…and we’re not completely sure that we like the deal.
But it does make some sense.
Yesterday, one bill made it out of the House Ways and Means committee. That was HB 27 by House Republican Delegation chair Lance Harris (R-Alexandria), which renews a third of a penny of temporary state sales taxes set to expire in July for five years ending in 2023, and also “cleans” – that is, removes exemptions from – two pennies of current state sales taxes. The fiscal note on Harris’ bill is $366 million, though Harris broke that out during his testimony to say that the 1/3 of a penny was $291 million and removing the exemptions was $78 million.
That breakout matters, because from talking with our sources among the business lobby groups and some of the more fiscally conservative House members, the “cleaning of the pennies” is very unlikely to get 70 votes in the 105-member House, which would be needed for the supermajority the legislature needs to raise taxes.
Not to mention the fact that as of last night there was no indication of a buy-in to any deal by the Legislative Black Caucus, which was demanding some increased sort of wealth redistribution be written into the state tax code as its price for supporting a sales tax deal. The Black Caucus is interested in a major step-up of the state’s Earned Income Tax Credit – which the far-left Louisiana Budget Project has pushed as an $83 million annual bribe to Louisiana’s poor. That having practically zero appeal to House Republicans, there has to be another vehicle to bring the Black Caucus aboard.
So what we understand about the deal is that instead of cleaning pennies Harris will adopt three bills by Rep. Katrina Jackson (D-Monroe) – HB 13, HB 18 and HB 19 – which would raise a combined $54 million or so in taxes. And then there is a bill by Rep. Phillip Devillier (R-Eunice) that would cut in half the size of the state’s $180 million motion picture tax credit, which isn’t a $90 million tax increase so much as it’s a subsidy cut of $90 million – which is set to go through the House Ways and Means Committee today.
Harris’ one-third of a state sales tax penny ($291 million), Devillier’s movie tax credit bill ($90 million) and Jackson’s three bills ($54 million) are a combined $435 million toward the state’s purported budget shortfall. They’d represent a deal that would put the state either $60 million or $213 million short of full funding, depending on which estimate of the shortfall (the governor and the Revenue Estimating Conference say it’s $648 million and the House Fiscal Office says it’s $495 million), and the budget would apparently have to be cut by one of those two amounts.
Except it won’t, because nobody over there has plugged in the fact that oil is trading about $20 per barrel higher than the $59 REC has it pegged at, and that means there is something on the order of $150 million, or more, in unrecognized revenue the state is likely to bring in.
The deal would allow the legislature to pass a budget and go home, which is what they all want at this point. They’re exhausted.
And if Louisiana is as broke as the governor claims, certainly the movie tax credit should be high on the list of things which go away, so killing half of it would seem to make sense. If you’re going to choose between that and the TOPS program, there isn’t really much of a choice which one makes more sense to the state.
So it’s not all bad up there.
But the problem is what happens when Harris’ bill gets to the Senate. It will go to Sen. J.P. Morrell’s Revenue & Fiscal Affairs Committee, where it will be “juiced up” with more revenue and some goodies the governor wants, and then it will come back to the House for concurrence. The House will not concur, which means there will be a conference committee on the bill – and what will actually come out will be something between $435 million and $650 million.
If you’re the House Republicans you can claim a win at $435 million, if $90 million of it is something you can credibly claim is a spending cut. Much above that number and it’s not a win. And the pressure to accept a bad deal from the Senate will be overwhelming.
It’s questionable whether this is better than just blowing up the session and finding out how much of this purported $648 million shortfall is a bluff, because without any revenue added to the till there is no more room for political games on the governor’s part. A significant number of observers at the Capitol think these numbers are mostly smoke and mirrors and would like to see Edwards forced to cut the budget without any value attached to his scare tactics.
But there is risk in a brinksmanship strategy, because the governor controls the legacy media and he’s already shown he’s willing to go to any length to push his “broke Louisiana government” narrative. And it might be that the House Republicans just aren’t confident enough to carry out so aggressive a strategy as taking their ball and going home.
UPDATE: Interestingly, when HB 13 – that’s a $9 million tax increase bill by Rep. Jackson which would reduce some corporate income tax deductions – came up in this morning’s House Ways and Means Committee hearing, it died on a tie vote without much Republican support. But her next bill, HB 18, went through the committee without objection. So whether this deal is actually in force or in force as described to us this morning is a matter to be determined.
UPDATE #2: HB 19, the third of Rep. Katrina Jackson’s three bills, did make it out of House Ways and Means, but HB 7, which was Rep. Phillip Devillier’s bill to cut the motion picture tax credit, went down on a 4-8 vote. Ways and Means then voted on a reconsideration of HB 13, the Jackson bill that failed on a tie earlier, and the outcome was different, as the committee moved it to the floor on a 7-6 vote.
Which indicates some elements of this deal are not in place to be executed on the House floor, and to make it work is going to require a good deal of amendments to bills hitting the floor this afternoon.
By the way, the Public Affairs Research Council (PAR) put out a statement endorsing Harris’ bill this morning…
An old saying in the Legislature is that the best bills are those that leave everyone somewhat unhappy. Such is the case with House Bill 27 by Rep. Lance Harris, a key piece of legislation intended to lessen the fiscal cliff by renewing one-third of the 1 percent of state sales tax falling off the books on July 1. House Bill 27 is less than what the governor wants, is disliked by some Democrats who see it as a regressive tax, is opposed by businesses against its utility tax, is less than ideal for credit rating agencies who prefer permanent taxes, and generally comes up short in raising enough revenue to fill even the more narrow measure of the budget gap. From PAR’s perspective, the state will still lack a long-term, comprehensive structural fiscal reform even if this bill passes. And yet House Bill 27 is the most viable and reasonable instrument at this stage of the process to propel this special session toward a sensible outcome. Without this building block legislation, the state lacks any substantial solution to a steep and damaging revenue shortfall. The chances of finding a new, alternative solution in a potential third special session appear slim.
Although Harris and the House Speaker share a significantly different view of the budget problem than the governor, this bill offers an opportunity to work toward a compromise and to prevent a failure to craft any budget at all, which we hope is something that all responsible state leaders want to avoid.