Will New Task Force on Infrastructure Make A Difference?
Every time a new task force is created to look at one of the chronic issues Louisiana faces you can almost hear the groans. Here we go again. Yet another task force. Haven’t we studied that issue to death?
When it comes to transportation and infrastructure, the answer is certainly “yes,” but this time there appears to be an important difference with a new task force on the subject that just held its first meeting.
Certainly, we know the problems. The state has a maintenance backlog of more than $12 billion, there are huge congestion issues in places like Baton Rouge and Lake Charles, both Shreveport and Acadiana are pushing projects involving 1-49, we have thousands of structurally deficient bridges and roads, and the condition of many of our highways creates safety issues and leads to expensive repair bills for many of our motorists.
When you add all of that up and consider the additional needs involving ports, rails and aviation, Louisiana has an infrastructure problem of more than $50 billion. That is a staggering amount of money. All that said, though, the state does have a plan to address it – nothing that will be a magic fix in the short term, but one that looks to solve those problems over the next 30 years.
Doing so will require money, of course, and the state’s new transportation plan hammered out by a special committee over the last year or so, spells out a list of priority projects across the state if funds become available. That’s the key phrase: “if funds become available.”
And that, in fact, is the charge of this new infrastructure task force. It’s not studying the problem and it’s not trying to figure out what needs to be done or what the priorities should be – all of that has happened. It’s working on developing a plan to present to the governor, Legislature and public to begin to get those projects funded.
Initial steps have been taken to make sure that our gasoline taxes are being spent on roads and infrastructure and not governmental bureaucracies. That’s a good first step that citizens had every right to demand.
But that doesn’t even begin to seriously address the problem and there can be little doubt in anyone’s mind that to make a significant improvement in our transportation system Louisiana will need additional revenues. The state’s 20-cent gasoline tax is 11 cents below the national average. Its buying power over the years has been significantly diminished by inflation. A 10-cent increase, as some have discussed, could raise close to $300 million in new revenues. Whether that’s the magic number that citizens would accept is debatable, but an increase in gasoline taxes at some level has to be part of the equation.
Beyond that, there has also been talk of allowing local governments the flexibility to raise their own local taxes, with voter approval, to further leverage those state dollars to fund specifically agreed upon local projects. In some cases these local revenues could also be mixed with appropriate tolling.
All of these approaches are difficult to undertake, but it should also be pointed out that the cost of bad roads is a hidden cost that impacts every driver in Louisiana. Our infrastructure issues are such that major solutions won’t come over night. But further delays on tackling the problems won’t make it any better or cost any less.
That means we need to get started now. One can only hope that this new task force will be the catalyst we need to make that happen. Louisiana has waited long enough.
Time to Take A New Look at TOPS?
The headline in the Times-Picayune back in February said it all about the TOPS scholarship program: “How One Man’s Pet Project became a Louisiana Sacred Cow.” Indeed, over the years, even as costs soared and state budgets were cut, the TOPS program remained protected. Health services were cut and even higher education itself got hammered, but the free tuition program was never touched. Until now, that is.
This year lawmakers were only able to fund about 70-percent of TOPS. While they made sure students basically got their full award for the fall semester of 2016, they’ll be writing a pretty hefty check in the spring if nothing happens. That will be a rude awakening for many.
So, now that the unthinkable has finally occurred, perhaps it’s time to reconsider TOPS – not in the sense of getting rid of it, but to think about whether its current structure does what we want it to do. There are reasons for doing that:
- We’re Probably Not Going Back – All of a sudden, this sacred cow is not as sacred as it once was. When it’s always been fully funded, the pressure on lawmakers is to keep it that way. But once the dam breaks and they make the cuts, it’s so much easier to keep it that way to help balance the budget. For that reason, it’s hard to see the old level of funding return anytime in the foreseeable future.
- TOPS Funding Has Changed, Anyway – The days of fully-funding TOPS may be gone for another reason. This year the Legislature also passed a law that decouples TOPS from tuition. What that effectively means is that if tuition continues to rise – and the LSU System has already announced a tuition hike for next year – the increase won’t necessarily be covered by TOPS unless the Legislature comes up with extra money. That’s not likely to happen anytime soon.
