Search This Blog


Hawks endorse selling out smaller govt for more taxes

With the presentation of their New Coke-like alternative budget plan for Louisiana’s upcoming fiscal year, the self-styled “fiscal hawk” budget reformers finally uncloak themselves in confirmation of the worst fears of genuine budget reformers and true fiscal conservatives.

The document wishes to prevent redirection of about $345 million in recurring funds that do not go to the state’s general fund to it, as well as about $144 million more in nonrecurring funds to the same place. Instead, much of the recurring portion will be directed to nonrecurring uses, while much of the nonrecurring portion won’t be used at all. To compensate, the plan from the group, composed almost exclusively of House Republicans who teamed up with their Democrat colleagues, hopes for some savings and bonus revenues, makes minor spending cuts, reduces marginally a number tax credits that serve to act as subsidies of activities that may or may not cost the state money, and raises taxes on businesses, considerably on a few select industries, but also generally to any concern that sells things currently taxed and on some individuals.

The cuts largely are tractable, if perhaps a bit overstated. For example, travel by state employees is cut, but in my own job I haven’t had that covered for years, so there’s a real question of whether the amount the plan envisions will be realized. The proposal also avoids the trap of cutting all contracting across the board, which not only makes targeting and prioritizing of this difficult thereby risking elimination of high-value activities but also may run into legal problems, by cutting just a tenth of these that would receive general fund money. A smaller figure like that likely can slice only low-priority items. Mostly troubling is the wishing away of increased Medicaid payments in a program, despite efficiency-inducing reforms, that continues to grow at a rate typically underestimated.

But regarding the revenue side, permeating the document throughout is the air of dishonesty and cowardice. It begins at the very start, courtesy of a handout from the bipartisan group, which states “This proposal would eliminate the use of non-recurring revenues for recurring expenditures in the FY 13-14 budget that contributes to repeated mid-year and end-year budget cuts and year after year [of] billion dollar budget shortfalls.” Interestingly and remarkably, by their own logic, this statement contains not just one but two falsehoods.

Consistently, the “hawks” (although perhaps not the Democrats in the bunch) have maintained that “nonrecurring” money is created when it is collected for one purpose – even when that collection is regular and predictable – and then used for general fund purposes instead. Yet their plan asks to sweep $21.2 million appropriated in prior years for other general fund purposes. So how is this not an example of using “nonrecurring” money for “recurring” purposes?

Also, the group has recently taken to arguing that adjustments in spending, through cutting, have occurred during fiscal years because of the funds sweeps that take this money – again, predictable in pattern and regular in being realized as revenues yet called by them “nonrecurring” – out of the vessel into which it originally got dumped and transplanted into the general fund. But that has nothing to do with these spending cuts because they occur as a result of changes in forecast revenue prediction by the official body with that task, the Revenue Estimating Commission.

The only way this could conceivably happen they way they assert is if a funds sweep is so thorough and the predicted inflows/outflows to a fund are so far off that more money gets swept than gets put in plus any existing balance. But until last year, when it applied to just a small amount, the past sweeps did not take out more than existed in the previous ending balance. (This year, the total proportion of these at-risk dollars increases somewhat more under the budget submitted by Gov. Bobby Jindal.) So funds sweeps did not cause any need for reductions.

And the authors of the statement even admit this later in the document. They count on $45 million more of revenues to appear as a result of a new REC forecast out this week. This is on top of around $130 million in surplus declared last year. So if sweeps cause deficits requiring cutting, then apparently these funds aren’t being swept enough when there are surpluses? To make such a statement so patently contradicting reality and actual procedures means either these legislators, some of whom now are in their third terms, remain ignorant of the intricacies in performing their jobs, or they are liars.

The cowardice emerges in the treatment of tax credits. The plan lists two dozen to be reduced in amount disbursed by 15 percent. Most are under $7 million paid out annually, but not all of the bigger ones are equal in the worth of their reductions. For example, it is entirely possible that the enterprise zone credits (given to entities who conduct business of a sufficient size in economically depressed areas) and investment tax credit for insurance premiums (given to lenders on insurance providing investment capital) actually might make more money for the state, or perhaps don’t have large net costs. However, it is known with certainty that the motion picture tax credit returns less than 14 cents on the dollar, and the solar and wind tax credits returns about 5 percent. Yet the haircut is the same for all.

Prudence and realistic appraisal of the role that tax credits play would dictate that the most egregious giveaways be slashed the most, meaning for film and solar; if not at least half this year (because the calendar tax year begins and ends in the middle of the fiscal year) then in stages over the next couple. But too many of the “hawks” in whose districts, for example, are film industries and solar installers are too spineless to stand up to these special interests, and so they allow wasteful spending to continue. And it’s not like they had to do this as a compromise, because Democrats themselves have railed against some of these.

These feet of clay also impact the noticeable absence of a far simpler solution in the proposal: loosening of statutory dedications. In the “hawk” mythology, any money collected as a result of a dedication shunted to its own specialized fund becomes the equivalent of 30 pieces of silver if then redirected later to a general fund purpose; even if the dalit money piles higher and higher, they chant that it’s better to remain there unused (as much does, into the billions of dollars) than for state government to soil its hands by using it for a general fund purpose. So then why not purify the money by changing statutes to direct the money to the general fund in the first place?

Naturally, that in and of itself would signal some cowardice: the legitimate course would be to decide, given the true necessities that ought to be provided by government, what level of revenue should be collected, how best to get it, and then to what purposes it should go. Yet even skipping this step and diverting some of this funding into the general fund without such analysis would provide, in their cosmology, clean money to fund things; for example, instead of money paid to the state to allow a company to skip all the time and expense in removing an offshore oil rig and to sink it instead going into a fund for artificial reef maintenance where it piles up and never will be used, have it instead go to the general fund where the Legislature will appropriate money from time to time for that maintenance, and the remainder used for more important priorities.

But, again, this takes political courage to make that future vote in an environment where multiple interests compete for limited funds. It removes the excuse that legislators’ hands are “tied” because of statute – although untying some dedications politically is easier because they require only simple majority votes, while changing tax credits require two-thirds supermajorities. And, it seems, among the “hawks” they are more scared of this than they are in raising taxes.

For the plan increases business taxes $313 million and those on individuals $14.2 million. Much of the combined total comes in the former of suspending half of a sales tax break on some kinds of business purchases, which undoubtedly will be passed on to consumers. To counteract the charge that they have joined Democrats in funding bigger government, the “hawks” may point out that they are diverting funds to nonrecurring activities, some of which are worthy (working down unfunded accrued liabilities), some of which are marginal at best (increased infrastructure spending), and some not at all necessary at this time (chunking bucks into the Budget Stabilization Fund, the “rainy day” account).

However, that totals only $270 million; in net, government grows under the plan. Maybe this was the cost of Democrat votes, but a bad deal is still a bad deal and better than none at all. So perhaps now finally we have confirmed what was suspected about the hawks: they’re willing to sell out principles of no new net taxation and right-sized government in exchange for the perception that they are fiscally responsible, endorsing a document that will do more harm than good, if not just to the state’s fiscal structure, then also to the cause of the people’s ability to prevent government from infringing upon their keeping what they earn and is rightfully theirs.

No comments: