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SAVE credit demise may imperil higher education

So Democrat state Rep. John Bel Edwards, when he assumes Louisiana’s governorship in about a month, wants to have the Legislature repeal the Student Assessment for a Valuable Education tax credit later next year. This should make Louisiana’s higher education interests nervous.

The Gov. Bobby Jindal Administration formulated the SAVE credit as a method to hide large-scale tax increases in the main approved by Edwards and majorities in the legislature last year, making these dollars appear offset by the credit one gets by instituting a new fee for college that students must pay but then allowing its write-off in entirety, conveniently without the enrollee having to do any paperwork.

However, to make it work in that fashion, this produced a practical effect of dedicating $350 million to higher education, or roughly a quarter of all state money budgeted for higher education in fiscal year 2016. Doing this fulfilled the desires expressed by a number of higher education officials, who for years, even decades, found their funding buffeted by the vagaries of a budget that dedicated a large portion of revenues to specific purposes – but except for the Taylor Opportunity Programs for Scholars awards and some grant monies, none dedicated to higher education. This meant that in times of shortfall this area disproportionately took reductions, so dependent upon the general fund and funds sweeps it has become.

Unfortunately, this has exacerbated the dedications problem, where now the budget dedicates some six-sevenths of revenues. This lack of flexibility generated considerable discussion during the recent gubernatorial campaign, leading to all major candidates pledging some kind of action to loosen these locked-in revenues.

While the SAVE credit appears first in line to undo, promises to go further warrant skepticism. The Legislature could have taken this approach last year with a huge shortfall staring it in the face and with funds sweeps not robust enough to cover the difference. Instead, it indiscriminately and thoughtlessly whacked away at certain tax credits on the basis of political convenience rather than rationality (and apparently unconstitutionally), triggering the huge tax increase. Most tellingly, on the most obvious and easiest target of all, the incredibly wasteful Motion Picture Investors Tax Credit, it effectively barely reduced that at all, temporarily.

Thus, don’t expect much more in the way of fortitude from legislators next year in any sensible delinking of revenues to expenditures. They seem more likely to wilt under the pressure of special interests largely to keep dedications unmolested, chickening out to grow the budget with more taxes – especially with the tax-friendly Edwards to assume the helm of the executive branch – instead of making sensible rearrangements of existing funding flows from low-priority, even unnecessary, purposes and excising unproductive credits such as the film credit and Earned Income Tax Credit.

If that comes true, then higher education will find itself again mostly unmoored from a guaranteed stream of revenue and fighting for scraps as budgetary problems will continue, precisely because the tax increases will depress economic activity and discourage new investment that will cause tax revenues to slide in the years to come. Getting rid of as many dedications as possible, the right thing to do but which legislators will embrace tepidly because it demands more political courage out of them in annually making budgetary choices that they now may disclaim, ultimately recognizes the fact that the state has plenty of funding available but suffers from misallocation, yet if undertaken incompletely gores the oxen of just a few like higher education.

As a matter of principle, the fewer dedications the better. Yet, more likely than not, higher education will find itself hung out to dry from the repeal of the SAVE credit given the prevailing mood of legislators and Edwards’ chumminess with tax increases. That doesn’t mean it shouldn’t go, but it does mean that higher education will have to deal with potentially unsavory consequences rom this as the state looks set to begin its retreat from the tentative fiscal steps forward of the Jindal era.

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