- The Promise Has Changed – The original intent of Patrick Taylor, TOPS’ namesake, was to give needy students with a “B” average full coverage of their tuition. Later we extended that to all students with a grade point average as low as “C” and a 20 on the ACT. Now, at 70-percent of funding it will provide full tuition for no students – not those who are the most needy, nor those who are the highest performing.
What all this means is that in Louisiana’s new world order, the environment surrounding TOPS has changed – probably for the foreseeable future – and perhaps we should consider changes to TOPS, too. If it can’t be everything it once was, what is it we actually want it to be given the current constraints?
- Should high-performing students with “A”s take the same cut in TOPS support as lower-performing students with a “C” average?
- Are there some students who should get full tuition coverage despite the cuts?
- Should some component of TOPS be based on financial needs?
- Should academic eligibility requirements be revisited?
- Can we restructure the program in a way that benefits our top students, but also leverages dollars to ensure access to higher education for all students?
- Should TOPS place a greater focus on providing incentives for students to consider community colleges?
CABL is not trying to answer those questions in any particular way, but we do think those are things that need to be asked. We will continue to explore those ideas in the weeks ahead because this is an important discussion we need to have and it’s the right time to have it.
For years TOPS was the most generous program of its kind that touched as many students as it did. It’s been expensive, but it provided a tremendous benefit for thousands of families. That benefit has changed, now. In light of that, it only makes sense for Louisiana to look at TOPS though this new lens and make sure that whatever it is we want TOPS to accomplish for our state, it’s able to do.
Where Does LA Stand in Aftermath of Sessions?
Louisiana Lawmakers opened their marathon series of legislative sessions on Valentine’s Day. Now, approaching the Fourth of July, they have finally gone home.
These sessions have been difficult by any measure, and not just for legislators. Businesses, taxpaying citizens, students and parents worried about TOPS and higher education, providers and consumers of health care and social services – all had a greater than usual stake in the goings on at the Capitol this year.
It turned out to be the nightmare scenario that everyone knew was coming, where chronic budget shortfalls finally collided with the reality of a revenue base that was insufficient to fund the state’s basic needs. John Bel Edwards happened to be the governor who had to preside over it, but the truth is, whoever had been elected would have inherited the same mess with the same limited options to address the many years of fiscal neglect.
So what’s the takeaway from more than four months of non-stop legislating? Probably that we have plugged all of the budget holes in the ship of state that lawmakers had the appetite to address and now it’s time to settle in with Louisiana’s version of the new normal. The budget remains in a precarious state of balance, but at least there are real revenues that support that balance for now. For the first time, in a long time, we now know the means that we are going to have to live within. That in itself is an accomplishment.
These sessions have told us a number of things about our state budget. One is that we can now see much more clearly how structurally deficient it really was. Certainly, low oil prices and their ripple effects have exacerbated that deficit, but the bad fiscal policies of the past have now been more clearly exposed. That’s a good thing.
Another thing these sessions reveal is that this has not been a “Chicken Little” tale. The sky really was falling. If you don’t believe it, look no further than TOPS. No Legislature before has ever cut TOPS. No Legislature before has even contemplated that possibility. But this year the Legislature did reduce TOPS funding by a whopping 30-percent. That basically says it all.
Lawmakers also reduced public school funding from the prior year, which they have assiduously avoided in years past, while also cutting aid to private schools and vouchers. Those are things they just don’t do unless the fiscal constraints are real.
Finally, it’s important to note that all the budget wrangling that occurred over the last few days was largely among areas of the budget that most would identify as high priorities – K-12 education, higher education, TOPS, medical schools and hospitals. In the old days they managed to pull money from seemingly thin air to rescue those types of things. Not so this year.
This time the priorities of various factions of the Legislature collided in a very public way. Dollars were arranged and rearranged and one priority was funded at the expense of another. But at the end of the day, the silver bullet never materialized. It just wasn’t there.
For a Legislature like Louisiana’s chock full of legitimate fiscal conservatives, they ended up raising a lot of money. In the two special sessions alone the total is in the neighborhood of $1.5 billion spread across individuals and businesses alike. The largest change in the second special session impacting individuals was a reduction in a tax credit Louisiana homeowners receive on an assessment they pay to the state-run Citizens Property Insurance Company. It drops from a credit of 72-percent of the assessment to 25-percent.
