National Democrats have done their best to back Louisiana Democrat Gov. John Bel Edwards’ attempts to thwart right-sizing state government with provisions in their recently enacted spending bill.
That new law, which will toss around a half-billion dollars onto the state and its local governments ostensibly to address economic difficulties presented by the Wuhan coronavirus pandemic – even as the large majority of dollars don’t even indirectly address the problem, most of the spending doesn’t occur for at least a year, the economic problems stem from supply attenuated by largely ineffective commercial restrictions that won’t respond to a nightmarishly-large taxpayer- and debt-fueled cash infusion, and states have yet to spend much generated by previous such efforts – carries with it a host of restrictions on the money’s use, geared to keep state and local governments as inflated as possible. Some encourage this policy generally, with others more targeted.
A number of states, Louisiana included, as a response to slower economic growth and higher unemployment in their legislative sessions this year have come up with supply-side responses designed to lower the cost of doing business to increase the supply of jobs and goods and services produced. Other measures attempt to steer money towards pent-up problems. The federal law does its best to sabotage those.
Most notoriously, the law prohibits states from using “funds provided…to either directly or indirectly offset a reduction in the net tax revenue,” or do anything 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.” Further, it bans states from depositing the federal bailout into their public pension funds (hypocritically so, as it makes direct cash infusions into union pension funds).
Specific to Louisiana, that language threatens over a dozen bills prefiled for the upcoming regular legislative session that make relatively marginal changes mainly to tax credits, although one, HB 36 by Republican state Rep. Phillip DeVillier, would trigger a $75 million reduction for starters in film tax credits. It also may foist tax increases on businesses by invalidating the state’s suspension of higher payroll taxes that ends in August.
It also makes more difficult steering the largesse to prudent one-time uses, rather than this one-time money going to continuing commitments that Edwards wants, such as $40 million more for education pay raises. The law may make impossible utilizing such funds to pay down the state’s unfunded accrued liability for pensions, of which the Constitution requires defeasance of a large portion by 2029.
Last year, some creative bookkeeping enabled the state to shoehorn one-time money from previous federal aid into this year’s operating budget, so potentially the same tactic can allow for passing these kinds of tax cuts into law without having to use the current grant dollars to fund the activities those particular taxes backed. Last year, in its zeal to keep inflated government the Edwards Administration took the lead on this; this year, expect much less cooperation in this regard as instead the Administration fights using this law as a weapon to keep spending as high as possible.
There is an excellent argument that at least the tax decrease restriction is unconstitutional, and if attempted to be enforced the judiciary may invalidate this. Yet that uncertain outcome will add pressure to capitulate to forces that want to grow government and intensify Louisiana’s problem of outsized government, rather than use monies to address pressing long-term issues.
For example, SB 1 by GOP state Sen. Barrow Peacock would divert money from the 2016-18 sales tax increase to infrastructure, increasingly until the hike’s expiration in 2025. But if maneuvered into expanding already bloated government further, lawmaker may hesitate to allow the diversion, and may even try to continue the extra 0.445 cents.
If so, outcomes like this will have accomplished Edwards’ primary goal of baking in permanently larger government that more than ever will discourage economic growth and better lives for those who chose not to join the long-term depopulation of Louisiana already in progress this kind of ethos has produced.