The $1.9 trillion boondoggle passed behind the Capitol Hill razor wire yesterday touched off celebrations in lots of politicians’ offices around the country – including in Louisiana, where the state faces hundreds of millions of dollars in budget deficits built through bad fiscal management over a long period of time.
The deficit is projected at some $600 million, though the budget Gov. John Bel Edwards sent to the Legislature in advance of next month’s legislative session is more than $36 billion; a $600 million shortfall is hardly difficult to cover through budget cuts. Louisiana would be nowhere near its current fiscal straits had the previous round of federal largesse been spent on one-time uses rather than recurring expenses, something which was universally decried when Edwards’ predecessor Bobby Jindal repeatedly played the one-time-money game.
It’s time to cut the state’s budget. It’s past time to do it. Louisiana has supposedly the most conservative House and Senate it’s ever had; if ever the time had come to rein in the profligacy of its public-sector spending now is the time.
Particularly since Louisiana’s number one most pressing problem isn’t its budget deficit or hurricane recovery or COVID-19. The number one most pressing problem is outmigration and the state’s lack of economic competitiveness. Louisiana’s economy is moribund. It’s a wasteland for capital and entrepreneurial activity, and it was even before COVID came along. Something simply must be done about that problem or else the flow of talent and capital out of the state to places like Texas, Florida, Tennessee and even Mississippi, now that the Magnolia State is working on eliminating its state income tax, will continue and increase.
That means tax reform, and meaningful tax reform at that. Not just unified sales tax collections, which supposedly will be a headliner among the legislative measures brought next month, but major reform aimed at sparking economic activity. Lowering rates and eliminating classes of taxes, restructuring the tax code so that Louisiana no longer has to give out exceptions and incentives as workaround to incentivize companies to move in when they otherwise wouldn’t want to.
There isn’t a whole lot of momentum to do that. Not as much as there should be. And the $1.9 trillion boondoggle just passed on Capitol Hill makes things even worse.
Why do we say that? Because this language can be found in the bill…
(2) FURTHER RESTRICTION ON USE OF FUNDS.— ‘‘(A) IN GENERAL.—A State or territory shall not use the funds provided under this section or transferred pursuant to section 603(c)(4) to either directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.
‘‘(B) PENSION FUNDS.—No State or territory may use funds made available under this section for deposit into any pension fund.”
So if you take Joe Biden’s Chinese-borrowed money, which Louisiana would receive $3 billion of, you are not allowed by the federal government to cut taxes for three years.
That’s the string this money carries with it.
You also can’t pay down your pension UAL, at least not directly.
Much of the relief will invariably flow to government union pension funds, which are underfunded in states like Illinois, New Jersey and Connecticut. To inoculate themselves from GOP attacks, Democrats specified in the bill that relief funds may not be used “for deposit into any pension fund.” But money is fungible. States can pay out of their general funds for pensions and use the federal cash for something else.
Majority Leader Chuck Schumer also snuck a provision into his “perfecting amendment” allowing states to use federal funds to provide “premium pay” of up to $13 an hour (and $25,000 total) to workers who are “performing such essential work” as defined by the Governor of each state.
But here’s the political gut punch. The bill explicitly bars states from cutting taxes. States “shall not use the funds,” the bill says, “to either directly or indirectly [our emphasis] offset a reduction in the net tax revenue” that results “from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.”
Wow. Democrats in Washington are trying to dictate to governors and state legislatures that they can’t change their tax laws if they accept their share of the $1.9 trillion. The sweeping prohibition would last through 2024, and the bill grants Treasury Secretary Janet Yellen authority to write regulations “as may be necessary or appropriate to carry” it out.
The language is so expansive that states could be limited from making any changes to their tax codes that reduce revenue even if they don’t use federal funds as direct offsets. Much will depend on how Ms. Yellen defines “indirectly.” States that don’t comply with her interpretation will have to repay federal funds.
This is a means of forcing every state to govern itself as a blue state. It puts Janet Yellen in charge of every state’s tax policy.
Take Joe Biden’s $3 billion, and Louisiana then bars itself for the next three years from doing anything to fix its tax code or spark private sector economic activity.
It’s completely unconstitutional and it does abject violence to the concept of federalism.
Want to expand school choice in Louisiana through tax credits? Nope. Can’t do it if you take Biden’s Chinese money. Want to expand the ITEP program to bring in badly-needed jobs? Nope. Want to offload some of the terrible tax increases passed over the last five years and give some relief to the businesses paying taxes on utilities and MM&E, for example? Sorry, verboten.
This is a way of stopping Texas and Florida from draining California and New York. But it’s also a way of stopping Louisiana from getting its act together to join other Southern states in an economic revival which would only accelerate as the COVID panic slowly melts away.
Anyone who accepts this Faustian bargain over $3 billion in federal largesse – when Louisiana’s state government only “needs” some 20 percent of that money – is a fool.
Taking Biden’s billions is giving up Louisiana’s sovereignty, and it for damn sure won’t stop here.
It’s time for Louisiana’s legislators to grow up and realize three things the voters who elected them already know.
1. This isn’t the government’s money. It’s the people’s money. Government only gets it because people went out and earned it through their own daily work.
2. The money is intended to benefit the people, not the government. Simply grasping at funds dangled by the federal government because they exist is not policymaking, it’s idiocy. Not everything the federal government offers is good; we have seen time and time again that federal dollars are offered as inducements for states to make terrible policy which hurts people. It is better not to spend bad money than to use bad money as leverage for more bad money.
3. Joe Biden is not Louisiana’s friend, and neither are Chuck Schumer or Nancy Pelosi. Any strings they attach to dollars they offer to Louisiana will reduce policymaking options to things Biden, Schumer and Pelosi prefer – none of which the majority of our people favor. Dancing to their tune will make our problems worse than their largesse will improve them. That’s guaranteed.
Louisiana needs to find $600 million to balance its budget. It doesn’t need $2.4 billion in federal money it can’t use to pay down its pension debt. And it desperately needs tax reform to resuscitate its private economy.
Don’t take the money. Do the right thing for the people of the state. Make good policy and keep us free. We’re begging you.