The Thicket at State Legislatures

Industry Leaders Shed Light on the Business of Job Creation

By Alex Fitzsimmons

If the question is job creation, the answer is education. That’s the major takeaway from a wide-ranging discussion on jobs and the economy at a general session of the National Conference of State Legislatures’ 2012 Legislative Summit on Thursday.

The CEOs of two of America’s most recognizable companies repeatedly cited an inadequate workforce as the most important factor driving long-term job creation in America.

“We are failing really big,” said Douglas Oberhelman, CEO of Caterpillar Inc., which employs about 50,000 people across the United States. Oberhelman said his company rejects six out of 10 job applicants for lacking basic education skills.

State Farm Mutual CEO Edward Rusk Jr. echoed Oberhelman’s sentiment, saying, “Our students lack the skill sets required by business.” Rusk also waded into the ongoing debate over common core standards, expressing his support for national baseline standards in critical areas such as reading and arithmetic.

To address the shortage of qualified labor, the business leaders suggested a partnership between business and government that emphasizes vocational education and community colleges.

“Business plays a key role with you,” said Rusk.

While the CEOs stressed education, they also touched on debt, competition between states, and business friendliness, each of which contributes to the business of job creation.

“Revenues have to be raised, expenses have to be cut,” said Oberhelman, referring to state and federal budgets. Rusk agreed, noting that government debt “is a growing concern.”
The moderator of the session, John Engler, called on states to increase fiscal transparency: “I think there is a need for states to step up and mandate transparency.” Engler draws on experience from both the private and public sectors as a former Michigan governor and current head of the Business Roundtable.

Agreeing with the moderator’s assessment, Rusk cautioned that time is not on our side. Nevertheless, all three agreed lawmakers must engage in the difficult conversations about debt.

“Let’s get it on the table and deal with it,” said Oberhelman.

The panelists stressed that while serious debt reduction is a “painful” process for lawmakers, the business community stands ready to support them.  Oberhelman in particular spoke of “impactful partnerships to address these issues.”

Even though the speakers said workforce development is the most important issue related to job creation, the CEOs also mentioned competition between states and business friendliness as contributing factors.

While many states “roll out the red carpet” for businesses, as Oberhelman put it, the panelists lamented what they referred to as a hostile relationship between business and government.

“We are welcomed in many other places around the globe,” said Engler, but not as much in America.

It’s a “competitive advantage issue,” noted Oberhelman.

Despite this sometimes icy relationship, the panelists encouraged the state legislators and legislative staff in attendance to partner with the business community to forge a better future.

“We must be all in” it together, said Rusk. 

 

Cook, Rove, Zandi Address Legislators at June 2012 Leaders Meeting

by Alex Fitzsimmons

State legislators, especially legislative leaders, lead busy lives. In the typical legislative session, house speakers and senate presidents have little time to reflect on what it means to be a leader.

That's why NCSL hosted America's top legislative leaders in Washington, D.C. for the June 2012 Legislative Leadership Meeting. With the help of a generous grant from NCSL's Foundation for State Legislatures, leaders spent three days learning and sharing their concerns and challenges with fellow policymakers.

The meeting featured a star-studded lineup that included National Journal columnist Charlie Cook, Fox News Analyst Karl Rove, and Moody's Chief Economist Mark Zandi. In addition, legislative leaders met with U.S. Education Secretary Arne Duncan for a conversation about the state-federal education partnership.

After addressing the leaders, Mark Zandi and NCSL's Michael Bird discussed how federal deficit reduction plans might affect states.

NCSL also asked Charlie Cook, publisher of the Cook Political Report, to expound on his remarks about the 2012 presidential election.

NCSL interviewed Karl Rove at the December 2011 Leaders Meeting in Puerto Rico after the Republican political strategist spoke with legislative leaders about the 2012 election and the important issues facing the country.

NCSL typically hosts meetings specifically for leaders twice a year.

2012 State Legislative Election Preview and Other Tidbits from State Net

by Karl Kurtz

State Net's ever-useful Capitol Journal last week carried an update by Lou Cannon of potential party-switching legislative chambers in this fall's elections--based at least partially on his conversations with NCSL's Tim Storey--and a couple of other interesting items.

