The Leaflet – Happy New Year!

Published January 4, 2013

The election results have been certified, the fiscal cliff has been averted, and the world didn’t end. Now state lawmakers are heading back to their state capitols to begin their 2013 legislative sessions.

States are expected to face many important issues this year, including Medicaid expansion and balancing their budgets. Each year there are a few issues that unexpectedly gain national momentum, as collective bargaining reforms did in 2012.

Here is a list of what I believe will be some of the top state issues to watch for in 2013 (no particular order).

Medicaid expansion
After the Supreme Court’s partial overturn of the Patient Protection and Affordable Care Act’s Medicaid expansion, states are left to decide this year whether to expand their health entitlement program to adults at or below 133% of the federal poverty level. While some states are attracted to the additional federal funding, many states are wary of expanding a program that is already fiscally unsustainable.

Pension reform
According to a report from State Budget Solutions, “the average public employee pension plan in the United States is only around 41 percent funded while total unfunded liabilities as of 2011 are roughly $4.6 trillion.” Expect more states to follow the lead of Rhode Island, which in November 2011 passed some of the most sweeping pension reforms in the past decade.

Hydraulic fracturing
Hydraulic fracturing technology has given the states access to deep, underlying deposits of energy that were previously inaccessible, leading to a boom in natural gas reserves as a source of electricity generation. While some states are considering moratoria, most states will focus on how to regulate hydraulic fracturing.

Revenues and spending
With the economy still struggling to recover, balancing state budgets will continue to be the focus in state capitols. Depending on how the economy does, expect Democrat-controlled states to consider targeted tax increases on high-income earners and other groups and for Republican-controlled states to focus on spending cuts and other reforms.

Renewable portfolio standards repeal or freezes
As states begin to run out of time to hit their renewable mandates and the availability of low-cost, low-carbon domestic natural gas continues to improve, some states have begun looking at freezing or eliminating renewable requirements. Expect at least a half-dozen states to take on this issue in 2013.

Parent Trigger education reform
The Parent Trigger hit the big screen in Fall 2012 in “Won’t Back Down,” a Hollywood movie starring Maggie Gyllenhaal. The proposal, which has been passed in seven states and introduced in dozens more, allows a majority of parents to sign a petition demanding a specific reform of their child’s particular school.

Tax reform
In 2012 states such as Kansas, Maine, and Michigan passed significant tax reforms that will make their states more competitive moving forward. Many other states considered proposals to phase out their individual or corporate income taxes. The momentum behind tax reform is likely to continue as states look for ways to spark their economies.

If you would like any more information about these issues or for Heartland experts to come and speak in your state please email me at [email protected].

This week’s edition of The Leaflet features research and commentary addressing Internet access taxes, the Medicaid “cure,” charter school economics, cybersecurity, high frequency trading, and Pennsylvania’s renewable mandate.


John Nothdurft
Director of Government Relations
The Heartland Institute


Lead Story  

Research & Commentary: Internet Access Taxes

The Internet Tax Freedom Act of 1998 was designed to promote the growth of the Internet by placing a moratorium on state and local taxation of Internet access and the creation of discriminatory taxes on emails and other data. The moratorium is set to expire in 2014.

Despite the moratorium, Internet users in some states still pay access taxes on their Internet service provider (ISP) bills. When the Internet Tax Freedom Act was passed, ten states were grandfathered in and were allowed to tax ISP charges as part of a political compromise. These ten states are Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, Washington, and Wisconsin.

There has been some confusion about which taxes the moratorium applies to. The only taxes prohibited by the moratorium are fees for Internet access, such as broadband or dial-up services; the moratorium does not exempt Internet sales from general state sales taxes. Critics of increased Internet access taxes argue that allowing these taxes could quickly make ISP bills resemble phone bills, with more and more taxes added and more people being unable to afford Internet access.