The largest increase overall was a $157 million boost in the tax on insurance premiums paid by health maintenance organizations in the state. That, however, was part of a broadly supported deal to bring more federal health care dollars into the state and shouldn’t impact most consumers. Other than that the other major changes primarily affect businesses and were heavily negotiated in ways that didn’t really garner their support, but did seem to soften their opposition. The final total of revenues raised this session: about $263 million.
That, of course, is far short of the $600 million the administration said it needed to balance the budget without major cuts. That means for those who wanted to see further spending reductions, they’re coming. They will include that cut to TOPS of close to $90 million, reductions in funding to K-12 public education, only partial funding for medical schools, funding losses for corrections, and a host of other cuts spread across almost all state agencies. In an unexpected departure from the norm, higher education managed to avoid the budget axe this year.
All that leaves the budget in balance for now, but it’s a tenuous balance. For one thing, it’s unclear how much revenue the state will lose in the cleanup of unintended sales tax consequences left over from the first special session. A bigger issue, though, is the prospect raised by one of the state’s leading economists that corporate income taxes for the current year could fall as much as $200 million short of projections. As tight as this budget is, that could cause serious problems if it materializes.
What Comes Next?
The only thing certain about where we go from here is the fact that the discussion about taxes isn’t over. That’s because most of the taxes lawmakers have raised and most of the tax credits they’ve trimmed have expiration dates on them in 2018. That means that the bulk of the new revenue they are bringing in now will go away without further legislative action.
What the sessions this year have shown is that those revenues were, in fact, needed and they will somehow need to be replaced. The hope is that between now and then some sound spending and tax restructuring plans will emerge from the special legislative task force charged with delivering a long-term fiscal plan. If lawmakers enact the group’s recommendations in 2017 and have them ready to go when the financial cliff comes in 2018, we might actually be on our way to having more sustainable revenues raised through a tax structure that is simpler, fairer and more competitive. At least that’s the hope.
If nothing else, the 2016 legislative sessions have blown the cover off of the state’s spending and budgeting practices over the last several years and shined a bright light on a way of doing business that was clearly irresponsible. That’s not really a surprise, since everyone knew the day of reckoning was coming, but it was needed nonetheless. In the process it forced a Legislature that is still fiscally conservative to confront the issues of how much we pay in taxes and how much we spend on programs and balance them with the level of services they believe the state needs to provide.
There will be differing opinions about how well they succeeded, but this time lawmakers didn’t hide from it. They made a decision to raise about $1.5 billion in new revenues. They acknowledged it wasn’t enough to fully support all the things they believe are important. They cut spending by as much as they realistically felt they could. And they sent the message that for the time being, these are the means the state is going to have to live within.
Again, many on both sides will find fault with their actions for one reason or another. That’s to be expected. But they made their decision and now it’s up to state leaders to manage through it. Clearly, there’s still plenty of uncertainty ahead and ultimately the job of fixing our tax and spending structure remains unfinished.
But our spending and revenue bases have now been recalibrated and ostensibly the chronic gap between “money in” and “money out” has finally been closed. We’ll find out soon enough if that is in fact the case, but that certainly has to be the hope.
Louisiana has spent too many years, mired in fiscal distractions and in doing so has lost its focus. We need to get that back. Certainly challenges remain, but it would be nice to think that instead of being constantly buried in our budget woes we might actually have the opportunity to turn our attention to more productive things – like plotting a better future for our state.
Where’s the Sense of Urgency on Higher Education?
Whatever happens in terms of revenue during the current special session, it seems like higher education is going to end up on the short end of the stick again. At least that’s what it feels like right now.
The Legislature has revenue measures still in play that would restore around half of the $600 million in cuts that are made in the budget for the coming fiscal year. But most of the discussion about restoring cuts has revolved around TOPS and hospitals. You hear very little about higher education.
That’s disconcerting because it’s hard to find a state that anyone would consider worse off than Louisiana when it comes to higher education funding. Data provided by the systems indicate that Louisiana had the highest percentage drop of per student state funding in the country over the last eight years and that total revenue spent per student now ranks second to last.
Certainly, increases in tuition over the last several years have mitigated some of the blows, but while other states are reinvesting in their colleges and universities Louisiana has seen a net loss of total-dollar-funding of more than $350 million and there’s more on the current chopping block. The numbers seem to be a bit of a moving target but the total cuts to higher education in the current year budget seem to be in the range of another $100 million.
