The Pulse

Practice Challenges

What are top state-level issues impacting advisors today?

by Melissa Bova

Melissa Bova is Vice President, State Affairs, with Finseca. Visit www.finseca.org.

As you follow the news, you know that 2024 is a pivotal year with a Presidential election and Congressional control at stake in November. However, federal issues aren’t the only focus. Legislative and regulatory developments in all 50 states are impacting our profession.

Here are key things to watch in the second half of the year.

Balanced Budgets

Unlike the federal government, states must have balanced budgets from year to year. 2024 is the final year to use pandemic related funds and we are already seeing the impact. In 2023, 46 states saw an increase in revenue but in 2024, 37 states have said they expect to see a decrease. California and New York are already citing deficits in the range of tens of billions of dollars. It isn’t just blue states that are going to be struggling to balance the books though—many red states used COVID dollars to reduce taxes to the public and to incentivize business investment. If those tax cuts don’t pay off, states of all political leanings will need to make tough budget decisions or find revenue as they exit 2024 and enter 2025.

What Are The tax threats?

Wealth taxes—they aren’t just a federal concern. In 2024, six different states introduced legislation that would assess income tax on unrealized capital gains and/or net worth. While these bills are discussed as targeting high-net-worth individuals–the bill introduced in California (AB 259) would assess a tax on anyone whose net worth exceeds $1 billion in year one but drop the tax down to anyone whose whole net worth exceeds $50 million just two years later. So far, Governors are generally resistant to these proposals because it would put their state at a competitive disadvantage to neighboring states. In addition, no legislation has been considered so far in 2024–but as budget deficits loom—this isn’t a topic that is going to go away.

Standards Of Conduct

The talk of the town is the latest from the Department of Labor and their recently finalized Fiduciary 3.0, but standards of conduct continue to be a topic of conversation and activity at the state level. Thanks to Finseca’s advocacy work in conjunction with our joint trades, 46 states have adopted the NAIC Best Interest for Annuity Standard—this adoption is bi-partisan in nature and demonstrates the ability to create regulations that protect consumers while ensuring their continued access to a broad range of financial advice. Missouri, Nevada, New Jersey & Washington D.C. are currently in progress with expected adoption within the next year. Our work will not end there though, the National Association of Insurance Commissioners (NAIC) will debate adjustment and clarification to the standard through this year, well into 2025.

Long-Term Care

Wealth taxes—they aren’t just a federal concern. In 2024, six different states introduced legislation that would assess income tax on unrealized capital gains and/or net worth...

Remember School-House Rock—How a Bill Becomes a Law? It takes more than the mere introduction of legislation to make it a law—but states are introducing and talking about long-term care more than ever. Medicaid spending in the country is over $800 billion/year and 32% of that is long-term care. Medicaid remains the single largest line item in every state budget. You hear talk of activity in states like California, New York, Minnesota, Massachusetts, and more—but in all those states, legislation was either not introduced at all or it was introduced but never moved in the legislative process. You may be asking why we talk about long-term care when nothing is happening right now. Because it will, at some point, in some way, and you should be prepared for that, the holistic financial planning discussions you have with clients should include long-term care. We will end this year with all eyes on Washington. Washington remains the only state that has instituted a state funded long-term care program (significantly easier to pass because of the lack of income tax in the state)—but there is a ballot initiative that will be voted on in November that, if passed, would make the program optional and, essentially, defunct. Tens of millions of dollars will be spent on both sides of this campaign and the result will likely trigger or hold off proposals in other states that are similar to Washington.

What Will Decide Our Opportunities And Threats In 2025? You Guessed It—The Election

While the Biden-Trump battle rages on, 11 Governors and over 5,700 state legislators will be elected this November. I am biased, but I would hazard a guess that the decisions of Governors—their appointed insurance commissioners and thousands of state legislators are going to impact the profession just as much, if not more, than Congress or the regulatory decisions of Washington D.C. If you are a member of Finseca, you have heard me speak many times about trifectas in the states. A trifecta is when the same party is in control of the House/Assembly, Senate and Governor’s office. In all scenarios, regardless of the party in control, trifectas generally pass legislation quickly and without the debate and consideration that is typically part and parcel of a divided Government.

Just this year, we have 40 states that are trifectas—more than ever. Further, 20 of those states have veto-proof majorities—so even a more moderate Governor will have no leverage or control of a legislature that decides it wants to move forward with an initiative that could harm the profession or our clients.

2024 is an election year—which means that legislators and Governors are thinking about being re-elected and less likely to pass controversial legislation. But 2025 is as far from an election as you can get, and a number of elected officials are banking on short-term memories—that the unappealing decisions they make in 2025 will be forgotten by November of 2026. This makes 2025 and every year following an election year–the years we expect the most activity.

 

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