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Since the Great Recession, states have been faced with high levels of unemployment, an increased demand for safety net services and a shrinking revenue base. Although the past year has brought some improvements, the number one question on state policymakers’ minds continues to be: “What can we do to encourage job growth?” Traditionally, a key policy lever for development and job creation strategies was—and remains—tax and financial incentive programs designed to encourage new firms to start up or existing firms to grow or relocate.

Since 2006, Puerto Rico has suffered one of the worst recessions of its history while simultaneously facing severe fiscal distress. Reforms made by Gov. Luis G. Fortuño, elected in 2008, have controlled the largest proportional deficit among the states. Puerto Rico’s pro-growth reform agenda has since been touted as a model for addressing fiscal and economic problems at the state and federal level.

The reach of the Internet into the lives of Americans, particularly in the area of commerce, continues in near-limitless fashion and will, undoubtedly, expand even further in the future. The Internet, however, has exposed a gaping structural chasm in state tax and revenue systems that will only continue to widen unless policymakers, primarily at the federal level, initiate remedial action. 

State tax performance since 2008 shows that effects of recessions on revenues can last five years or more. Policymakers planning for potential revenue shortfalls must consider relatively long time periods. This article addresses two key revenue policy issues. First, it provides a brief summary of state tax revenue performance during the past several years, with a focus on how collections stand relative to their previous peak. This section shows the relative revenue performance for state governments in aggregate since 2008. Second, it describes key sales tax issues associated with the dramatic movement towards digitization and identifies some policy options.

Fiscal conditions began to improve for states in the 2011 fiscal year. State revenue collections grew by 6.4 percent and state general fund spending increased by 4 percent following two consecutive years of declines. Additionally, the number of states making midyear budget cuts dropped from 39 states in fiscal 2010 to 19 states in fiscal 2011. In the 2012 fiscal year, states are expected to continue their recent improvement with both state revenues and state spending projected to grow. Fiscal conditions, however, remain below pre-recession levels in many states even with the recent increases. States will have to continue to make difficult decisions in the 2013 fiscal year and beyond as they contend with increased spending demands, slowly recovering revenue collections, uncertainty regarding future federal funding and long-term liabilities including pensions and retiree health care costs.

State courts in 2011 continued to face acute problems associated with contention over judicial selection, unrealistic budget allocations and attacks on the legitimacy of the state court’s role as arbiter of the constitutionality of state laws. Sound leadership is a key ingredient to overcoming these and other pressing challenges. Steps taken to strengthen and reinvigorate judicial leadership were among the more newsworthy developments of 2011. Those steps included efforts to enlist new understandings of what compels people to obey the law in order to better guide court management and court reform.

Voters in nine states approved 21 of 34 ballot propositions in 2011. The number of propositions was down significantly from 183 in 2010, but comparable to previous odd-year elections. Perhaps the highest profile contest was an Ohio referendum on a law limiting collective bargaining by public employees. The fate of tax and borrowing proposals in several states provides a temperature reading on the electorate’s fiscal attitude.

Even though the nation has more than 200 years experience in conducting elections, changes mandated by federal and state laws, combined with technological changes and major shifts within society, mean that states need immediate policy and budget responses. The cost to states and local governments for election administration is likely to be high for the next three years, but some of that can be mitigated with legislative action to grant reprieve from outdated laws and practices.

The fields of medicine, education, child welfare, mental health, probation and corrections have all been influenced by evidence-based practices. In essence, evidence-based practices are a set of guidelines—based upon rigorous research, evaluations and meta-analysis—that have proved effective in improving decision making and outcomes. In the medical world, for example, evidence-based practice refers to the “conscientious, explicit, and judicious use of current best evidence in making decisions about the care of individual patients.”1 Only recently, however, has this approach spilled over into state courts in the form of providing decision-making tools for judges at the time of criminal sentencing.

More and more frequently, state and territorial attorneys general are at the forefront of dealing with great issues of the day, from combating human trafficking to enforcing consumer protection and cyberspace laws. With each year, attorneys general face additional challenges and legal landscapes. In 2012, attorneys general are shining a light on modern day slavery, as well as continuing to fight financial fraud. Additionally, Election Day 2012 will bring at least five new state attorneys general and another five who are seeking re-election.

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