Edwards includes needless tax hikes in deficit plan
Almost three years ago he railed against a plan that would have given Louisiana in the aggregate the highest sales tax in the country. During his run for governor, he said he would not raise taxes and decried the use of “one-time” money to balance budgets. Yesterday, Democrat Gov. John Bel Edwards, eight days into office, declared he wanted to do all of the above to address this fiscal year's predicted budget deficit.
Of course, Edwards disclaimed all responsibility for the about-face in his economic policy, alleging that he had not known of the mounting difficulties with the fiscal year 2016 budget, which his administration now asserts to be $750 million in the red. Never mind that as a legislator Edwards had access to all of this information, which comes to the Legislature on a monthly basis, that should not have made for any surprise of an escalating deficit and leaving plenty of time to start planning.
Naturally, as part of that he indicated the real responsibility for this lay with his predecessor former Gov. Bobby Jindal. He contended that Jindal’s budgeting tactics – which he ratified five out of eight times as a legislator – brought matters to this head, implying he bore no blame for whatever he suggested. He then laid out a plan that, at the very least by its verisimilitude to Jindal’s budgeting, makes them kissing cousins.
Almost half of the menu featured “one-time” items: $128 million from the Budget Stabilization Fund and $200 million from payments to reimburse the state for cleanup after the Macondo oil well disaster of 2010, with the latter money once hoped for use in the next or future budget years for continuing operations, not so soon. Essentially, along with a drawdown of $22 million late last year, the former has tapped out available funds from the BSF that makes a third of its balance available.
Addressing this fiscal year’s deficit admittedly narrows the options for revenue collection, where really only point-of-sale transactions can capture increases; income tax changes would apply only to last year except for reimbursable credits. Thus the revenue enhancement portion of his plan relies most heavily upon a sales tax hike by a percent that would give the state in aggregate the top rate (it varies by parish, municipality, and special district), an increase in the cigarette tax by 20 cents, outright repeal of the remaining 3 of 4 cents business utility tax exemption (while retaining it for individuals), and scrapping the inventory tax to parishes rebate by the state. Together, these total for the remainder of the fiscal year (assuming an Apr. 1 start date and using figures from last year’s similar tax increase legislation) around $432 million.
The remainder would come from smaller sources, with the only concession to spending cuts in the form of unlocking dedications to allow a recommended 10 percent withdrawn from their intended purposes and used elsewhere. Just the six items explained here would trigger a tax increase on business and individuals of $760 million, which would push the amount of tax hikes over the past year to an astronomical $1.5 billion.
Which makes this a nonstarter. The BSF and BP funds constitute a good use even if “one-time,” but with a free-spending state government so far above regional averages, only raising the tobacco tax is justifiable if those proceeds go towards paying Medicaid’s portion of diseases caused by tobacco use, as the raising of this rate last year did, which costs taxpayers over $800 million annually. But for the last quarter of the fiscal year budget, that raises only about $10 million.
The remaining $412 million should come from spending cuts taken from the constitutional procedure: if in a fiscal year the general fund forecast falls at least 0.7 percent, five percent cuts can come from all but four funds (in the case of one of these, the Minimum Foundation Program, the cut can occur of up to one percent), mineral payments to parishes, and paying down the unfunded accrued liability. This means (subtracting out federal funds and monies coming out of those insulated funds) up to the five percent paring could happen over an $11.2 billion range. Averaging 3.5 percent (the Constitution does not mandate across-the-board reductions) plus the one percent from the MFP, that comes to around $427 million.
Edwards tried to introduce a red herring to deflect from the almost total absence of spending cuts by warning, “If we do not act responsibly and relatively quickly, our community and technical colleges are going to be struggling. Many will be forced into exigency, which is the equivalency of bankruptcy. You are going to see hospitals closures. You are going to see TOPS scholarship money that will not be available.” Besides that exigency is not equivalent to “bankruptcy” – it means that an academic institution becomes freed from usual constraints that limit its fiscal options, such as the ability to lay off tenured faculty without cause – these remarks distract from the fact that the constitutional reduction process does not necessitate cuts to these areas. As these two receive around $4.7 billion of non-discretionary state money, a five percent cut everywhere else would come very close to meeting the total spending cuts needed and not reduce them a penny.
And this scenario does not even review revenue enhancements needed but considered sacred cows by Edwards. For example, take the Motion Picture Investor Tax Credit down to a cap of $100 million rather than its present $180 million per year, and another $80 million becomes available (assuming the nine-digit level already has not been breached for this fiscal year).
In fact, with BSF and BP money usage and the rest coming from cuts, Edwards does not need to call a special legislative session that would cost tens of or even over a hundred thousand dollars. He can order the cuts and withdrawals with approval by the Joint Legislative Committee on the Budget or (for the BSF) mail balloting by the Legislature only. He could do this right now to maximize savings.
Simply, no real need exists to raise taxes; state agencies have enough competence to cut (given the compressed schedule with over half of the year gone) about 8 percent of their remaining budgets without any more than minimal service interruptions. Any attempt by the Edwards Administration to argue otherwise shows that it has more interest in keeping government as large as possible than in fitting it to an appropriate size.
Posted by Jeff Sadow at 12:15