Leadersʼ Roundtable

Inflation: Impact on the States

 

The Senate Presidents’ Forum convened via Zoom on May 6, 2022, to assess the impacts of inflation on the states. Senators reported on steps their legislatures have taken to mitigate the effects of inflation on consumers and on state coffers. They assessed the effectiveness of these interventions and discussed strategies for coping with an inflationary future.

Moderator Tom Finneran set the context for the discussion. He reminded the Forum that the Consumer Price Index (CPI) tracks eight categories of goods and services to measure US inflation rates.

 

 

​How Inflation Is Measured

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Source: Bureau of Labor Statistics

 

Over the past 20 years, the average prices for gas, milk, and bread — key inflation indicators on goods that affect everyone — have risen significantly, peaking during the recession in 2008, and now exceeding that bar.

 

 

​Average Price Data, Select Items

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Source: Bureau of Labor Statistics

 

Furthermore, the impacts of inflation are not uniform across the country. Some regions have seen a 6% change in annual inflation, while others struggle with up to a 9% increase (as of January, 2022).

 

 

​Inflation Rates, January 2022

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Source: Bureau of Labor Statistics

​Current inflation rates vary regionally across the US, ranging from 6% to 9%.

 

Discussion

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Moderated by

Tom Finneran

 

Sen. Bill Ferguson

 President of the Senate, Maryland

People are very aware of gas price increases — they see higher prices posted every day. In response, the legislature passed a 30-day gas tax holiday and within a day, gas prices went down. However, prices shot back up after 30 days, and a push to extend the holiday was defeated. Meanwhile, we face a major challenge to backfill our Transportation Trust Fund in order to fund transportation electrification, one response to the gas price hikes.

Additionally, our housing market is out of control with row houses getting 10 bids with escalation clauses and selling within two days. The state must invest in housing or many people will be priced out of living and working here. One response to the tight housing market has been to consider allowing property owners to build additional single-dwelling units on their site, or “Grandma homes”; but this strategy runs into issues of local zoning control.

Another challenge is retaining our state workforce and recruiting new hires. The state gave an 8% wage hike across the board, but this still does not compete with local private sector employers who are tripling salaries.

Maryland has offered tax relief targeted at those hit hardest by inflation. Senior tax relief was a tax credit of $1,000 for a senior filing as an individual with less than $100k income; and $1,750 for joint filers earning under $150k. For young families, we eliminated the sales tax on family necessities like diapers, baby bottles and car seats.

 

Sen. Andrea Stewart-Cousins

Senate Majority Leader, New York

While nation-wide inflation is at 8.5%, New York’s rate is 6%. But this is a 6% increase in a very expensive area. Right now, we are putting fingers in the holes of the dyke.

We suspended the state’s share of the gas tax and saw gas prices drop. We extended this through the end of the year, a move that was roundly applauded.

Additionally, businesses that earn less than $250,000 per year formerly paid tax on 95% of earnings, and this was lowered to 85%.  Farmers have been granted tax credits for essential increased overtime payments.

We also wanted to increase the earning potential of those left behind, the lowest wage workers — for example, home health workers — so we increased the minimum wage by $3/hour and also provided child care vouchers.

New York’s real estate market also is seeing surging prices and, like Maryland, we have considered allowing accessory dwelling units; however, this has not yet been accomplished due to local control issues. Another strategy has been to develop new programs to avoid foreclosures and maintain affordable housing stock.

 

Sen. Peter Micciche

President of the Senate, Alaska

Trillions of dollars were poured into the US economy for COVID support. Inflation is the price we are paying for this largesse. In a state like Alaska, the impacts are exacerbated; for example, heating oil is $12 gallon, and it costs 50% more to hire an employee — if you can find anyone. Housing is at a premium. There are many more military personnel in Alaska, but no housing for them. Few teachers or public safety people can afford housing here.

In a state with hundreds of miles without roads and long distances between settlements, the legislature is working to pass a fuel tax holiday and reduce user fees. Normally, 8.95 cents per gallon gas tax is allocated for road maintenance, so a gas tax holiday would cost the state hundreds of millions of dollars because maintenance is still required.

