SADOW: You Want Directions For Fixing Louisiana’s Budget? Click Here.

So legislators think Gov. Bobby Jindal will provide minimal direction this session as the state faces budgetary difficulty. That’s all right, I’ll take up the slack.

Jindal presented a budget as by the Constitution, but it met with criticism in certain areas, some portion of it rightly so. The biggest of these were that it cut funding for higher education $221 million and for health care $150 million even as rolling back tax credit rebates were to bring in $526 million, although $377 million of that came in the form of the inventory tax credit would cause in the aggregate businesses’ tax to rise by that amount, because the tax is levied at the local level which the state could not change. To reduce the hit to higher education perhaps by half, the Jindal Administration suggested aconvoluted plan to raise cigarette taxes, to increase college fees, then to pass through the proceeds of the tax to offset the fee. Jindal has said he will veto any tax increase that does not have an offset elsewhere. Also of some concern is that the partner entities operating the state charity hospitals want additional funding to continue providing services above and beyond their contractual obligations, estimated at $142 million.

What is presented here uses the executive budget as a baseline, as much of it presents a good framework. It then reshapes it so some degree, taking bills already introduced and some data associated with them, trying to address the valid concerns about workability and desirability of the policy options attached to it. Just as the present budget requires a slew of legal changes that eliminate the tax credit refunds, some also will be needed under this plan.

And, what is presented here should not be construed to deny the basic truth that the reason Louisiana got to this budgetary crossroads is that is has a spending problem, not a revenue problem. There are more than enough revenues out there to support right-sized government, but neither are these revenues efficiently collected nor is government as yet right-sized in Louisiana, as its above-average per capitaspending among the states demonstrates. Continuing to operate a charity hospital system in a hybrid fashion and having an overbuilt higher education sector are just two impediments to giving taxpayers their money’s worth and delivering to clients efficient service. The problem is the changes needed to correct for these even if implemented now would save little money for the upcoming fiscal year.

Eliminate the proposed tax credit refunds, except for that of the inventory tax. That’s because the inventory tax should be eliminated, period. It’s unproductive and bizarre in application and makes state taxpayers subsidize decisions made by local taxing authorities. This can be done most effectively through constitutional amendment that strips local governments of the right to tax inventory, requiring two-thirds approval in each legislative chamber followed by affirmative vote of the people later this year. Thus, in effect it would be on the books for the first half of the fiscal year.

As discontinuing the rebate in the first part of the fiscal year/last part of the tax year (property taxes are assessed on the latter basis and are due in the final month of the year; a millage change even towards the end of the year counts for the entire year) would constitute a big local tax increase on businesses, and there would be uncertainty about the amendment’s passage, and local governments could lose for a half a year these revenues, therefore the state should pay the refund though 2015. If the amendment passes, obviously it goes away. Then local governments would have the better part of a year to decide how to respond, as well as state government, which as part of that could choose to try offering an amendment to lower the homestead exemption.

The cost for this, based upon the estimated $458 million total for the credit of which $377 million is the refund portion, would be $189 million if the amendment passes (going forward, the entire credit would be saved in future fiscal years). Separate legislation could eliminate the refund beginning in 2016 if the amendment fails, putting pressure on business to cajole passage of the amendment. Of course, this means now such money must be secured.

Raise taxes on tobacco. “Sin” taxation is not necessarily a bad idea, because the basic philosophy behind its use should not be employing it as a revenue-raiser but as a deterrent. By definition, whether it raises money should be of minor concern, not just for this reason but also because it is a wasting revenue stream; i.e. the better a deterrent, the less money it raises. As a result, it makes sense only when tied to government costs incurred as a result of the activity being discouraged. In the case of smoking in Louisiana, one source claims that costs in Medicaid expenditures total $803 million annually. Thus, tobacco taxes in the state should be dedicated to health care expenditures on conditions directly associated with tobacco use; the higher the taxes go, the less revenue gets raised over time but the less is spent on treating related maladies.

