One of the more disappointing recent regular sessions of the Louisiana Legislature has concluded, and the mythology already spreading about its budgeting when analyzed thoroughly and dispassionately explains why this deserves lamentation. Let’s check out these elements of the mythical narrative:
Myth: SAVE is a cypher, its only use being to give cover to Gov. Bobby Jindal and others to claim taxes did not go up as a result of the various actions of the session, so it may be superfluous but essentially is harmless.
Reality: The Student Assessment for a Valuable Education tax credit (in SB 93), derided for gimmickry by its sucking in funds from reduction or elimination of other tax credits to act as an offset, actually has a substantive impact on budgeting. In essence, it creates a new dedication in a budget where 81 percent of state revenue collection already has a dedicated destination, almost $350 million to higher education, or locking in another 4 percent. Thus, through its sunset in fiscal year 2020 it tightens the fiscal straitjacket that serves as a major cause for Louisiana’s budgetary problems.
Myth: The main problem with the Louisiana’s budget is the state does not collect the revenues it needs even with modest spending demands, thus the necessity of tax hikes.
Reality: Louisiana does not have a revenue problem, but a spending problem. This century (through 2011, although fairly flat spending since then does not affect conclusions much) its relative total state spending – the total spent in constant dollars on a per capita basis –increased by over 63 percent, the highest in the nation and well ahead of the U.S. average for the states. By 2013 it was ranked in absolute terms 22nd per capita (and that was down from 10th during the post-Katrina boom in 2007). And it’s not federal spending driving this, where the state ranks only 26th per capita.
Given its low-tax sentiments – at least as demonstrated through 2013when its “Tax Freedom Day,” Mar. 30, was the earliest of all of the states – the state’s citizenry wants too much spending. Something has to give; either the populace decides to tax itself more and/or it must adjust its spending desires downward, signaling the classic conundrum extending from Louisiana’s populist political culture, where the people want a lot of stuff from government but think somebody else should pay for it.
Myth: That policy-makers addressed this conundrum both ways this year, in fact by cutting more spending than the additional tax increases.
Reality: Not really. Under the Jindal Administration’s original formulation, state spending as a whole would have fallen over $1 billion from the end of 2014 actual levels, but not due to a decrease in the monies flowing into the general fund. Instead, around $200 fewer million would have come from self-generated revenues, about $300 million fewer in federal funds, and a $1 billion fewer from statutory dedications, but propping it up were proposed tax increases of over $500 million into the general fund.
The House largely kept that tax increase of a half a billion bucks and added a bit more. The Senate pared it back so it did not go much higher than the Jindal Administration request. The main difference was the SAVE mechanism that triggered a bookkeeping swap moving money from the category of general fund revenues to dedicated revenues. A surplus from the previous forecast also helped close the gap. Also the new vapor tobacco tax and increased cigarette tax (HB 119) moved into the realm of dedication, making another percentage point of the budget now cordoned off without extra legislative action. (If you’re keeping score, this means now six-sevenths of money the state receives outside of the federal government is dedicated.)
However, keep in mind that some of these tax increases such as with tobacco products by their use draw in federal funds. When all was said and done up through the Senate changes (the conference report mostly adopted the Senate version and primarily just moved money around, with the totals not much different than the enrolled version but, as typical at the end of a session, the Legislative Fiscal Office is running behind and does not yet have the final numbers for the enrolled bill), total spending was down only around $647 million.
Yet tax increases were higher, when totaling those directly paid such as with tobacco and those providing relief from levies through exceptions (remember, the SAVE mechanism masquerades for these by shifting from the general fund to dedications, as do the tobacco changes), at $758 million. Throw in the declared surplus during the session, plus a fee hike for vehicle titles (which appears to cover the actual cost of the process after decades of subsidization) and there’s the $1.6 billion gap often alluded to about this budget prior to the session. (In addition, a $180 million cap on the soon-to-be-renamed Motion Picture Investor Tax Credit is predicted to be below next year’s guestimate of $250 million.)
It’s good that spending got cut considerably (interestingly, the two areas considered most at-risk for spending reductions this year, health care and higher education, ended up getting increases of $172 and $10 million, respectively), but given the rapid escalation of it over the past two decades, it’s too bad more of a commitment couldn’t be found to slam on the brakes harder to lighten the pickpocketing of the citizenry. In particular, legislation that would have freed higher education institutions to set their own tuition might have saved taxpayers $100 million more if any of it had passed.
Myth: Thus, at least for this year the state is out of the woods fiscally.
Reality: No, because some of these tax increases occurred extra-constitutionally. The Constitution itself and an attorney general’s opinion make it clear that for measures that did not suspend laws that only changed tax rates, for a few measures – HB 624, HB 629, and HB 635 – the House did not achieve required two-thirds vote for passage on at least once occasion. These accounted for $118 million of the tax increases and face voiding by the judiciary.
Whether by accident or design, these measures affect only businesses engaging in certain activities and/or produce certain things. Thus, to challenge legally the constitutionality of these measures, an affected producer would have to bring a case in order to show standing (harm done); it’s unlikely a court would grant standing to a plaintiff who claimed indirect harm by these because, while businesses no doubt will raise prices to compensate for the higher taxes paid, it could not be proved these costs were passed on directly to the consumer.
Unless Jindal doesn’t join the charade about the constitutionality of these by vetoing them (he has given every indication he won’t), for the sake of the rule of law let’s hope some brave producers do. While this would trigger immediate budget reductions, constitutional integrity is more important. And this chicanery might be the most regrettable aspect of a subpar effort.