is that the new 5G wireless net-works are built differently than their predecessors. Existing mobile systems rely on equipment installed on towers and tall buildings that are relatively far away from one another. But 5G technology requires a much denser network of 10 to 100 times as many antenna locations, so that the networks can handle the surging demand for data from mobile phones, driverless cars, wearable devices, surveillance cameras, high-tech streetlights and other building blocks of “smart cities.”
Telecommunications companies are eyeing city-owned or city-controlled infrastructure -- particularly utility poles and streetlights -- as sites for their new equipment. But the companies worry that city zoning and other approval processes, plus the high fees that many local governments charge for permits, could stymie the development of the new networks. “Today, it can take a year or more to get a permit, but only an hour to install a small cell. This has to change,” says Sprint CEO Marcelo Claure.
Instead of seeking approval city by city, the telecom giants have turned to state legislatures, where most of them enjoy comfortable relationships with lawmakers, to preempt local regulations. More than a dozen states, including Ohio and Texas, have passed laws setting statewide rules for phone companies that want to use public infrastructure to build their 5G networks.
While the industry sees such efforts as streamlining regulation, many municipalities see them as brazen attempts to preempt local authority and effectively take over public infrastructure. They’re worried about the loss of revenue and the effect that a proliferation of ugly equipment will have on neighborhood aesthetics.
California Gov. Jerry Brown, a former mayor of Oakland, vetoed the telecom industry’s bill in his state, and court challenges could threaten recently passed laws in Ohio and Texas. But the industry is pushing forward with statewide licensing bills in Pennsylvania, Illinois, Michigan, Washington and Wisconsin. The Federal Communications Commission is examining the issue as well.
-- Daniel C. Vock
Sexual harassment has run rampant in state capitols for decades. But now, state officials are being forced to confront it.
First on social media and then in more formal venues, women responded to last fall’s #MeToo campaign with an outpouring of stories that showed lawmakers have too long ignored bad behavior in their workplaces. They told of lawmakers, lobbyists and staff using positions of power to get away with groping, insulting, propositioning, extorting and humiliating the women they work with.
Specifically, women accused legislators of inappropriate conduct in Arizona, California, Florida, Illinois, Kentucky, Massachusetts, Minnesota, Ohio, Oregon, Rhode Island, South Carolina and Washington. Half a dozen states were still reeling from recent sexual harassment scandals before the social media campaign began.
If coming forward wasn’t easy for these women, then what comes next may be even tougher: figuring out how to stop the harassment.
The most common step so far has been to require lawmakers and others who work at the capitol to take sexual harassment training -- something that’s regularly required of other state workers. The success of those efforts depends both on the quality of the training and on the willingness of lawmakers to participate. Some chafe at any mandates for elected officials, while others complain that training alone is ineffective without clear consequences for future violation.
Elected officials can’t be fired easily for violating personnel policies, so legislatures have resorted to other forms of punishment for offenders. These include taking away staff, revoking leadership or committee assignments, revealing information about accusations or settlements to the public, and excluding offenders from party caucuses or expelling them from the legislature.
An equally difficult question that many legislatures are reexamining is who handles sexual harassment complaints in the first place. Legislators often police their own membership for ethics violations, but many employment law specialists recommend that independent professionals look into the allegations. To be credible, the procedure has to protect both the accusers and the accused in today’s politically charged atmosphere.
But the stakes are high. If lawmakers cannot enact effective policies, public confidence in the integrity of state legislatures will decline even more than it already has.
-- Daniel C. Vock
Fair Work Schedules
Some places are imposing new laws or regulations to make the employee workweek more stable and predictable.
With the advent of on-demand scheduling software, large retail companies can now staff up or down by the hour. The technology helps business efficiency, but it comes at a cost for workers who sometimes don’t know until the last minute when they will be called to the job. Working mothers, for example, who make up a large share of these new “irregular workers,” can’t be sure if they should arrange for child care.
Last year, Oregon became the first state to pass a fair scheduling law: Retail, food service and hospitality companies with at least 500 employees worldwide must make work schedules available two weeks in advance. The law includes other pro-employee features such as the right to a rest period between consecutive shifts and the right to express scheduling preferences without retaliation from an employer, as well as the right to receive “reporting pay,” which requires employees to be compensated when they are sent home early.
