SADOW: The Tax Amnesty Might Not Be Enough To Balance The State Budget

While congratulations get passed around various state agencies regarding the 2013 version of the state’s tax amnesty program, celebrations could prove to be premature.

Usable in this current fiscal year was a predicted and therefore budgeted $200 million, devoted to the financing of health care and higher education. Louisiana’s Department of Revenue announced that after this amnesty period ended this past week that collections hit that mark, and could go a bit higher. But having this funding fulfill its part to make sure budgets get met is another matter, for two reasons.

One is that the Revenue Estimating Conference will meet in about two weeks to come up with the fiscal forecast that will be used to prepare the executive budget for next fiscal year and to provide a marker for budgetary performance this fiscal year. If the forecast is lower than had been anticipated when budgeted, this could cause cuts in state spending effective nearly immediately.

That does not seem likely, given existing trends, and thanks in part to the haul from the amnesty, which combined point to more revenue that predicted coming in this fiscal year. However, the REC has discretion in terms of how it wants to classify the amnesty money, either as recurring or nonrecurring. If the latter, that money can be spent only on a very limited menu of items, with only payments to reduce debt and unfunded accrued liabilities that could end up increasing money available to be spent on operating expenses.

And any REC member, where unanimity is needed to make an official forecast, has good reason to insist that at least some amnesty proceeds end up classified as nonrecurring. After all, some portion could be money that never would have been collected, either because the entity would have held off successfully in avoiding collections activity to stiff the state, or because it would have using regular dispute procedures gotten the amount reduced. So if one or more members decide to treat part of the sum this way and adamantly holds out unless recognizing this bit as nonrecurring, this forces budgeters to use the most previous forecast that most likely includes fewer dollars, the REC as a whole could submit to this faction and thereby declare the recurring portion at below $200 million for recurring matters.

Perhaps more probable, past amnesty experiences provide persuasive evidence that they beggar even current-year collections. For example, attendant to the most recent previous 2009 version, the Legislative Fiscal Office cautioned in the REC’s forecast that this amnesty almost certainly accelerated collections that would have been picked up in the dispute resolution process. While that may affect future years mainly, some could have come in the current fiscal year on which the current budget depends. Further, that future collection could have included higher penalties if that chunk had not been part of the amnesty. What’s more, having this amnesty just four years after the last, which had been twice in time from its predecessor, may be encouraging a perverse incentive for more entities to hold out more payments in the hopes of another amnesty coming soon, which could impact negatively collections this fiscal year.

So while in isolation the amnesty program in 2013 appears to have made its goal, its side effects may depress revenue raising from other sources – and policy-makers might decide not all of it can go to recurring items. While suspected overall revenue increases might not make this matter (and perhaps could encourage the REC to declare some nonrecurring and thereby use it for other matters), anything can happen over the next seven months. Therefore, don’t pop the corks and pass out the cigars yet, in patting policy-makers on the back for this program. Its final impact has yet to work its way through the budget, which when inculcated may prove it less helpful than thought, or budgeted.

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