Amnesty not substitute for better LA fiscal practices

Courtesy of the Revenue Estimating Conference, the good news is, for the first time since the tapering of the Katrina economic bonus and the infliction of Pres. Barack Obama’s economic transformation onto America, Louisiana will have no significant mid-year budget cuts to suffer. The bad news is that tax amnesty proceeds will not turn out to be the savior that some expected but instead enhances the problematic nature of Louisiana’s fiscal system.

The REC, comprised of three politicians or their representatives and one non-elected economist, forecasts how much in the way of revenue the state will see in current and future fiscal years. As part of this exercise, it deems them recurring or nonrecurring, with the later only spendable by the state on a small set of one-time items. Beginning this year, its duties expanded when it was to forecast not just monies coming into the general fund, but also into all dedicated funds as well.




The chosen amount of recurring revenues caps the amount of money that the state may spend on its operating budget. However, creative accounting can blur the distinction between the two so the panel, perhaps guided by the skepticism of its non-politician member, did not assign all of the first round of the amnesty take to recurring status. Some of it could be considered money that would have been collected eventually thereby making it recurring, while another portion of it would be nonrecurring because it never would have been corralled without an amnesty. The political question then came down to what was the appropriate balance.

The first stage of the amnesty took in a haul of $448 million, almost 90 percent of it from corporations, well over the $200 million budgeted from it to plug into this year’s budget. The panel decided to call that, plus $90 million more, recurring, which proved helpful when its finally summation said the state would take in $35 million less than forecast eight months ago and on which the budget was formulated. Part of that apparently also would be offset by an order by Gov. Bobby Jindal to put on yet another hiring freeze for non-public safety positions.




That put crimps in plans to reverse significantly reductions to higher education and in health care with remaining recurring funds as well as with the nonrecurring funds the potential to pay back to the state’s Budget Stabilization Fund a legally mandated amount within the next two years (about half), or to fund completion of I-49 South, or maybe other things. But perhaps the biggest impact was the amnesty program could be related to the less robust business-related tax collections.



This is because the amnesty beggared funds from the rest of the fiscal year, and probably future ones as well. In fact, the $35 million reduction, as a consequence of a 17 percent reduction in corporate income tax collections from the previous forecast, was forwarded by the Division of Administration. The REC chose not to go with the forecast from the Legislative Fiscal Office, which speculated that there was more than amnesty weighing against corporate income tax collection and gave a figure over $87 million lower. Regardless, both agreed that the acceleration of paying now corporate taxes that would have been paid months later occurred.



That the amnesty sum was so big, well over what was expected, probably magnified this effect, as other indicators of what should relate directly to corporate income tax proceeds, corporate profits and job growth, were good and should have argued for a higher amount paid in through the first half of the fiscal year. And it bodes ill for future amnesties as well, meaning they will probably be smaller and also frontloading as well.



This means a smaller bonus should occur next year, and even a smaller one the year after (even if interest and penalties continue to escalate), but then fiscal year 2017 will take a hit, as it will have been beggared but unable to beggar the following years, as is possible for FY 2014-16. And this doesn’t even account for the effect that amnesties have – with Louisiana being the most proficient practitioner of them – in training taxpayers to withhold revenues in the hopes that they can score an amnesty quicker and end up relatively paying less. Thus, future collections get depressed even further.



All of which just introduces another counterproductive element into Louisiana’s eccentric fiscal structure, which straitjackets the budget (and which threatens to get worse), spends inefficiently, and raises revenues just as inefficiently. Gimmickry in budgeting doesn’t solve for these problems. Having amnesties so often might be great at getting yourself out of a fiscal jam in the short term, but in the long term it only kicks the can down the road.