Now, it’s likely that lawmakers will find some way to fund a critical piece of that – $39 million for the medical schools in Shreveport and New Orleans which are in dire need of those dollars. But that still leaves some $50-$60 million in cuts to schools that few legislators seem to be talking about. That’s extremely disconcerting.
As higher education officials rightfully point out, all of this comes at a time when expectations for our institutions remain high. We want them to be drivers of the economy by offering high-quality programs in high-demand fields. We expect them to meet our workforce needs and be leaders in research and innovation. And at the same time we want them to attract Louisiana students and support them in ways that improve graduation rates and other measures of student achievement.
It’s hard to do that while in many ways they are effectively being starved and charging students more money for lower returns on their investment. And students and parents are beginning to figure that out, too. More and more in informal gatherings you hear parents wondering whether it’s a disservice to send their high-performing high school kids to a Louisiana university when their TOPS is threatened, the quality of our schools is questioned and out-of-state universities are recruiting them with many more enticements than we have to offer.
To meet our future workforce needs we need to be a recruiting state ourselves. We need to bring in bright young students from other states who can enroll in our various STEM programs and fill the growing number of technology jobs we are finally creating. Instead, we are putting up barriers and giving our own kids more and more reasons to go elsewhere.
Year after year there has been a hope, and to some degree, an expectation that the cuts to higher education would finally come to an end – that our schools would get to some baseline bottom and then finally find the stability that would allow them to rebuild. But the sense of urgency one used to sense at the Legislature to address the plight of higher education seems to have diminished.
What that says about a state with some of the lowest educational attainment rates in the country is discouraging. It’s not too late to do something about that, but, sadly, the time is running out.
End of a Long Road: New Education Standards Approved by Legislature and Governor
In 2010 when Louisiana adopted a set of academic standards in English and math no one even noticed. At the time they were called Common Core and developed by a consortium of states, including Louisiana, and no one seemed to care.
But at some point conspiracy theories began to crop up around these new expectations for student learning and within a relatively short time they took on a life of their own. It’s a federal takeover of education. It’s a communist plot. It’s about putting sensors on kids to measure their moods and emotions. That’s what they were saying.
Of course, it was about none of that. But as some of the more outlandish comments about Common Core began to circulate widely and some students faced challenges with the transition to new standards, many mainstream, thoughtful citizens weren’t sure what to make of it all and a genuine controversy developed. But now, six years after Louisiana first adopted the standards and more than three years since teachers began teaching to them the issue might finally be put to rest.
The House and Senate Education Committees and the governor have all given their blessings to a set of Louisiana standards that maintain the quality and rigor of the Common Core. They were adopted by BESE following a lengthy process in which more than 100 Louisiana educators and content experts reviewed the Common Core standards and suggested changes.
And they did make changes. Adjustments were made to roughly 20-percent of the standards and that’s good news on two fronts. First, the vast majority of the changes were either to give teachers more clarity about what the standard requires or to provide more flexibility in the way they teach. And just as importantly, they didn’t lower the standards or diminish student expectations. They maintained their rigor but did so in a way that speaks more clearly and directly to teachers in Louisiana.
What this tells us is that Louisiana has really good standards that have been validated and approved by a group of really good teachers. They reviewed every single standard, they debated how they should be worded and they considered their appropriateness for each grade. In doing so they told us that those standards we adopted back in 2010 were good standards and rather than changing them all or getting rid of them, what we needed to do was make some of them more teacher-friendly.
Now some are asking if the new standards are really “Louisiana” standards. The answer is that of course they are. They were reviewed by Louisiana teachers, revised by Louisiana’s education board, approved by Louisiana’s Legislature and blessed by Louisiana’s governor. They’re Louisiana standards through and through.
That didn’t satisfy the handful of critics who showed up at the Legislature the other day to complain about the standards yet again. But for the rest of us, we should be pleased with the work of our teachers, confident in the product they put forward and ready to tell the politicians it’s time to move on.