In response to a question about Alaska’s credit worthiness, Sen. Micciche noted that Environmental Social & Governance (ESG) challenges were expressed by credit rating agencies. Fortunately, Alaska manages environmental issues very effectively.

Alaska currently has $81 billion in savings and is paying out its largest permanent fund dividend. [Note: At the time of this writing, the Senate had voted to amend the budget to include $5,500 payments per AK resident.] For some rural residents, this money enables them to pay their energy bills, which are often more than their mortgage.

 

Sen. Martin Looney

Senate President Pro Tempore, Connecticut

The state lost 10,000 state employees over the past 10 years. To stem the tide, the state negotiated a major wage settlement with state employees before inflation increased, providing $2,500 bonuses to keep the state workforce intact.

In response to inflation, the state stopped collecting the 25 cents per gallon state gas tax at the pump from April 1 through December 1 and introduced free bus rides through December 1. A child tax credit was added, and the earned income tax credit was raised to 41.5%. With revenues coming in strong, the state also increased its property tax credit.

Sen. Don Harmon (President of the Senate, Illinois):  Illinois is a microcosm of what’s happening across the nation. We are grateful for the federal stimulus COVID funding, which has spurred economic growth and allowed us to launch initiatives related to microchips, semi-conductors, and electric vehicles. Supply chain issues have delayed some of these projects.

Inflation also has made its mark on the state, driving up the cost of housing in Chicago, and pushing gas prices up, which is especially challenging for those in rural areas.

In response to inflation, the state has enacted a property tax refund, suspended sales tax on groceries, and delayed an anticipated gas tax increase. Additionally, the Earned Income Credit was increased to $600 per year for a family. All inflation-fighting measures were taken without compromising the state’s balanced budget.

 

Sen. Bart Hester

Senate President Pro Tempore-Designate, Arkansas

In a state with three million people, the state’s $1 billion surplus this year opens a lot of opportunities and poses the challenge of how to give money back to the people. COVID federal stimulus funding caused more problems than it solved. We chose to send back $146 million earmarked for rental assistance to the federal government. Like most states, we are having problems finding enough workers. Also, we worry that a recession might be looming. Therefore, we have left our gas tax and other taxes alone.

Sen. Hester noted that he’d be interested to learn what other states are doing with their budget surplus. [See Sen. Karen Fann’s response below.]

 

Sen. Ron Kouchi

President of the Senate, Hawaii

Hawaii has a $2 billion surplus. We’ve allocated $500 million to our Rainy Day Fund, $300 million into the Employee Pension Fund, and added a Health Fund. In addition, the Senate passed a tax rebate of $100 per person to tax filers who earn more than $100,000 per year, and $300 per person to filers who earn less than that.

The surplus also has been invested in new social services programs, including mental health programs. Investments also have been made in the public education system, with 26% of the budget allocated for K-12 and 6.5% for higher education. However, the “maintenance of effort” requirement complicates spending on these efforts.

In response to inflation, the minimum wage is being raised gradually, growing from the current $10.10/hour in 2022 to $18/hour in 2028. Additionally, the Hawaiian Homelands Program is being expanded. This program makes certain public lands available to Native Hawaiians through 99-year homestead leases at $1 per year for residential, agricultural, or pastoral purposes.

 

Sen. Karen Fann

President of the Senate, Arizona

In response to Senator Hester’s question about what to do with a surplus, I would say to pay down debt.  We have overspent on the national level, and now we anticipate that interest rates will get worse. The legislature’s answer is to pay down debt.

 

Sen. David Osmek

President of the Senate, Minnesota

You have to ask, “What is inflation?” It actually is a situation where too much money is chasing too little supply. Therefore, efforts such as changing the gas tax do not impact the real issue of supply and demand. Trucking issues add to the supply-chain problem so the state has changed some requirements in order to encourage trucking.