At the local level, New York City, San Francisco and Seattle have scheduling protections for workers. Chicago may be the next large city to adopt a similar measure.
Apart from Oregon, though, states have been slower to enact scheduling protections. Labor advocates are looking to revive legislation that failed last year in Connecticut, Maryland, Massachusetts and New Jersey.
Another state to watch is New York. In November, Gov. Andrew Cuomo proposed regulations that largely resemble the Oregon law and could take effect without the legislature’s approval.
-- J.B. Wogan
Everyone in government is well aware of the opioid crisis, and most states have taken action to fight it. But year after year, the death count rises. The New York Times estimates that 59,000 people died of drug overdoses in 2016, and 2017 appears to have been deadlier still.
The nature of the crisis, though, is changing. Prescription drugs continue to be responsible for the largest number of deaths, but that rate has leveled off, while heroin has taken an increasingly heavy toll. Most recently, the number of deaths from synthetic opioids such as fentanyl and carfentanil has shot up. Carfentanil is 10,000 times more potent than morphine and was used initially as an elephant tranquilizer. “Our current addiction crisis and especially the epidemic of opioid deaths will get worse before it gets better,” President Trump said as he formally declared the epidemic a public health emergency in October. “But get better it will.”
Trump’s declaration cleared the way for federal officials to relax certain regulations, so that more people can get treatment. The Centers for Medicare and Medicaid Services, for example, has been waiving a rule barring Medicaid payments to patients in large mental health or substance abuse treatment facilities. Seven states have received waivers to allow Medicaid to pay for treatment no matter the size of the facility, and more are expected to apply in the coming months.
But Trump’s action, to the dismay of many public health advocates, did not come with any additional funding.
States and cities, meanwhile, are increasingly turning to lawsuits to discourage drugmakers from overzealous promotion of prescription opioids and to recoup the costs that the epidemic has inflicted on localities. More than 100 governments have filed civil cases against pharmaceutical companies, which could lead to high-profile trials or sweeping settlements.
In the states, public health advocates will likely continue to press for fewer restrictions on the use of naloxone, which can counteract the effects of opioids, and increased funding to make the antidote more readily available. Advocates will also seek more treatment options for patients with addictions and will push to limit the amount of drugs doctors can prescribe at any one time.
-- Mattie Quinn
Unions Under Siege
Despite crippling setbacks in the private sector, organized labor has remained a force among state and local government workers. The U.S. Supreme Court, however, appears ready to deal public employee unions a big blow.
Last year, the court heard a case challenging a 40-year-old precedent regarding agency fees. What that means in a nutshell is that, while unions can’t always require workers to join and pay dues, they can require employers to collect fees that are nearly equivalent to the dues and are used for collective bargaining. That way, workers who benefit from unions negotiating on their behalf aren’t getting a free ride.
Conservatives have attacked this arrangement. They frame their complaint as a First Amendment concern where workers are being forced to support organizations they aren’t choosing freely to join. In 2016, it appeared that a majority of justices on the Supreme Court were sympathetic to that argument. But Justice Antonin Scalia died before the decision was finalized, resulting in a 4-4 deadlock.
This year, with the conservative Neil Gorsuch in Scalia’s seat, union critics are confident they’ll prevail. The court has agreed to hear a fresh challenge to agency fees in the case Janus v. American Federation of State, County and Municipal Employees, Council 31. A decision is expected by June.
Labor officials aren’t willing to concede defeat, but they know that the legal landscape is not promising. An adverse ruling will make their lives much more difficult. A 2015 survey found that only 35 percent of AFSCME members would continue to pay dues if they didn’t have to.
If the court rules against them, unions will have to devote far more time and effort to recruiting and retaining workers. Critics counter that this is all to the good, that unions should be responsive to the wishes of their members, rather than being able simply to demand fees. But convincing workers that they should pay for services they can get free would clearly result in a drain on union resources.
Labor has been able to organize in some places in the absence of an agency fee. Las Vegas is a prime example; many service workers there continue to be unionized without one. But an anti-union decision from the Supreme Court is likely to encourage Republican state lawmakers to put more pressure on labor through legislation. Last year, the Iowa Legislature passed a requirement that each individual bargaining unit hold recertification votes, in which a majority of workers covered by agreements would have to support continued union representation. In most of these elections, unions have been able to win. Still, labor will have to work harder to remain viable if it loses in the Janus case. It can be done, but collective bargaining in the public sector may end up being largely a regional phenomenon.
