Yesterday the Louisiana legislature opened a special session aimed at cleaning up a mid-year budget deficit of somewhere between $850 million and a billion dollars, and Louisiana’s governor John Bel Edwards has presented a doomsday scenario many observers saw as irresponsible in the event taxes weren’t raised to close the deficit.
Among the items presented…
1. Requiring a 28 on the ACT in order to get a TOPS scholarship, which would trim the number of TOPS recipients from 57,000 down to 9,000. While there’s little question a requirement of a 28 on the test would make TOPS a waste of time, as nearly all of the state’s universities would give their own scholarships to attract such students, there is something to be said for making TOPS harder to access given the explosion in the number of recipients and the cost of the program.
On the other hand if it were up to us TOPS would be greatly expanded and serve as the vehicle for the bulk of higher education funding in Louisiana, with a top-tier award for the top five percent designed to look like a full athletic scholarship covering most or all expenses at LSU and even putting cash in the pocket of recipients attending lower-cost universities, a second-tier award for the next 10 percent covering the full cost of tuition at the state’s “directional” universities and a third-tier award for the next 15 percent which would cover full tuition at community colleges, meaning the top 30 percent of TOPS applicants would receive awards and the four-year colleges would compete for state funding by attracting those students. That way, direct subsidies through the general fund would go away, and Louisiana would create a market for public education. There would be some universities among the current 14 four-year schools Louisiana operates which would fail to survive in such a market, and that needs to happen; everyone knows Louisiana has too many. This way the market would serve as the agent of destruction rather than the state legislature which lacks the political will to kill a Southern University at New Orleans, or an LSU-Alexandria.
That’s a better plan than what we have now, but it isn’t happening with the current governor. Instead, TOPS is going to require a good deal more academic achievement as a result of this session, though likely not the 28 Edwards is proposing. And that’s a change which is probably necessary.
2. Touting Medicaid expansion. In Edwards’ address to the Legislature yesterday he went into a lengthy exposition of the wonders of Medicaid expansion, and asserted that it would save the state a fortune in health care costs. The theory behind that being that when someone is uninsured and indigent, the state picks up about 40 percent of the cost to treat them, essentially at the emergency room, with the federal government kicking in 60 percent. But if all those people are put on Medicaid the federal government picks up 100 percent of the cost.
But next year that 100 percent becomes 90 percent, so functionally Edwards is offering a one-time money scenario. And there are three other problems with his rosy picture as well. First, the “working poor” he’s saying will get such great benefits out of being put on Medicaid constitutes at least some 300,000 people. Some 41 percent of Louisiana’s population will be eligible for the program, and that means every small business in the state struggling to provide health insurance for its lower-wage employees will then dump them out onto Medicaid in an effort to push the bottom line without pangs of conscience associated with taking away their health insurance. Once that happens, all of the projections Edwards is making can get tossed in the round file. Second, Medicaid is the worst health insurance anybody can get; it pays diddly poo to doctors as a reimbursement for health care, and because of that fact most doctors try not to treat Medicaid patients; they can’t afford to. And that’s a good reason why that study out of Oregon about comparative health outcomes between Medicaid enrollees and the uninsured found zero benefit in having Medicaid as opposed to being uninsured; either way you have to go to the ER to see a doctor. Sen. Bill Cassidy has called Medicaid the “illusion of health care,” and he would know; he’s a doctor and most of his patients have been Medicaid enrollees.
And third, Louisiana already spends some $9 billion a year on Medicaid – with massive waste and fraud associated with that sum. Some three percent of the Medicaid recipients account for 43 percent of the spending. Expanding the pool of Medicaid recipients by half, which is essentially what he’s going to do, is going to grow that three percent. Anybody who thinks this is ultimately going to save the state money, particularly once the state is on the hook for 10 percent of the cost of Medicaid and soon after when Congress realizes it can’t afford its share and puts Louisiana on the hook for something more like 30 percent, is a fool. Disaster is coming with this decision, and that’s why Bobby Jindal, for all his faults, displayed much better judgement than Edwards is showing on this issue.
3. A “clean penny” sales tax increase. Edwards offered up a smorgasbord of tax hikes amid Louisiana’s recession economy, and made a huge show of a faux “mea culpa” over his campaign promises that he wouldn’t cut taxes by saying he didn’t even know the state would have a deficit until November (which is a pretty bold lie) and that the size of the deficit took him by surprise. And he repeated his invitation for legislators to “get it out of your system” that he ought to be called a liar. The exact words…
So, if you insist on saying that I never said I would raise taxes – that I’m going back on my word – that’s fine. Say it. Get it out of your system, and then please come back here ready to work with me to do the job we were all hired to do.