Saying Goodbye to Fantasy Budgets
Many words could be used to describe the just-completed regular session of the Legislature. Unfinished. Incomplete. Unresolved. But whatever you want to call it, it was an important session for the Legislature, particularly with regard to the budget. Over the course of the last three months, it revealed something critical for all of us to understand – that there is a very real gap between the expenditures lawmakers believe are important that we make as a state and the revenues available to cover the cost.
And despite all the talk about cutting the budget to align our expenditures with our revenues, not even the strongest fiscal conservatives could find a way to pass a budget without making significant cuts to two big-ticket items that everyone wanted to protect – health care and TOPS.
For the public that should tell us something we all need to know. For the last several years the state has been operating off of fantasy budgets that didn’t reflect our true fiscal situation. The new budget is ugly and ultimately unrealistic, but it’s not a fantasy. It’s a reality check that more clearly defines the gap between what the Legislature believes are the true needs of the state and the revenues available to fund them.
Can cuts be made to other areas of the budget? Certainly, and they no doubt will. But what this session tells us is that a Legislature that had just raised more than a billion dollars in new taxes and had every motivation imaginable to pass a budget that would avoid the need to raise any additional revenues, couldn’t do it. Or at least they couldn’t do it in a way that a majority of legislators deemed acceptable.
So what’s next? A second special session is now underway and more than likely lawmakers will raise some amount of additional revenue.
And then, that will be it. Whatever they come to, that will be our new baseline and the state will have to live within those means. It won’t be the end of our tax debate, however.
Keep in mind, just about every new tax the Legislature has passed is temporary and almost all will go away sometime within the next two years. On top of that, we have made our sales tax rate so high and so confusing to businesses that we have no choice but to find some way to fix that on a more permanent basis.
That means next year’s legislative session shouldn’t be about balancing the budget, but repairing a now badly-broken tax structure. That in itself will be another daunting task, but one that is critically important.
If there’s any silver lining to the budget debacle that has consumed Louisiana for most of the last decade, it could be that we will finally get our fiscal house in order. From where we stand today, that still looks like a tall order, but one we have no choice but to undertake.
Education Policy Does Okay in Session
From the outset it was clear that this year’s regular session was not going to be about pushing the envelope forward in public education reform – it was about preventing a return to the past. This year there were dozens of bills filed dealing with education, and the vast majority of the significant ones were all about meddling with – or sometimes totally reversing – policy changes that groups like CABL and others had worked to put in place.
The sheer breadth of what was being proposed to unravel Louisiana’s education reforms was staggering. This year lawmakers filed bills to:
- Remove the accountability requirement that students take end-of-year tests, including the ACT
- Delay implementation of our newly revised academic standards
- Begin yet another review of our standards
- Allow schools and districts to establish their own content standards with no testing requirements and no accountability
- Place new restrictions on expanding charter schools
- Prohibit local charter schools from receiving local tax funding
- Dictate what teachers charter schools could hire
- Place further restrictions on the state’s scholarship or voucher program
- Eliminate the requirement that superintendents of mediocre or failing school districts have performance targets as part of their contracts
As one can easily see, that’s a long list of policy changes that, when considered together, offer a road map to take us back to where we were 20 years ago. The fact that at this point in time some of our lawmakers continue to push for these kinds of things is disconcerting to say the least.
Fortunately, with the end in sight for this year’s session, the education policy story is actually pretty good. Through the work of CABL and a diverse group of other education reform advocates all of those efforts to dismantle the policy wins of the last several years were stymied. The result: our charter school policies remain strong, our academic standards and testing emerge unscathed and our accountability system remains in place.
And speaking of those academic standards, which have been the source of so much political gamesmanship over the last three years, our long-running standards review process is finally nearing its end. Legislative committees are set to give our newly-revised, but still very strong, standards their final review shortly and after that it goes to the governor. All expectations are that the both will sign off on the new standards would mark yet another positive policy win.
The only big question mark remaining is about funding for the state’s scholarship, or voucher, program. Current funding in the budget is about $11 million short of what is needed. In practical terms that means a couple of things: no new students could enroll in the program and some students currently in the program might not be able to stay.
The irony is that virtually all of those kids who would be denied access to scholarships because of budget cuts will just cost the state money from another pot when they enroll in public schools. Unfortunately, that issue won’t be resolved in this session but could be worked out in the special session.
