SADOW: A Better Way To Fix The Capital Outlay Process

Following up on the previous post, irrational tax policy that plagues Louisiana concerns not just items related to its operating budget, but also, if a pair of legislators have their way, to the capital outlay budget as well.

Among several bills that would address the illogical taxation of inventory – local governments may treat it as property for this purpose, firms pay it but then file from the state for a rebate of it if any beyond their corporate and franchise tax liabilities – state Sen. Robert Adley’s SB 85 does the best job by not only getting rid of it but also in preventing local governments from raising artificially their assessments to cover the difference. But he only exacerbates the problem he seeks to resolve in that one by signing on to state Rep. Karen St. Germain’s HB 712 that would raise taxes statewide on fuel purchased at retail.

This adds four cents per gallon sold to the 16 already charged as the base rate and the extra four charged to pay off special transportation projects begun over a quarter of a century ago, with some still not completed and paid off for another three decades. This 20 percent hike would go to the Parish Transportation Fund, which apportions out money to parishes for transportation projects they undertake by a formula based upon population.

In other words, by statute an increase of a statewide tax paid mostly by Louisiana citizens then would have its proceeds taken out of their hands and spent however their local officials want, with users in some parishes subsidizing other parishes (lower-populated parishes get more per capita). This undesirably mimics the agency problem presented by the inventory tax, where local officials in parishes with disproportionate holdings of inventory have disincentives to keeping property taxes low because they can get taxpayers statewide to subsidize them, reducing accountability and responsibility.

Better would be for this bill to get turned into a constitutional amendment that modifies the Art. VII Sec. 4(C) prohibition on local governments levying an excise tax on motor fuel, specifying that parish governments, consolidated governments, and New Orleans (which at present has no parish government other than the constitutionally-defined executive officers) may levy a tax on this as high as four cents for transportation purposes by successful referendum. This has several superior features to St. Germain’s bill.

First, it allows the people statewide to decide whether to give parishes the power for the extra four cents potentially to be collected anywhere. Second, it then allows a parish-by-parish decision on whether any portion of this would get collected, and for how long. Finally, it makes quite obvious the connection between the tax and the decision-makers who end up using its proceeds, enhancing responsibility and accountability in government.

This way eliminates the agency problem and does not force this tax upon residents in jurisdictions where majorities oppose it and even where their representatives voted against it, with no certainty they will get back from it, in terms of the value what projects they want, what they put into it. If these funds are intended for parish projects, why go through the clumsiness of collecting from all parishes, throwing these in one pot, then dividing those back up?

The main concern of the bill’s authors, who fret about the extant dysfunctional capital outlay process that impedes meeting statewide transportation needs in a rational way, is that the Parish Transportation Fund is taking money away from these, so with independent funding none of the existing 16 cent statewide general levy need be siphoned to parishes. So why have the middleman in the first place; just disconnect completely parish projects from state funding. More local option and control solves for this problem, instead of blurring the lines of accountability and obscuring responsibility as the bill in its present form would do. The Legislature needs to alter it accordingly and put it on the fall ballot for popular vetting.



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