Cannon's list of vulnerable chambers under Republican control includes the Colorado House, the Maine House and Senate, the New Hampshire House ("an outside chance"), the New York Senate and the Wisconsin Senate. In the case of the Wisconsin Senate, the chamber is currently tied with one vacancy. The tie will be resolved on June 5 when four Republican senators face recall elections, and the one vacancy will be filled. Although Cannon doesn't say this, it's possible that the Democrats could take control on June 5 only to lose it in November when senators have to run in newly drawn districts.

The chambers that could switch from D to R include the Arkansas House and Senate, the New Mexico House (erroneously identified as the Senate in the article) and the Iowa and Nevada senates. Tim and I would add the Oregon Senate and the Minnesota House--and possibly the Senate--to that list.

Also missing from Capitol Journal's list of chambers that could switch are two tied chambers: the Alaska Senate and the Oregon House.

The same issue of Capitol Journal reports on primary defeats of two incumbents in Oregon. Republican Sen. Chris Telford was defeated by a former House member, Tim Knopp. In the House, challenger Jeff Reardon defeated Democratic Rep. Mike Schaufler. In both races at least a few incumbent legislators supported the challengers over their colleagues from the same party.

Finally, Capitol Journal calls attention to an op ed article that appeared in the Wall Street Journal last week in which two Republican members of Congress' Joint Economic Committee, Rep. Kevin Brady (Texas) and Sen. Jim DeMint (South Carolina), likened the financial management of the states of California, Illinois and Michigan to that of Greece and praised New Jersey, Rhode Island, Utah and Wisconsin for pursuing Germany's "model of fiscal prudence."

"States that have followed Europe's economic policy model of unbridled spending are getting Europe's economic results: low growth and looming fiscal catastrophe," the two Republicans wrote. "Congress must — in word and if necessary in law — make plain that the taxpayers will not protect these states from the consequences of their policies."

They did not suggest, however, that any states would have to leave the dollar zone and switch to the drachma.

Paltry Participation: 1.6 Percent Report Use Taxes

By Alex Fitzsimmons

People who make out-of-state purchases, including over the Internet, are supposed to pay sales and use taxes on those purchases. But as a new study indicates, just a tiny number of people actually report the use taxes they owe.

Only 1.6 percent of taxpayers nationwide reported use taxes on their 2009 tax returns, according to data from a Minnesota state House report. Rhode Island had the lowest participation rate, with only 0.2 percent of taxpayers reporting use taxes.

At a Senate Finance Committee hearing last week, NCSL submitted written testimony in support of the Marketplace Fairness Act, which would provide states the authority to require remote sellers to collect state sales taxes. The Marketplace Fairness Act, which enjoys bipartisan support in Congress, would close this tax loophole and level the playing field for brick-and-mortar stores, many of which are small businesses.

“Let us make this very clear: State legislators are not advocating any new or discriminatory taxes on electronic commerce,” wrote NCSL’s Task Force on State and Local Taxation of Communications & Electronic Commerce. “We desire, however, to establish a simplified sales and use tax collection system that allows sellers, regardless of where they are located, to collect and remit the legally owed sales and use taxes.”

“We need to make sure our federal, state and local tax systems are working together,” said Senator Max Baucus (D), chairman of the Senate Finance Committee. “As part of tax reform, we should ask how we can help states collect taxes owed and how we can encourage standard rules to protect taxpayers from multiple taxes and needless complexity.”

NCSL announced its support for the Marketplace Fairness Act last November. In a letter to congressional leaders, NCSL praised the bipartisan group of co-sponsors for attempting to close the sales tax loophole.

States and localities in 2012 will lose about $23 billion in uncollected sales and use taxes, with more than $11.4 billion from e-commerce sales, according to a University of Tennessee study. The same study found that only 4 percent of buyers said the collection of a use tax would affect their decision to purchase products online.

Thinking about Economic Development? Mull it over with a Beer.

by Erica Michel

Photo credit: nealhknapp.com

When legislators think about expanding jobs and their economies, most probably don't immediately think of their neighborhood brewpub. However, according to a recent report by the Leeds School of Business at the University of Colorado at Boulder and released by the Colorado Brewers Guild, they might want to think again.