CABL will take a more comprehensive look at the session’s education highlights once all the dust settles. But given the all-out assault on our education policies that drew statewide attention at the beginning of the session, it’s worth noting that it failed. Legislative sessions are annual opportunities for lawmakers to meddle inappropriately in education policies. They accomplish some of that from time to time, but fortunately, not so much this time.
Context Important to Louisiana’s Tax Debate
For those interested in state tax policy and data, the weekly meetings of the Task Force on Structural Changes in Budget and Tax Policy might be something akin to nirvana. If you’re not, you just might want to steer clear. But the information that’s been provided so far does present a pretty comprehensive backdrop about our state tax policies that at some point we as citizens need to understand.
In the weeks ahead, we’ll take a closer look at various aspects of our tax structure to try to provide a little context to the tax restructuring discussion that Louisiana is undertaking. We might start by taking a broad look at Louisiana and where we fit in with the rest of the country and our peer states.
One of the first things that stands out is that Louisiana is a low tax state – very low. By just about any measure our overall tax burden is among the lowest in the country. In fact, according to the Tax Foundation, a Washington D.C. think tank:
- Louisiana’s Tax Freedom Day – the date into the year where citizens of a state have collectively earned enough money to pay all of their federal state and local taxes – is April 7. That’s the third earliest date in the nation. It’s worth noting that Texas is number 20 and Florida is 29th.
- Louisiana also has a low overall state/local tax burden. We come in at #45 in the country. That’s slightly better than Texas and significantly lower than just about every other state in our region.
- But, after the recent special session, the average rate of our state and local sales taxes jumped to the highest in the nation – 10-percent. Making that even worse is the fact that we have a confusing, inconsistent, cumbersome and ultimately burdensome sales tax collection system that makes it far more complicated for sellers to do business in Louisiana than virtually any other state.
- And, while we have a clearly low tax burden, we have a mediocre tax climate. The Tax Foundation ranks our state business tax climate at number 37. Texas in number 10. That’s not because our taxes are high, it’s because our tax structure is overly complicated and not transparent.
You get a clearer picture of that when you consider our income taxes. Take personal income taxes, for example. When you look at Louisiana’s top rate of 6%, it’s not the highest in our region, but it is at the high end. The problem is that relatively high rate masks the fact that we have many generous deductions and exemptions that most other states don’t have and extremely wide separation of brackets. Both of those things greatly reduce the actual taxes that individuals pay even though our rate is somewhat high.
So, for instance, a household making $120,000 would be within the top 10% of taxpayers in Louisiana and a portion of their income would be taxed at the highest rate of 6%. But when you account for all of our various deductions and exemptions and the structure of our tax brackets, the effective rate that household is paying is actually only 2.4%. That begs the question of why we have such high tax rates on paper when what we’re really paying is so much less. That’s a reform we can make.
What the data provided to the task force also show is that when we talk about the hundreds of tax credits, exemptions and deductions that Louisiana allows and the $8 billion they’re worth, you have to dig a little deeper to get the true picture. For instance, just over $5 billion of those tax breaks are attached to individual income taxes and sales taxes. And most of the big ticket items are either things taxpayers hold near and dear or items that for one reason or another you just don’t want to tax or in some cases can’t tax because of federal law.
For instance, exemptions or deductions for federal taxes paid, itemized deductions, personal and standard deductions and social security benefits alone total close to $1.5 billion. Sales tax exemptions on food, drugs, home utilities and fuels come to another $1.2 billion.
By comparison, the total value of the various economic development incentives managed by Louisiana Economic Development is about 5% of the $8 billion total, or about $412 million. And about half of that is attributable to just one item – the motion picture tax credit. So is it important to take a close look at those exemptions? Of course. But we need to understand how they fit into the scheme of things and look at them in a context that, admittedly, can be difficult for the average citizen to decipher.
Louisiana’s own Russell Long once said, “A tax loophole is something that benefits the other guy. If it benefits you, it’s tax reform.” Another quip goes, “People who complain about taxes can be divided into two classes: men and women.” Both of those quotes show why it’s so difficult to talk about taxes. But we need to.
Louisiana must make some long-term structural changes to its tax system that will position us better for the future we want to see. If we do that, however, we know there will be winners and losers. That’s pretty much unavoidable. But having the data, looking at how we compare with other states and understanding how we got to where we are can all add clarity – and perhaps some sense of objectivity – to a difficult conversation we very much need to have.
