CLT Update
Monday, August 20, 2001

"Now you see it, now you don't"
Legislature's sleight-of-hand raids Tax Reduction Fund

"It just doesn't seem to me to be realistic to anticipate there'll be any significant flow into the tax reversion fund."

House Speaker Tom Finneran
on "Rainy Day" and Tax Reduction Funds
State House News Service

Here we have it, within days of each other: Announcements from on high that the state needs a gas tax increase to bail-out the Big Pig, and; that the ceiling on the state stabilization fund is about to be raised once again to prevent some $500 million in surplus revenue -- half a billion dollars -- from being returned to those who paid it, taxpayers. Just another sleight-of-hand scam ("now you see it, now you don't") by the greedy Legislature.

$1.8 billion just isn't a big enough "rainy day" slush fund for them; now they intend to jack it up to $2.3 billion, just to keep it out of taxpayers' hands. "They took enough of their money back from us last year with their income tax rollback," they've decided. "The rest is ours!"

And as the Big Pig costs keep climbing through the ceiling, hey, they'll just raise more taxes, tolls and fees on us taxpaying cash cows.

Chip Ford

State House News Service
Advances - Week of August 20, 2001


FISCAL 2001 SURPLUS: When the books are finally closed on fiscal 2001, they will likely show a surplus hovering around the $500 million mark. But it will still be awhile before they're closed.

While the old year has already ended, the books are still open and "accounts payable" checks will be written for fiscal 2001 until Sept. 15 for bills received by Aug. 31. The state comptroller's office will then spend 45 days auditing all 150 state funds, including the General Fund, and will release its audit report by midnight on Oct. 31. It is that final report that will trigger any possible tax cut.

Current law requires that 60 percent of FY 01 surplus dollars that remain unspent by Aug. 31 to be placed in the Stabilization, or Rainy Day, Fund. The other 40 percent is directed into a reserve account for capital projects and other needs.

The likelihood that the Rainy Day Fund will then exceed its cap and trigger a tax rebate has prompted House Speaker Finneran to suggest that the pool's level be raised before it is allowed to overflow into taxpayer pockets.

Differing House and Senate ideas about how the surplus should be used will have to be resolved before Aug. 31 or the 60/40 formula will automatically kick in. Or the lawmakers could extend the Aug. 31st deadline.

While it's possible to get a reprieve from the Aug. 31 deadline for spending the surplus, House Speaker Thomas Finneran said action on several fronts is likely before then. The House intends to craft and pass a final deficiency budget in the next two weeks, which Finneran said would contain funding for true deficiencies like a $59 million Medicaid shortfall due to computer errors, as well as money for some capital projects.

Finneran said he hesitates to spend much of the surplus or even call it such, given that so many sectors of the health care industry are in trouble and Medicaid's one-quarter cut of the entire state budget is "fraught with peril."

The Senate on Aug. 2 passed its version of a plan to spend $278 million of the FY 01 surplus. The Senate bill includes a three-year paid family leave program, a new open space trust fund, a series of capital improvement funds, a special two-year reserve fund to buffer against the phase-in of the income tax, and a proposal to raise the Stabilization Fund cap to 10 percent of budgeted revenues.

Finneran, however, indicated he's unlikely to go along with the Senate's family leave and open space proposals. "They're big items and they're controversial items," Finneran said. "It's preferable from the perspective of the members of the House to have changes like that, substantive long-term significant policy changes, made in legislative vehicles that are wide open to full unfettered debate."

While frowning on programmatic expansions, Speaker Finneran did say both branches are likely to approve raising the Stabilization Fund cap before Aug. 31.

Finneran first proposed the idea, the Senate has gone along, and Administration and Finance Secretary Stephen Crosby said raising the cap to capture more surplus funds is better, at least, than spending every dime.

The question of the cap level is key to whether taxpayers will get another tax cut.

At $1.8 billion, the Rainy Day Fund is now about as full as statute allows it to get. If lawmakers don't spend all of the surplus, whatever's left over after Aug. 31 could be enough to overflow from the Rainy Day Fund into the Tax Reduction Fund, which sends money back to taxpayers through a one-time increase in the personal exemption.

The speaker said don't bank on it. "It just doesn't seem to me to be realistic to anticipate there'll be any significant flow into the tax reversion fund," Finneran said.

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