Tax Increases Much-Regretted Necessity for Republican Governors

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Governor Brian Sandoval attends a news conference in Carson City, Nev., on Sept. 4, 2014.

Photographer: David Calvert/Bloomberg

Republican governors meeting in Washington this weekend said financial conditions in their states have deteriorated so much that they must raise taxes, even if it means crossing their own party.

In the face of a historical antipathy deepened by the Tea Party movement, chief executives in Alabama, Nevada and Michigan among other states are proposing increases this year to address shortfalls or to spend more on faltering schools and infrastructure. They advocate higher levies on businesses, tobacco, alcohol and gasoline, in some cases casting the increases as user fees.

The governors are at a crossroads. They are choosing between the path of Governor Sam Brownback in Kansas, who has refused to change course even after tax cuts provoked furious opposition, and that of Alabama’s Robert Bentley, who has said the state’s perennially precarious budget has reached the breaking point.

“I don’t want to raise taxes, but I also know that we need to pay our debts,” Bentley said in an interview. “We don’t have any choice.”

Governors in about 10 states, many led by Republicans, are proposing increases this year, said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers in Washington. Several plans involve raising fuel taxes to pay for crumbling roads and bridges, while Republicans including John Kasich in Ohio and Maine’s Paul LePage want higher sales or other levies to offset income-tax cuts. The burden of such taxes falls more heavily on the poor, who spend a larger proportion of their income.

Criticism Expected

In Nevada, two-term Republican Governor Brian Sandoval has proposed $1.1 billion in new or continued business, tobacco and other taxes to pay for education and initiatives such as expanding full-day kindergarten.

He said he has no choice with a shortfall caused by declining mining and gambling revenue, as well as a need to spend more on an education system that has the worst high-school graduation rate in the U.S.

His proposal has drawn opposition from Republican officials such as Treasurer Dan Schwartz, who said voters rejected two similar proposals in November and that Sandoval has “divorced” himself from state Republicans.

Sandoval said there are Republicans who support his plan, and that business leaders want better-educated workers.

“I knew going in that I was going to receive criticism,” Sandoval said in an interview. “That’s why it’s important for me to explain the ‘why,’ and the ‘why’ is to improve education in Nevada.”

Being Bold

Alabama’s Bentley, a two-term Republican, said he spent four years cutting spending, improving efficiency and making government smaller. Now, more revenue is needed to deliver services and deal with a long-building budget deficit of about $265 million that could reach $700 million by the fiscal year that begins in October.

Bentley said that while he’s still formulating his plan, it won’t involve gambling revenue and will include multiple taxes that the Republican-controlled legislature can approve.

Alabama has a history of opposing tax increases and rejected former Republican Governor Bob Riley’s $1.2 billion plan in 2003. Bentley said he expects backlash this time as well.

“But we’re going to do it with boldness, and this is something that we must do,” he said.

States are feeling pressure to pay for projects and services cut or delayed during the recession that ended in June 2009 and the sluggish recovery, said Michael Leachman, director of state fiscal research for the Center on Budget and Policy Priorities in Washington, which analyzes how fiscal decisions affect the poor.

“Governors of both political parties are faced with those neglected investments,” Leachman said.

The prospects for enacting the proposals are unclear, especially after Republicans extended control of legislatures to 31 states in last year’s elections and now have majorities in a record 69 of 99 chambers.

Mobility Money

In Ohio, Republican lawmakers have said that while they welcome Kasich’s plan to cut income taxes, they oppose “tax shifting” to do it.

An exception may be efforts to raise fuel taxes to pay for infrastructure. The purchasing power of levies that haven’t increased in years has declined, roads and bridges are visibly deteriorating, federal funding is uncertain and the political climate may be more forgiving thanks to cheaper gasoline.

More than a dozen states, many with Republican governors, appear poised to increase transportation revenue this year, said Sean Slone, program manager for transportation policy at the Council of State Governments in Lexington, Kentucky.

Republican Governor Terry Branstad in Iowa said he’s not raising taxes. Rather, he’s backing a higher “user fee” to address a $215 million shortfall in annual transportation funding without borrowing, he said.

“I’m an anti-tax person as well,” Branstad said. “People who get the benefits of the roads should pay for it.”

Other Republicans at the National Governors Association meeting held the traditional ground that raising taxes shouldn’t be an option.

“This economy is in a delicate state, and the last thing it needs is higher taxes,” said Indiana Governor Mike Pence, a potential presidential candidate in 2016.

National Calculation

The White House ambitions of Republican governors including Chris Christie in New Jersey and Scott Walker in Wisconsin may make raising taxes a gamble no matter what the state’s financial condition.

Christie has put a Democrat in charge of transportation spending and said he was open to all options for replenishing a road fund that has gone dry. He didn’t mention the crisis in a speech last week that railed against taxes.

Walker has ignored proposals from his transportation secretary to raise taxes and fees in favor of borrowing $1.3 billion. He also has said he will skip more than $100 million in debt payments to address a $283 million deficit after tax cuts.

In Kansas, Brownback is slowing his push to eliminate the income levy and calling for higher tobacco and liquor taxes because the state faces a $280 million shortfall after previous tax cuts produced greater revenue losses than anticipated. Still, he has said that the state will stay the course.

Connecticut Governor Dannel Malloy, a Democrat, raised taxes to help close a $3.6 billion deficit after taking office in January 2011 and was criticized by Christie and other Republicans for doing so.

Malloy said that while he chafed at the barbs, he’s not celebrating now that some Republicans are in position of having to raise levies.

“In a super-politicized environment -- and certainly we have suffered in one of those during this post Great Recession period -- some people thought it would never happen to them,” Malloy said in an interview. “They were wrong.”

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