Smaller LA government, higher taxes seem likely

With Republican House Speaker Taylor Barras’ admission that a fourth special session in 18 months of Democrat Gov. John Bel Edwards’ term seems inevitable, the endgame to the fiscal year 2018 budget has arrived.

As bills Edwards supported raising enough taxes to cover a “fiscal cliff” – $1.3 million in revenues from curtailing income and sales tax exceptions plus an extra penny in sales taxes that expire at the end of FY 2018 – never made it out of the cradle, legislative debate has focused on how much of the cliff mattered and how to compensate for it relative in the upcoming year’s budget. Even though expiration assured the money’s availability through that cycle, what to do about the cliff depends upon actions taken with this budget.

Edwards’ budget request so far as totaled about $677 million higher than the House’s version of HB 1 now in the hands of the Senate. He wanted an increase over this year of $440 million, while the House concocted a standstill overall plan then subtracted $237 million, or 2.5 percent, as a buffer in case of revenue disappointments during the year. That would mean the shortfall for FY 2019, given the House’s preferences that would become the baseline moving forward, would be in the neighborhood of just less than half of the cliff’s amount.

It’s not impossible to bridge the remainder of the gap. Long-term care reform that moves people from nursing homes to their own or to community living, slashing subsidies to make movies, charging very modest user fees and premiums for Medicaid, forgo giving free medical care to families that qualify for heavily-subsidized private insurance, and ending tax rebates that discourage more productive working, which could pull in an estimated $525 million in annual savings, almost wipe out the remainder. The remaining $100 million or so might come from economic growth, or perhaps by raising Taylor Opportunity Program for Students standards that would require fewer dollars spent.

However, neither legislative chamber seriously has considered any of these reforms that either induce greater personal responsibility from users of taxpayer largesse or redirect funds away from inefficient spending. Instead, now Barras signals the acceptability of recapturing some of that revenue via renewing tax increases of the past 30 months after the close of the regular session.

The way in which he phrased it, backing some portion or all of the extra sales tax cent, suggests the imminence of a surrender on the budget currently under Senate consideration. If the House allows back into the document the $237 million precautionary reduction, that would leave a gap for FY 2019 about the size of the additional penny. Giving Edwards nothing more and clawing back the House’s sequestered money might turn out as the way the Senate splits the baby.

Further encouraging Republicans, retention of the additional cent they see as the least burdensome way to hike taxes. Few constituents have voiced concerns about it and this consumption tax harms economic growth less than taxation on investment (property taxes appear the least harmful, but no significant movement seems in the offing to apply the 5.75 mils in state property tax authorized by the Constitution).

This attitude will box Edwards into a corner, because his politics make higher sales taxes the most objectionable, using the argument that the “poor” pay proportionately more of their income in consumption taxes. Of course, this reasoning ignores the fact that the modal lower-income household in Louisiana receives the equivalent of the minimum wage plus over $3 an hour more in welfare benefits and pays little in sale taxes because of exemptions granted for purchase of unprepared food, utilities, and drugs.

But he’ll have to submit if that’s the only way to avoid steep cuts for which he’ll garner the vast majority of blame. So, it looks likely now that the budget will end up standstill, and a special session will extend the sales tax hike from last year, perhaps putting another sunset date on it, undoubtedly no earlier than Jun. 30, 2020, safely applying to the last round of budgeting before the 2019 elections.

If so, this isn’t a good outcome for those clamoring for right-sized government in Louisiana, but it’s tolerable as yet another intermediate step towards that goal.