Thank you to the newest members of CABL
CABL would like to thank our newest members:
Paul Carter, Medical Advantage Care
Robert N. Touchstone, Jr., Robert Touchstone CPA
Venita McCellon-Allen, AEP/SWEPCO
- Archer Frierson, II, Frierson Plantation
Philip Jordan, Business First Bank
Rita Hummingbird, Hummingbird, King & Butler, CPAs
Steven Walker, Retired
Tax Structure Task Force Work Has Its Opportunities, Pitfalls
Back in February the Legislature created the Task Force on Structural Changes in Budget and Tax Policy with the idea that it would make recommendations to the Legislature by September on budget and tax reform. CABL serves on that task force and has been involved with fiscal policy issues dating back at least to the 1980s.
It is remarkable that when one looks back to that period, many of the recommendations made at the time mirror the ideas that are being suggested today. That’s because the fundamental principles of sound fiscal policy haven’t really changed. Our tax structure needs to be fair, it should be as simple as possible, it should seek to have a broad base that yields low rates and create sustainable revenues to support needed state services.
While the task force is looking at a broad range of fiscal policies which include spending and budget reforms, how sales taxes are collected, and the relationship between state and local governments, it is probably safe to assume that many of the concepts the task force will recommend with regard to tax structure are already embedded in studies that have been a part of the public discussion.
One is the tax study produced last year by three Louisiana economists for the Louisiana House of Representatives and another is the recent study undertaken by the Tax Foundation for the Louisiana Committee of 100. The Public Affairs Research Council has also done good work on state tax and budget policies.
So a framework encompassing a lot of good ideas is already out there. Part of the task force’s job will be to bring more specificity to that framework, while also suggesting improvements in policies that go beyond just tax structure. While that is a major undertaking, it does seem doable and the group’s final report is due in September.
Assuming all that happens, the question is where do we take it from there to assure that we don’t end up with another group of good recommendations that just flounder from a lack of legislative action. That gets complicated because our current budget and tax situation provide both opportunities and pitfalls.
There are a couple of big opportunities to see some permanent changes in our state’s fiscal policies. One is that some things have gotten so bad that many are finally realizing it’s time to just step in and fix them. A case in point is the state sales tax. During the special session, we increased the state sales tax to five percent giving us the highest state/ local sales tax rate in the country at more than 10 percent.
On top of that we further complicated it by removing an inconsistent slew of tax exemptions that affect different pennies of the tax in different ways and then we add them back at varying times. While lawmakers had few options during the special session other than to adjust those taxes, the mess it created was huge and further exacerbated the existing problems caused by our cumbersome and complicated method of collecting those taxes.
Another opportunity is that all of those sales tax increases and a lot of last year’s changes to tax credits and exemptions roll off the books in 2018. They simply go away. For that reason when you look at revenue estimates for the state in 2019 you see another funding cliff that equates to a drop off of more than a billion dollars.
The good news about both of those things is that it creates a sense of urgency to make more permanent and sound policy changes while abandoning some of the temporary and backwards policies we’ve had to enact to balance the budget. It also gives us the chance to make other improvements in a tax structure that has grown unwieldy and over complicated over a number of years.
Assuming we can develop all of those good policies and improvements, it in no way implies that making the fix will be easy. Lawmakers have already raised a lot of taxes, and even if the permanent fix would be revenue neutral for the state, it’s almost impossible to make it revenue neutral for every taxpayer. There are winners and losers anytime you make changes in tax policy and that makes legislators ambivalent to push the envelope too far.
There’s also the trust factor. Does the public trust “experts” and politicians to make major changes in tax policy and even if it doesn’t cost most of them any extra money, would they believe it if you told them? On top of that, consider that some of the changes the task force will probably recommend would involve changes to the constitution. That means voters would have to approve those changes. Whose message will they trust about how things would impact them?
Making significant structural changes in any policy is hard. Maintaining the status quo, especially when you’re dealing with taxes, is way too easy. Be that as it may, we do have an opportunity to help extricate us from some problems that have largely been of our own making. From CABL’s perspective it’s always worth it to work hard to come up with the best solutions and then do whatever it takes to help put them in place. Clearly, you always run a better-than-even risk of failing, but you never get anywhere until you try.