Using data from one bill that would raise the only cigarette tax to $1.50 a pack, this estimates it would raise $286 million, not even half of the estimated cost to the state. That would free up a like amount of money for use elsewhere in the budget, which could be used to pay the half year of inventory tax credit refund. Keep in mind, however, that this is a windfall in every sense; medical research has determined that health care costs related to smoking decrease initially for a period of some years because of the discouragement of higher taxation, but then overall these increase, because people are living longer, healthier lives that make for more opportunity to get diseases much more costly to treat than those related to smoking. In other words, the double pleasure of more revenues and lower costs initially becomes the double pain of declining revenues and higher costs into infinity. Thus, state government can’t suddenly think it has this wonderful, enduring source of revenue that also keeps down costs and now has a blank check to go spend like mad as a result.

Eliminate or cap other counterproductive credits. If the two-thirds majorities needed to eliminate the refund portions of those proposed credits can be mobilized, one would hope they also could be for the three most wasteful not on the list – the Motion Picture Investor Tax Credit, the Solar Tax Credit, and the Earned Income Tax Credit. Already the film credit has attracted a gamut of bills to limit it, and the simplest and most effective move here would be to cap it, in order to allow a transition to its total elimination in the very near future and to take care of obligations being incurred even as this is being read. Putting it at $100 million for fiscal year 2016 where all eligible productions submit totals and then they are doled out proportionally (perhaps adjusted to favor smaller productions, which likelier are homegrown) should save $150 million over the current open-ended version. The solar credit already is on its way out, but just say no to it now. That would save an estimated $17 million. And the EITC should be abandoned at the end of this tax year, saving $24 million.

Add a few more ideas from the proposed budget. The Jindal Administration budget did not include every revenue-generating, cost-saving idea in its plan, one being the messy cigarettes-for-fess notion. But it suggested others that make much more sense, including something already in motion, the selling of the remaining portion not securitized of the 2001 tobacco settlement and dedicating the proceeds to funding the Taylor Opportunity Program for Students awards. Combined with granting more risk management autonomy to higher education this would find another $45 million.

This brings the running total of new revenues beyond the executive budget as currently constituted to $522 million. Keep in mind together at this point health care and higher education are down $376 million, the partner hospital issue remains, and funding for the half-year inventory tax rebate must be found.

Fund all health care at existing levels. If $286 million is transferred out from health care because of the new source of cigarette tax revenue, $189 million can go to the rebate and the remainder kept there, leaving it $53 million short (in future years, all of the new tax’s avails could go to smoking-related illnesses, which seem to represent about a tenth of what Louisiana will spend on Medicaid this year). Add in the EITC and solar tax credit repeals and it’s only a few million short. Then take the film credit savings, apportion these to the partner hospitals, and the leftover to Medicaid, and there’s no cut to health care either state-directed or state-owned.

Give higher education more pricing freedom. The autonomy and securitization money can go to higher education, reducing that cut to $176 million. Another budget suggestions, worth $10 million, asked to raise tuition on post-baccalaureate study, requiring a two-thirds vote of each chamber to succeed.

The Legislature also could freeze TOPS support at this year’s level, enabling next year’s 10 percent maximum tuition hike allowed without legislative approval, which would take in an extra $70 million, to realize all of that, instead of losing roughly $28 million to TOPS reimbursement. But, most significantly, it needs to allow tuition increases beyond that maximum (and, for the future, pass along a Constitutional amendment ridding itself of that power to approve).

Simply, it should make known to higher education that this year it will pass any tuition increase any institution puts forward, because as part of that will be a study resolution forming a committee to produce a report that will detail how higher education will transition away from its current four boards, 14 baccalaureate-or-above institutions to aquasi-privatized model like Oregon’s with as many senior institutions as Oregon, eight, by two statewide elections from now, 2023.

If it follows through on graduate tuition and TOPS changes, the cut would be $136 million. At that point, it’s all in the hands of higher education. If its parts want to jack up tuition 20 percent more – and while some higher education leaders try to pass off sob stories about how they can’t raise it more than the 10 percent the data show that emphatically is not true – that eliminates the cut (and would bring rates close to the southern average, of which they are well below at present). Or, institutions could aim for efficiencies that reflect the reality of and future to which races higher education and not raise tuition as much. Or any concerned could choose whatever combination they desire, for they will have the power and they will have to live with the consequences, understanding the transition that lies ahead.

That’s it. All that’s needed is clear-eyed recognition of reality, a commitment of putting the needs of the state ahead of needs of certain constituencies, and an understanding of good tax policy. That includes Jindal, who must understand that the Legislature otherwise can put him into a no-win situation. OK, here’s the plan, so everybody get on it.



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