· April 5, 2013

Three things to watch as House Republicans put their stamp on the state budget

House leadership have spent their two-week spring recess reviewing over 800 amendments that legislators want to see included in the state budget. Many of them will be incorporated into a new version of the budget (House Bill 59) that is expected to be adopted by the Finance committee next Tuesday. Below are three issues to keep an eye on next week as the budget process moves forward. Separate Bills Republican leaders have suggested that some of the more contentious issues in the Governor’s budget may be removed and reintroduced as separate pieces of legislation. While not specifying which issues will be dealt with separately, major policy proposals such as school funding, the expansion of the state sales tax or the reduction in income tax rates could be among the candidates. How these bills would interact with the ongoing budget process is unclear. If a separate bill affects revenues (such as by raising or lowering taxes) that is spent in the main budget,  those changes would have to be enacted first in order for the overall budget to remain balanced. Policy Issues Not Receiving Their Own Bills Two issue are not going to receive their own separate bills: an increased severance tax on oil and gas and Medicaid expansion. Republicans in the House have made it clear that they have no desire to raise the state’s severance tax and plan on removing it from the budget at the first opportunity. With Medicaid, many Republican lawmakers have balked at the idea of going forward with an expansion tied to Obamacare, but according to Finance Chairman Amstutz, the proposal will remain in the House version of the budget. Income Tax Cut vs. New Revenue vs. Cuts in Services One of the hardest knots to unravel is going to be what to do with the Governor’s income tax proposal. Lowering the income tax is a policy objective majority Republicans support, but the $4 billion cut is paid for in by expanding the state sales tax, something to which many lawmakers have strong objections. Balancing revenues and expenses becomes tricky for lawmakers once they start removing pieces from the proposed budget. Currently, the income tax cut, sales tax expansion, and Medicaid expansion are all tied together to balance the budget. If any of these three change, it makes it much more challenging for lawmakers to fulfill their obligation of passing a budget that is balanced. If, for example, lawmakers wish to keep the income tax cut but remove the sales tax expansion, their options are limited. They can increase other taxes to pay for it, but this seems unlikely. Another option is to enact additional spending cuts. Cutting spending means reducing funding to already cash-strapped programs around the state or means deep cuts to education spending or local government support. The House changes to the Governor's budget are expected to be announced on Tuesday.