-- Alan Greenblatt
State Revenue Projections
One of the most important things state lawmakers have to determine each year is how much money the state can expect to collect from its taxpayers. But answering that question is becoming increasingly difficult.
State revenue levels have been disturbingly volatile since the Great Recession. Consequently, more state forecasters have been missing the mark. Two years ago, 19 states had to make mid-year budget cuts because of faulty forecasts. Last year, the problem got worse: 23 states faced mid-year corrections. In the past, those numbers have rarely been seen outside of a recession.
There are two big reasons for the recent difficulty.
The first is that states, particularly those with progressive tax rates, are increasingly dependent on income taxes. Income taxes are especially unpredictable revenue sources because they are closely tied to the individual fortunes of high earners whose incomes can swing wildly from year to year.
Despite that volatility, many states are doubling down on taxing the rich. Since the recession at least six states -- many of them home to the nation’s wealthiest households -- have passed a so-called millionaire’s tax or raised rates on their richest earners. There’s likely to be more: This coming November, voters in Massachusetts will decide on a millionaire’s tax, while the Democrats who control the New Jersey Legislature have said a tax hike on high-earners is their top priority this year.
This increasing reliance on taxpayers’ incomes hasn’t been entirely intentional. It’s partly a side effect of the sales tax base shrinking and becoming a less effective revenue stream as more consumers buy goods tax-free online or spend their money on tax-free services. Since 1960, states have gone from collecting about 60 percent of their revenue from sales taxes and 10 percent from income taxes to 45 percent from sales and 35 percent from income.
Meanwhile, the prospect of lower rates under federal tax reform has taxpayers acting rather unpredictably. Income tax revenue across all states was down 4 percent in April 2017, compared to the previous year, according to the Nelson A. Rockefeller Institute of Government. Although many states had forecast declines in April and May 2017 (the biggest months for income tax returns), the revenue losses were worse than expected. This may be because wealthy taxpayers were shifting income out of 2016, in anticipation of getting a lower tax rate if they waited a year.
State budget offices likely won’t get an accurate picture of what’s really happening until returns start flowing in again this spring.
-- Liz Farmer
The 2018 elections could provide an opportunity for states and localities to restore confidence in voting systems that came under intense scrutiny during the 2016 presidential campaign.
This year is likely to see unprecedented coordination among state and local election officials on security-related issues. Last October, they formed a working group with the U.S. Department of Homeland Security to address concerns over hacking. In exchange for partnering with Homeland Security, state election officials now can obtain security clearances, which will allow them to receive intelligence about specific cyberthreats.
The cooperation came about last year after Homeland Security notified 21 states that Russian hackers had targeted their voter registration files or websites. No evidence suggests hackers actually tampered with voting machines or vote counts, but the federal agency still moved to designate election systems as “critical infrastructure.” Under the designation, states and localities should have an easier time getting federal assistance to protect voting machines, storage facilities and voter registration databases.
But a wide range of election administrators, including the National Association of Secretaries of State, initially balked at the designation, characterizing it as a potential power grab over an election system that has traditionally been decentralized and locally controlled. The working group was set up in response to those concerns.
Voting machines that collect and count ballots aren’t connected to the internet, so a cyberhack that changes the outcome of an election isn’t likely. But the hackers continue to undermine public confidence in the results. That’s why some election advocacy groups say the single most important change jurisdictions can make is switching to paper-based systems, which can help restore people’s trust in election outcomes.
With paper ballots, officials can verify vote counts by comparing digital tallies with the paper record. Some 32 states and the District of Columbia now require post-election audits. Last year, Iowa and Virginia joined the list, while at least five other states considered similar bills. Observers say more states are likely to take up such legislation in 2018.
As election audits become more widespread, so will paper-based voting. About a month before its general election in 2017, Virginia abruptly decertified its paperless voting machines over cybersecurity concerns; Georgia is piloting paper ballots for the same reason. And Delaware put out a bid for machines that used paper. About a quarter of the nation’s voters still live in election districts with paperless voting machines, but after Virginia’s announcement last fall, that number is sure to shrink.
-- J.B. Wogan