Archive for October, 2011

An Early Look at the 2012 Legislative Session

October 28, 2011

By Stateside Associates

Over the course of the past month Stateside Associates professionals interviewed contacts in all 50 states to get a sense of the top issues that will face lawmakers in the coming year.

With state budget debates looming and a busy election cycle serving as the backdrop for the 2012 legislative session, we provide you this list as a preview of some of the issues expected to dominate agendas and headlines in 2012.

Please note that next year is the second year of the biennium for most state legislatures—only New Jersey and Virginia start their biennium in even years. Twenty-seven states and Puerto Rico allow for at least some legislation to carry over from the 2011 session into 2012. Four states (Montana, Nevada, North Dakota and Texas) will not hold regularly scheduled sessions.

While the issues described herein will dominate the dockets of state legislatures next year, this list is far from exhaustive. The wrangling for early primaries and the focus on the presidential election will likely lead to electoral reforms cropping up in statehouses. Issues surrounding labor and public employee unions, such as pension reform and collective bargaining, will certainly be discussed in the wake of the vocal debates in Wisconsin, Ohio and New Jersey. Public safety and the environment issues are always prevalent, and technological advances spur new legislative initiatives every few months.

Legislative Elections

In the 50 states 86 of the 99 total legislative chambers will be holding elections, in which 81% of all state legislative seats will be considered. The partisan splits in chambers in more than half of states, ten or fewer seats separate the majority from the minority. Even though party control is not expected to change in the majority of states, a presidential election and redrawn legislative districts provide little reassurance when it comes to the balance of power within and across states. When it comes to campaign issues, expect legislators to focus pull out issues popular with both Democratic and Republican constituencies meant to excite each party’s base.

Budgets

After several years of deep cuts, state budget situations are showing signs of recovery, but remain significant effects from the recession remain. According to the National Conference of State Legislatures (NCSL), FY 2012 marks the fourth consecutive period that states have faced significant mismatches between revenues and spending. After lengthy budget debates in the 2011 session only New Hampshire and Washington project deficits at the end of FY 2012.

But state budget experts are still very worried about the situation. The budget projections used by states are based on tax collection rates that continue to lag behind expected tax revenues. Stimulus money is gone. Clever accounting can only push off costs for so many years. More than 20 states are anticipating a budget gap for FY 2013 and FY 2014 and all projections show this number growing in the coming years. Therefore, the 2012 legislative sessions will be marked by sharp budgetary battles in which legislators will be forced to reform state government, continue cost cutting and/or increase revenue.

Economic Development and Job Growth

Numerous states have seen jobless rates continue to climb, including states that have traditionally outperformed the rest of the country in the South and the West. Legislators in at least 15 states, including Arizona, Florida, Georgia, Louisiana, Mississippi and Utah have indicated that job growth and economic development will be the centerpiece of the next session. Legislators are expected to advocate several priority proposals in this regard including manufacturing facility development and modernization incentives, small business financing programs and financial incentives for job creation. Tax credits and incentives for hiring unemployed residents were approved in states like Alabama, Florida and Maryland in the 2011 session and many of the states mentioned above will consider similar legislation in 2012.

Education

Education funding and reform is a priority for lawmakers every year. One trend on the education front is the effort by states to pull away from federal education mandates. Eight states have indicated an intention to pursue waivers from the federal “No Child Left Behind” law. The new policy announced by the President last month is that in order to receive these waivers states will need to develop and implement certain standards for math and reading, create systems to measure school performance and develop teacher and principal evaluation programs. All this will take place during the 2012 session—lawmakers will approach public education with even less funding while trying to perform at a higher level.

Energy

The hot energy issues next year will be the plans that propose increased development of energy resources while aiming to develop future energy transmission corridors and other infrastructure. In the 2011 session three in every five states considered energy transmission language. The number of states tackling energy will likely increase in next year’s session—legislators in more than 25 states have noted energy issues as a major priority for 2012.

No energy proposal will be one-size fits all. The focus of any energy legislation will depend on the specific energy issues at play in each state. Transmission line deployment is a big issue in Western states like Wyoming and Montana. Pipeline development and hydro-fracking regulations will dominate the oil and natural gas discussions in states throughout the Marcellus Shale region and in Southern and Western States. Alternative and renewable energy sources will be discussed in states throughout the country, including in Maryland where Governor O’Malley (D) is in favor of an off-shore wind energy project.

Immigration Reform

Although state legislatures considered more than 240 immigration-related measures in 2011, only 10 states enacted legislation. Despite the plethora of bills considered, lawmakers have been hesitant to expend political capital on immigration reform until federal challenges to state immigration reform attempts are finalized. Until that happens the discord between the federal government and states on immigration policy will continue to set the tone for immigration efforts throughout the 2012 session.