The report found that the craft beer industry in Colorado was responsible for $446 million in economic activity in 2011. The industry generates 5,800 jobs in the state and $102 million in income. These jobs are often located in rural areas where other industries have been declining. The local breweries have also boosted Colorado's tourism industry. Colorado collects nearly $9 million from the Colorado beer excise tax, in addition to other business taxes the industry pays.

When speaking about the Colorado craft brewing industry, John Carlson, executive director of the Colorado Brewers Guild told the Denver Post, "Explosive growth [in the craft brewing industry] continues to have a huge economic effect on the state, with no signs of slowing down."

According to a 2009 report by the Connecticut General Assembly's Office of Legislative Research, some states regulate the craft or microbrewing industry separately from larger breweries. These laws determine how and where craft breweries may distribute and sell their beer and the amount they may produce to be considered a microbrewery. Microbreweries are generally defined as breweries that produce fewer than 15,000 barrels per year, although many states have a higher threshold for microbrewery status.

At least five states - Kentucky, Michigan, Minnesota, Montana and Wisconsin—offer tax exemptions for microbreweries. Wisconsin's exemption was the first in 1973. Interestingly, Colorado does not offer tax exemptions for microbreweries.

So what legislative actions do craft brewers say can help expand their industry? According to the Colorado Brewers Guild report, lower taxes and increased access to financing top the list, with access to distribution channels and brewing equipment also noted as important.

Balanced Budget Requirements

by Todd Haggerty

Question: In 1842, what state became the first to adopt a balanced budget requirement (answer is at the end of this post)?

Balancing the budget is widely considered to be the foundation of state fiscal practices. Keeping a budget balanced in times of fiscal stress, however, can be an overwhelming challenge for policymakers. What is meant by a balanced budget is not as clear as it may seem intuitively. Even the number of states whose laws require a balanced budget can be disputed, depending on the way the requirements are defined. The NCSL has traditionally reported that 49 states must balance their budgets, with Vermont being the exception. Other authorities add Wyoming and North Dakota as exceptions, and some authorities in Alaska contend that it does not have an explicit requirement for a balanced budget. Two points can be made with certainty, however: Most states have formal balanced budget requirements with some degree of stringency, and state political cultures reinforce the requirements (for more information on balanced budget requirements click here).

The history of state balanced budget requirements is as rich and varied as the provisions themselves. James D. Savage noted in his 1988 book, Balanced Budgets and American Politics, the Panic of 1837 was the spark that pushed states to impose balanced budget requirements. Savage notes that “nineteen states adopted these amendments between 1842 and 1860.”

Meeting Public Scrutiny

by Bruce Feustel

As a former state attorney general, Speaker Greg Stumbo of Kentucky has an unusual perspective of having moved from elected executive branch official to the legislature. "When I was the AG, everyone believed me, but as a legislator, nobody believes me." He was exaggerating for effect, but his point was that the public tends to give the benefit of the doubt to executive branch officials, but be highly skeptical of legislators.

In giving advice to his legislative colleagues about budgeting for the legislature in hard times at NCSL's Fall Forum in Tampa last week, Speaker Stumbo said that legislators need to stand up for their branch of government. "[Legislatures] have traditionally underfunded themselves because of the intense public scrutiny," he said. He believes that legislatures should take a fair share of cuts, but should also assert the need for funding the legislative branch.

He helps Kentucky legislators prepare to explain the case for legislative expenditures. He advises them to be clear and honest in making explanations and to use common sense reasoning to explain decisions. He sends out talking points for legislators for conversations with their constituents about the cost of the legislature. Speaker Stumbo urged legislators to take on the challenge of high public scrutiny for legislators, continue to fund the legislature at fair levels, and be prepared to tell constituents why the legislature needs to be strong.

Photo credit: Bluegrass Politics

Online Holiday Shopping a Loss for States

by Alex Fitzsimmons, NCSL Communications Intern

As the holiday shopping season kicked off over Thanksgiving weekend, millions of people embraced the Black Friday tradition of storming their local shops in search of the best deals. But many other eager shoppers waited until Monday to hunt for bargains from the comfort of their homes.

