BRADENTON, Fla. - Local and state government leaders around the country are trying to tap sales taxes for new revenue to fund an ever-increasing range of needs.
Bills are advancing in some states that lean on the sales tax to help close budget gaps, fund pension liabilities, finance teachers' raises, and pay for infrastructure, economic development and transportation projects.
Though attractive to politicians who see them as a politically viable way to raise money, many critics view the sales tax as regressive because they believe it unfairly targets the poor.
In Louisiana, state legislators agreed to temporarily boost the sales tax by one cent per dollar to help plug a $900 million deficit this year, and a $2 billion shortfall in fiscal 2017.
In the last week, business-backed proposals surfaced to boost the sales tax even higher to avoid more drastic cuts and the removal of certain incentives and exemptions.
A temporary, one-cent increase in the state sales tax is a reasonable solution to help address the state's fiscal crisis, according to the director of the Louisiana Budget Project, a think tank focusing on the effects of public policy on low- to moderate-income families.
A higher tax rate would violate the basic principle of shared sacrifice "by putting too much of the burden on working families that can least absorb a tax increase," director Jan Moller wrote in a
In Kentucky, a bill is moving forward that would for the first time allow local governments to impose a local option sales tax to finance infrastructure or economic development projects.
The Florida Legislature is poised this week to pass a measure that allows the city of Jacksonville to use a sales tax to pay for unfunded pension obligations.
Officials in other states, such as Minnesota and Hawaii, were considering boosting their sales taxes to address transportation needs.
Kansas lawmakers have used increases in sales and cigarette taxes to help fill in as funding sources because of cuts to state income tax rates.
Public school teachers would get raises under a plan moving forward in South Dakota to increase the state sales and use tax to 4.5% from 4%.
The reliance on the state sales taxes and similar revenues comes as researchers see potential reductions in post-recession collections.
The growth rate for overall state tax collections is expected to be slower in fiscal 2016 and 2017 than it was in 2015, according to a
The median forecast for sales tax growth in the 38 states for which recent data is available is 3.5% for 2016 and 3.9% for 2017, down from actual 2015 growth of 4.5%.
"Recent fluctuations in the stock market and the significant drop in oil prices cause us concern about state tax collections," said study researchers Lucy Dadayan and Donald J. Boyd.
Preliminary figures for the fourth quarter of 2015 indicate further weakening, the institute said, with overall state tax collections up 2.6% but sales tax growth tapering to 2%.
In Kentucky, lawmakers are considering a proposed constitutional amendment that would allow cities and counties for the first time to levy a local option sales tax to fund specific projects.
The proposal, sponsored by House Speaker Greg Stumbo, D-Prestonsburg, and House Minority Floor Leader Jeff Hoover, R-Jamestown, cleared its first committee on Monday.
If passed by the General Assembly, House Bill 2 would allow voters statewide to decide on a constitutional amendment determining whether cities and counties can enact a sales tax up to 1% to finance specific projects.
Once approved statewide, a local referendum would be required to implement the tax in each jurisdiction.
Stumbo compared HB 2 to the Kentucky Education Reform Act, or KERA, which increased funding for public education in 1990.
KERA required the state to show taxpayers where it intended to spend the money, he said.
"In this instance, [voters would] be able to see exactly what it's going for," Stumbo said, referring to what the local option tax would pay for. "I believe that's the way in modern times that we have to approach this funding situation."
The legislation does not authorize or prohibit local governments from leveraging the local sales tax with bonds. However, the tax would be discontinued once a project is paid off or after a certain number of years, whichever comes first.
The Kentucky League of Cities said it supports HB 2 because the state constitution severely limits the revenue options available to city governments, which continue to struggle with the slow economic recovery and rising expenditures.
"Many cities are unable to acquire the resources necessary to maintain city infrastructure, essential services and amenities that contribute to high quality of life," the league said in its 2016 legislative agenda.
Local option sales taxes currently can be levied by at least one local government in 38 states, including every state bordering Kentucky except Indiana, according to the Kentucky league's research.
In Kentucky, the local option sales tax has never been available as a funding source to cities and counties under the current state constitution, state officials said.
HB 2 goes to the full House for consideration.
In Florida, a bill that passed Wednesday and awaits Gov. Rick Scott’s signature would give local governments the authority to implement up to a half-penny pension liability discretionary sales tax to fund defined benefit plan liabilities, under certain conditions.
The tax that would be authorized in HB 1297 could only be imposed after a local referendum, and only if an actuary determines that the underfunded defined benefit retirement plan is less than 80% funded.
The bill also requires that the retirement plan receiving the tax funds must be closed to new employees and if there is any other local government infrastructure tax it must be terminated.
HB 1297 applies to any Florida county that complies with its restrictions.
However, the measure was requested by the consolidated government of Jacksonville and Duval County, where the unfunded pension liability for police and firefighters is currently about $2.6 billion, according to bill sponsor Rep. Travis Cummings, R-Fleming Island.
Jacksonville currently has a leveraged half-cent infrastructure tax scheduled to terminate in 2030.
The city plans to ask voters to implement the pension sales tax in 2031. The tax would remain in effect until 2060 or when the pension obligations are fully funded, whichever comes first.
Cummings told the House State Affairs Committee last month that Jacksonville Police and Firefighters do not pay into Social Security and the bill is designed to take care of funding for those plans, while closing them to new hires.
He also admitted that the city's controversial pension problems have been unsolved for years, and under the plan going forward there is a potential for new employees to join the Florida Retirement System and pay Social Security.
Jacksonville Mayor Lenny Curry said he has worked to address the issue since taking office in 2015, but annual pension costs are now approaching $300 million in the city's $1 billion operating budget.
"This has been kicked down the road for too long," he told the committee. "The very future of the city of Jacksonville is at risk right now."
Florida's most-populous city, with 850,000 residents, is struggling to pay for public safety and other services, Mayor Curry said.
Without a new source of funding to tackle the city's pension liability, Curry said, "The other avenue is to travel down the path that Detroit traveled."