The threat of new Internet access fees has come from the Federal Communications Commission and the Connect America Fund. In 2011, the FCC created the CAF by taking $4.5 billion from the Universal Service Fund (USF) designed to provide advanced telecommunications services. Recently the FCC has proposed expanding the CAF by creating a new fee to be tacked onto the bills of all broadband Internet connections nationwide, even though nearly the entire nation (around 95 percent) already has access to broadband.

Internet access taxes would hit broadband users everywhere for billions of dollars of new government spending, placing an unnecessary burden on consumers in order to do something the market is already handling quite effectively. Extending the Internet access moratorium or, better yet, making it permanent would help broadband access and development expand while reducing the need for more government broadband spending.


What We’re Working On

Research & Commentary: The Medicaid “Cure”
Health Care
In this Research & Commentary, Kendall Antekeier explains how states can pursue waivers to reform their Medicaid programs. She details a pilot program in Florida that has seen tremendous success: the Medicaid “Cure.” Kendall writes, “The state saved approximately $118 million a year on Medicaid in the five counties in the program. Rather than recklessly expanding Medicaid and surrendering more authority to the federal government, states should seek options like the Medicaid Cure that reduce costs and offer better care.”

Georgia Voters See Reality of Charter School Economics, Approve Schools Measure
In this article from Budget & Tax News, Christine Ries of the Georgia Institute of Technology discusses a recent decision by Georgia voters to approve an amendment to the state constitution that allows the General Assembly to authorize charter schools even if they have been denied by local school districts.
Ries wrote, “The economic reality is that building a vibrant charter school environment in Georgia means the traditional public schools’ band teachers will be able to purchase more clarinets and their football coaches will be able to buy more equipment.”

Research & Commentary: Cybersecurity
Cyber-terrorism, hackers, identity theft, and viruses threaten to disrupt digital networks. Given the increased reliance of many industrialized nations on computers to manage their economies and basic infrastructure, digital attacks represent a severe threat.
Sens. Joe Lieberman and Susan Collins proposed the Cybersecurity Act in February 2012. The bill failed in Congress in November 2012, but there is talk that President Barack Obama may implement it through an executive order.
In this Research & Commentary, Senior Policy Analyst Matthew Glans examines the Cybersecurity Act and the federal government’s effort s to protect the nation’s digital infrastructure. Matthew contends the government’s cybersecurity plan places too much faith in regulation while ignoring the private sector’s success in combating cyber-threats. Government efforts to protect the nation’s digital infrastructure are both well-intentioned and defensible in principle, but a slate of new regulations is not the right response.

Researc h & Commentary: High Frequency Trading
Finance, Insurance and Real Estate
Increasing computerization of financial trading has had a profound effect on financial markets by introducing a new element: high frequency trading (HFT). In high frequency trading, a computerized system uses market data and sophisticated formulas to buy and sell financial instruments at a rapid pace. In this Research & Commentary, Matthew Glans examines high frequency trading and the so-called “flash crash.” Matthew argues that high frequency trading plays an important role in the financial market by reducing volatility, increasing liquidity, and lowering costs. Regulators should make sure any regulations on computerized trading do not freeze the market.

News Story: Pennsylvania Renewable Mandate Crushing State Economy
Pennsylvania’s economy will have 17,380 fewer jobs between 2013 and 2021 than would be the case without the mandated use of renewable energy. This is just one of the many severe economic consequences to come from the law, according to a study from the Beacon Hill Institute. And these proven costs come with no significant environmental benefits. Paul Bachman, director of research for the Beacon Hill Institute and a coauthor of the report, says, “With unemployment still above 8 percent and vast resources of coal and natural gas, Pennsylvania is harming its citizens with its unnecessary alternative energy mandate.”


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Upcoming Events 

Heartland’s Emerging Issues Call

Topic: Education Reform in 2013
Wed., January 9, 2013,
1:00 PM EST/12:00 pm CST


Phone number: 312/445-3641
Pin: 37661

RSVP by emailing Robin Knox at [email protected]