Cyber Monday sales shattered records and gave Black Friday, the biggest shopping day of the year, a run for its money. According to IBM, online sales topped $1.2 billion, up more than 30 percent from just a year ago. Sales on mobile devices also surged to 14.3 percent of all Black Friday sales, compared with 5.6 percent in 2010.

For online sellers, Santa came early this year. But for state governments, Cyber Monday served as a sobering reminder of missed revenue opportunities.

Many states are struggling to raise revenue and close budget gaps. But a loophole in the tax code prevents states from collecting sales taxes from online sellers who conduct business, but lack a physical presence, in their state. The Supreme Court ruled that because of interstate commerce issues, states could not collect sales taxes from out-of-state sellers without congressional approval.

As a result, states have suffered: It is estimated that state budgets lost about $18 billion in uncollected sales taxes in 2008 and are expected to lose $23 billion in 2012. States can no longer afford not to collect what's legally theirs.

Colorado Study Offers New Approach to State Budgeting

by Peggy Kerns

To an outsider, the state budget cycle can seem like a maze of numbers and confusion, interwoven with posturing and politics.  The governor and legislators talk to the public about “priorities,” “funding,” and “limitations.” Elected officials may seek public input through town meetings, newsletters, surveys, websites, Facebook and other social media tools. But none of it makes much sense to the average citizen.

The process takes a different turn in recommendations released by the University of Denver’s Strategic Issues Panel on State Government.  The report, Rethinking Colorado’s Government, is the result of a year-long study by a non-partisan panel of 20 business, professional and community leaders from across the state.  I was fortunate to be on the panel as a member of NCSL staff and a former Colorado legislator.

Colorado is in a fiscal crisis with general fund revenues declining by $1.3 billion between fiscal years 2008 - 2010.  Acknowledging, as in the past, Colorado would climb out of the economic recession, the panel also recognized it could−and would−happen again, and reliance on severe budget cuts and voter-approved tax increases were not assured or smart.  With this in mind, the panel engaged in long discussions about citizens’ lack of understanding about the value they are getting for their money.  People complain about high taxes and complain about government services.  And, yet voters seem to approve tax increases more frequently if they understand where the money is going and can judge if it is spent effectively.

How to bring the two together?  To help us reach conclusions, we identified principles that could guide public officials to deal with budgets and policy.

• Place citizens, rather than the institution of government, at the center of decision making.
• Shift the focus of government to creating measurable value for citizens.
• Change the financial structure by using accountability centers to give citizens information on the cost of services.
• Focus on outcomes, with the state as an enabler, not always the provider of public services.
• Allocate resources based on citizen demand.
• Fully fund programs and annual state obligations.

When we, as a consumer, buy something, we usually balance the value of the product with its price.  Is the price of being warm on a blistering cold winter day worth a $50 coat?  We make a value choice.  When we shop for a new car, we assess the cost and benefits of the car, we know how much money we have to spend, and we make a decision.

More on Special Sessions

by Karl Kurtz

Writing in Stateline.org, John Gramlich has a nice wrap-up of this year's special legislative sessions, which nicely complements my previous posting in The Thicket on the subject. It begins:

In what has been a busy year for special legislative sessions, Connecticut and Missouri highlight the promise — and the political peril — that can accompany such meetings. Connecticut’s legislature met for seven hours in late October and passed a $626 million economic development bill. Missouri’s met for seven weeks and accomplished little more than political finger-pointing.

And goes on to quote my colleague, Brenda Erickson, on details about this year's special sessions:

This year, special sessions have been more common than is usual. Brenda Erickson, a longtime analyst with the National Conference of State Legislatures, notes that state special sessions generally happen more frequently during redistricting years and tough economic times. 2011 meets both criteria. At least 25 special sessions have been called so far, with several more expected over the next few weeks, according to NCSL. Subjects that still could be addressed range from how to pay for a new Vikings football stadium in Minnesota to whether to remove the controversial “Fighting Sioux” nickname at the University of North Dakota.

At least 11 special sessions have dealt with redistricting, the once-a-decade redrawing of legislative and congressional lines. Erickson says it is common for states to plan on special sessions specifically for redistricting, given the detailed and often openly partisan nature of the work. That description has held true this year, with politically hostile redistricting sessions in Arizona, Louisiana and Maryland, among other states.