While a federally-driven comprehensive immigration reform package is possible, it’s more likely we’ll see one or more bills narrowly targeting employment and the electronic verification of workers.

One development that will make states more willing to tackle immigration measures was a recent ruling from U.S. District Judge Sharon Blackburn to allow much of Alabama’s H.B. 56 to take effect. This ruling, along with previous rulings in Arizona and Georgia, may start to provide a roadmap for other states to follow.

Medicaid

Health care reform and funding for state Medicaid programs are always a priority issue in the states. Add to that the fact that revenue growth is not expected to keep pace with anticipated increases in Medicaid costs mandated by federal health care changes. To defray these costs, states will look to increase utilization of Medicaid managed care in place of traditional fee for service plans. At least 19 states decided to expand Medicaid managed care in 2011 and nearly all states will continue to consider additional proposals as they prepare for the projected addition of 16 million adults to the Medicaid rolls by 2014.

Redistricting

Only the four states with elections this calendar year (Louisiana, Mississippi, New Jersey and Virginia) were required to have redistricting completed this year. All four were approved in time for elections to take place on-time, but not without legal challenges. The deadlines for the other 46 states to finalize their maps are before state primary and general elections are held next year. While a number of other states have already redrawn districts, the threat of legal challenge have been ubiquitous in almost every case. Several legislatures have scheduled special sessions through the remainder o the year to tackle redistricting, but expect the debate to carry-over well into next year. The closer to a regularly scheduled election a given state redistricting battle gets, the more noteworthy an issue redistricting will become.

Tax Expansion and “Reform”

Legislators are wary of tax increases in good times—broadening revenues by raising taxes during an economic slump becomes a very hot-button issue. According to NCSL, 2011 marked the first year in the last ten that states reported lowering taxes more than they increased them. While the numbers may have been skewed by some large cuts or by the expiration of few temporary tax hikes, it demonstrates the pressure legislators feel when it comes to raising taxes.

Corporate tax rates have been cut in 20 states since the year began and 12 states lowered general sales tax rates. To make up for lost revenue from these and future tax cuts, states will get creative in identifying revenue streams by reforming business taxes, reducing or eliminating certain credits and exemptions and expanding the sales tax base.

One of the visible efforts taking hold is the move by many states to collect sales taxes from online retailers. Internet sales taxes have been a target for states for a number of years and its lean economic times that increase pressure to pursue it as a possible new revenue stream. Lawmakers in 15 states considered “Amazon Tax” style language this year. Numerous other states examined different approaches to capture this revenue. The legislation that passed in California, coupled with the recent agreement between the state and Amazon to begin collecting online sales taxes in 2013, may serve as a striking model for action elsewhere.

Despite only passing in five states, bills to the increase the taxes levied on alcohol and tobacco products were considered in 43 states this year. In addition, policymakers in nearly half of all states attempted to tax foods and beverages that are deemed to lack nutritional value. Ostensibly designed to promote health, the taxes are earmarked to fund the healthy lifestyle and obesity prevention programs that have become a priority across the country.

Has Davis-Bacon Run Its Course?

October 18, 2011

By Josh Fisher, Manager of Legislative Information Services

Not according to Nancy Leppink, the Acting Administrator of the U.S. Labor Department’s Wage and Hour Division, who has taken to the official blog of the U.S. Department of Labor to respond to criticism of a ruling she issued this summer. The ruling issued by Ms. Leppink has faced disapproval from both the public and private sector because it disturbed decades of previous interpretations of the Davis-Bacon Act and a resolution may be years away. Since its passage 80 years ago, and as its plain language puts forward, the Davis-Bacon Act has been understood to require contractors on public works construction projects funded by the federal government or the District of Columbia to pay their workers a “prevailing wage.”

Background

At the heart of this matter is a privately funded construction project in Washington, D.C. called CityCenterDC. The project is being built with private money raised by the developers. Neither the federal government nor the District is paying a dime. During contract negotiations between the city government and developers, neither side believed the Davis-Bacon Act applied and no provisions related to the Act were included in the final agreement. However, a regional union petitioned the Wage and Hour Division to apply the Act. In 2010, an official from the Wage and Hour Division denied the union’s request. Subsequently, the union appealed and Nancy Leppink, the Acting Administrator of the Wage and Hour Division, ruled in favor of the union this summer.

New Interpretation

Despite the fact that no government funds are being used on the CityCenter project, the traditional measuring stick for Davis-Bacon applicability, the Administrator determined the Act applied. This determination was based on the city’s retained ownership of the land with a lease to the developers, that the project will be carried out “directly by the authority” of the District and “will serve the interest of the general public.” This ruling raises the question of what other projects the prevailing wage requirements of Davis-Bacon may apply to in the future.