The state has allocated part of its $10 billion surplus to the Rainy Day Fund, and the Senate sought to use surplus money to replenish Unemployment Insurance Funds; however, that legislation is stalled in the House.

We also have to consider how the US is addressing energy issues; for example, the impact of decisions on pipelines. The reality is that we still need fossil fuels. If we restrict or stifle fossil fuel production and delivery, the price of diesel will continue to rise from $3.50 in January, 2022 to $5.44 per gallon by May, 2022 —an increase that affects every product that is trucked.

 

Sen. Matt Huffman

President of the Senate, Ohio

Ohio has a surplus based on excess federal funds and increased revenues. However, Ohio also is an old industrial state with problems such as rural Appalachia’s water infrastructure and many brownfield sites sitting vacant in cities.

Part of the surplus is earmarked for the state’s Brownfield Remediation Program, which will allocate nearly $350 million in grants for the remediation of brownfield sites across Ohio to do demolition and reconstruction on the sites to prepare them for future economic development.

Additionally, the state offered Intel Corp. incentives worth roughly $2 billion to secure a new $20 billion chip-making factory that the company says will help alleviate a global shortage and create a new technology hub in the Midwest.

The state will use its surplus to pay cash now for bonded projects, such as higher education and infrastructure projects, before inflation gets worse.

 

 

Sen. Chuck Winder

Senate President Pro Tempore, Idaho

The states can only deal with the symptoms of inflation, not the cause. We have allowed tax rebates, decreased the income tax rate, increased grocery credits, and increased wages for state employees to ease the symptoms of inflation. But all of that exacerbates the impacts of inflation. We need a national effort to get inflation down.

Inflation is particularly challenging in the Rocky Mountain states, where we have traditionally had small populations and now many people are moving in. Housing costs doubled in the past five years and houses sell within 48 hours. With all this movement, there is pressure to increase the property tax credit.

The biggest issue for Idaho and other Rocky Mountain states is drought. More than half of Idaho is in a severe drought, and experts project that this is likely to worsen in the coming months. The state has used federal stimulus funds to buy water rights and recharge the aquifer.

 

Sen. Ty Masterson

President of the Senate, Kansas

There is a ton of excess cash in our system, and we are using the surplus to pay down debt and fund one-time investments. We also gave state employees a 5% increase in pay and reduced the grocery tax. But the surplus is like a pig in a python; it’s only here for a short time. We are back where we were in 2008 when the bottom fell out of the economy, but now we’re higher up the cliff.

 

Summary

Inflation is a grave concern for all senators who spoke at the Senate Presidents’ Forum, and many anticipate that inflation may worsen. Several states are using their surplus funds to pay down debt and make one-time capital investments before inflation gets worse. They also have enacted tax holidays and tax reductions on key consumer goods such as gasoline and food to ease the pain of inflation.

 

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The Forum gratefully acknowledges Tom Alexander (President of the Senate, South Carolina), Peter Courtney (President of the Senate, Oregon) and Larry Taylor (Education Committee Chair, Texas). We appreciate their attendance and apologize that their participation was limited by our time constraints.

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​ The Forum Welcomes
New Senate Participants​Sen. Bart Hester
Senate President
Pro Tempore-Designate
(Arkansas) ​Sen. David Osmek
President of the Senate
(Minnesota)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

​Maryland gave an 8% wage hike for state employees, but this can’t compete with local private sector employers who are tripling salaries.– Sen. Bill Ferguson

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

​Inflation is the price we are paying for pouring trillions of dollars into the US economy for COVID support.– Sen. Peter Micciche

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

​We worry that a recession might be looming.– Sen. Bart Hester

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

​What to do with a surplus? Pay down debt.– Sen. Karen Fann

 

 

 

 

​Inflation is actually a situation where too much money is chasing too little supply.– Sen. David Osmek

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

​More than half of Idaho is in a severe drought.– Sen. Chuck Winder

 

 

 

 

 

 

 

 

 

 

 

 

 

​The surplus is like a pig in a python; it’s only here for a short time.– Sen. Ty Masterson