The problem is that Edwards got himself elected on false pretenses, and that speaks to his lack of credibility and good faith as a negotiating partner with the legislature. It calls into question whether his numbers are accurate. And it means that the legislature is better off taking on this problem on its own and then presenting its solutions to Edwards as a fait accompli rather than accepting his leadership amid the credibility gap he created.
Here are two ideas on taxes for the legislature to consider as alternatives to Edwards’ tax hikes.
First, if the governor is correct that Louisiana gives away more money in tax breaks against its corporate income tax – to the tune of as much as $500 million per year, some say – then it’s time to eliminate that tax and all the breaks which go with it. Those tax breaks are rightly called crony capitalism, as they came about as a result of the lobbying process, but that’s an oversimplification of why they exist. They exist because without them Louisiana is not competitive tax climate-wise with our neighbors to the West in Texas. Texas has no corporate income tax, and Texas has been poaching jobs and capital out of this state for generations as a result. Get rid of those tax breaks by getting rid of the tax which necessitates them, and we become much more economically competitive with Texas without having to pay whatever number it is we’re losing – be it $500 million, $200 million or whatever – out of the state budget every year.
And second, if he wants an emergency fix on excise revenue, don’t waste time on a sales tax increase which would make Louisiana tops in the country in combined state and local sales taxes (which ebb and flow with the economy anyway and worse are the most regressive taxes you can have). Rather than that, look to gasoline. Specifically, on Friday GasBuddy.com said that the average price of regular unleaded gas in Baton Rouge was $1.52, which is incredibly low. What the state could do is set a floor of $2 for gas prices, and tax anything below that floor. So if gas is $1.52, then the tax is 48 cents.
Let’s face it, you wouldn’t complain about $2-a-gallon gasoline. For nearly all of your adult life you’ve paid more than $2 for gas.
When the legislature was looking at a four cent increase in gas taxes last year, the projection was that would bring in $120 million per year. A 48 cent tax would bring in, according to that projection, some $1.4 billion per year.
But that’s if gas is at $1.52. At some point in the future it will rise above $2. When it does, the emergency gas tax will go away. It will diminish as gas prices rise, which is OK – this is designed as a temporary measure to offset the loss of severance tax and other revenue Louisiana derives from the oil industry.
There is a downside to this, which is that gas stations near the borders of Texas, Mississippi and Arkansas will hate it. That’s certainly understandable. The good news being that it’s temporary, because gas will go above $2 reasonably soon anyway (and when those prices go up it’ll likely be due to oil prices going up, which means renewed activity in the oil patch and a rebound of the state’s economy and revenues). The other downside is the Law of Unintended Consequences which hits every time you try to pass a tax, and in this case that entails gas stations hiking the price of gasoline as high as they can up to the $2 mark so as to capture the profit the state would be trying to get by passing this tax. Some mechanism would need to be put into place in order to keep that from happening.
And there is a hook which needs to be in here, namely that this money can’t all go into the general fund. As much as we rail against dedicated funds on this site, the fact this is a short-term, emergency solution which would pour an enormous amount of cash into the state treasury means it needs to be treated largely as a one-time money situation. And you know what you do with one-time money? You spend it on infrastructure.
So the suggestion is to take half of that $1.4 billion this tax would bring in, or whatever the revenue number would be, and dump it into road projects. If gas prices sit where they are for the next couple of years, let’s say (and that might actually happen based on our readings of the market), then that would be almost a billion and a half dollars toward the $12 billion in road project backlog the state has. Not to mention it would solve about a third of Edwards’ budget problem for next year.
Those two tax ideas would likely kill half, or more, of Edwards’ budget woes and there is little reason to believe they’d do any damage to the state’s economy (killing the corporate income tax would only help it, particularly considering it would incentivize startup companies in the state). He can damn well find budget cuts to solve the rest of his problem, particularly when Louisiana spends some $9,400 per year in state and local per-capita government dollars while the national average is $8,300 and the Southern average is $7,200. As dirt-poor as Mississippi is they get by on $8,000 per person there; don’t tell us there’s no place else this legislature can cut.