DOL Response

In September, Nancy Leppink used the Department of Labor blog to defend her ruling and highlight the public benefits of the project which she believes makes it a “public work.” These include jobs for the District and the requirement that 20% of the residential units in the project be committed to affordable housing. Ms. Leppink cites the Washington Nationals baseball stadium and the D.C. convention center as similar “public works.” Both of these projects utilized public financing which is in stark contrast to the privately funded CityCenter project.

Implications

The immediate reaction to the ruling is that it will likely increase the number of projects that will fall under the Davis-Bacon wage requirements. If this happens, the ruling could push up labor costs on a substantial number of economic development projects in DC and across the country. But what now is the standard? Clearly, no longer are government dollars required to turn an otherwise privately funded endeavor into a public project. At the very least, it creates even more uncertainty about costs during a time where both the public and private sector are trying to contain spending.

Then there is the question of who pays for the increased costs. The administrative ruling stated the D.C. government would be responsible for the increased labor costs. Understandably, city officials are likely to try and have the tab picked up by the developers. The D.C. government and the developers are appealing the ruling before an administrative review panel. That board’s decision could then be appealed in federal courts. All of this could take years to reach a conclusion. Both the D.C. government and the private sector are now left to guess about how to proceed and who will be responsible for the potential added cost.

In economic times like these, a compelling argument can be made to suspend the Davis-Bacon wage requirement on all applicable projects. In one study, economists found that Davis-Bacon rules cost federal taxpayers about $8.6 billion annually.[i] However, after this ruling and the Department of Labor’s response to the criticism, that does not seem likely.

Now the question of whether Davis-Bacon will apply is no longer whether the project is receiving financial assistance from the federal or D.C. government, but an uncertain application of “public benefits” and a vague measure of retained authority by the government. We are left asking: What minimum threshold of government involvement will require a prevailing wage to be paid and who will be left holding the bag?


Health Benefit Recommendations Offer States Reform Incentives

October 13, 2011

By Robert Holden, Senior Vice President

The Institute of Medicine (IOM) recommendations for Essential Health Benefits, released October 6, may have injected new life into state planning for health benefit exchanges during the upcoming 2012 legislative session. The IOM’s recommendations establish a process for identifying the benefits that will become the basis for health plans available to individuals, small businesses, and eventually to larger employers through each state (and any federal) health benefit exchange. The federal rules that emerge from this process will have a profound effect on insurance regulation in the states, as they will impact all state health insurance benefit mandates currently imposed on health insurance carriers.

Since the enactment of the Affordable Care Act (ACA), state policy makers have known that they would be required to pick up the cost of any state mandates imposed on plans offered through a state health benefit exchange that exceeded the federal essential benefits. As a result, states have already introduced legislation and established commissions to review state mandated benefits in anticipation of the federal rules. With the release of the IOM recommendations, it appears that states may have much more control of which mandate benefits they will be able keep.

States Pace Their Implementation Efforts on the Availability of Federal Guidance

The race towards the ACA’s 2014 deadline to implement state health benefit exchanges has become a “chicken or egg” process between state policy makers and the HHS, as states delay implementation while waiting for federal guidance. The release of federal rules on exchange governance came this summer, after many state legislatures had already adjourned. Federal rules on benefits are still pending, even as state planning and interim activity increases for the 2012 legislative session. States are particularly dependent on the HHS rules addressing essential benefits, as the ACA statute provides only broad benefit categories, such as “Prescription Drugs,” that must be made available in health plans. The IOM recommendations did not narrow the benefit categories for states, as IOM was authorized to provide the process for determining essential benefits and not the specific benefits themselves.

Opportunities for State Policy Makers

While state activity on specific benefits is still delayed, the IOM recommendations do offer some direction to state governments, starting with small group health plans. If it proceeds as recommended, HHS will begin with the benefits offered in a current, typical, small business health plan. These benefits will then be supplemented with additional required services so that each ACA benefit category is met. HHS will also develop an ongoing review process to account for future health technology advances and new benefits.

More importantly for state policy makers, IOM recommends that states have the flexibility to create alternative benefit structures, if they establish an exchange. Additionally, in comments made during the IOM’s release of their recommendations, it became clear that the IOM believes that states should decide how benefits addressing disabled and transitional Medicaid populations are structured. These recommendations not only give state officials additional flexibility and control over benefit mandates, they may provide needed incentive to continue implementing ACA exchanges. While it remains to be seen how states still considering their plans for implementation will react, this new incentive puts even more focus on the release of federal essential benefit rules and the formal authorization of states to create alternative benefit structures for their state exchanges.


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