What just a couple of days ago seemed like a pathway to a smooth landing at the Legislature turned into chaos on the final day as lawmakers approved billions of dollars in spending in the waning minutes of this year’s legislative session. It wasn’t a pretty sight and some of the final spending decisions are problematic, but lawmakers did enact spending bills that make many wise investments in the future of Louisiana.
Lawmakers debated a number of thorny issues this session, many of which generated plenty of controversy, but in many respects this one was always going to be about how to spend a huge windfall of mostly non-recurring revenues generated by the state’s emergence from the pandemic, hurricane recovery, and the spending of billions of federal stimulus dollars.
The extra money available to lawmakers this session was about $2.2 billion. So, there were two major questions facing the Legislature – how to spend it and could legislative leaders garner the two-thirds vote needed to go above a constitutional spending cap designed to limit growth in state spending.
Those issues put the House at odds with both the Senate and the governor. The House voted to spend most of the money to pay off liabilities in state pension systems. The Senate and the governor wanted the bulk of it to go to address major infrastructure needs and other state and local projects.
Despite some reluctance in the House, both chambers voted to break the spending cap, though at a lower level than the Senate had proposed. At that point it appeared lawmakers were on a path to an agreeable conclusion. But it didn’t turn out that way.
Throughout the final days, negotiations went on for hours and the three major spending bills didn’t come to the floor of the chambers until the closing minutes of the session. Then they were rushed through on quick votes with many lawmakers seemingly unaware of exactly what they were voting on.
In the end, the budget bills passed overwhelmingly in both chambers. The Senate and the governor got most of the projects and investments they wanted, and the House was able to steer about $450 million to pension debt. It is hard to ignore the confusion and chaos that occurred during those final votes, and this particular budget compromise created some unexpected problems that will have to be addressed later.
But lawmakers did make historic investments in road and bridge projects, coastal restoration, and other initiatives and paid down an unprecedented amount of pension system debt. Together, these can have a tremendous and positive impact on the state’s future.
Fiscal Issues
This was a fiscal session, meaning that to a large extent the focus is supposed to be on money matters such as adjusting taxes, fees, deductions, exemptions, and the like. And while there were certainly a lot of fiscal bills filed and debated, few of substance made it to final passage. But two stand out.
The corporate franchise tax is widely seen as a bad tax that corporations pay based on the value of their stock for the “privilege” of being able to do business in the state. Fewer than 20 states have the tax and some of them are in the process of phasing them out. Now, with the passage of SB 1 by Sen. Bret Allain, so is Louisiana.
It basically says the corporate franchise tax will be reduced by 25% whenever overall corporate tax collections exceed $600 million, an amount that triggers the deposit of any receipts over that number into a Revenue Stabilization Fund. That’s expected to occur in each of the next two years so there will likely be almost immediate savings for corporations impacted by the tax.
The fiscal impact will be offset to some degree by the passage of SB 6. That bill authorizes a 50% reduction in the Quality Jobs tax incentive program each year that the franchise tax is reduced. That is one of the state’s biggest programs to lure new businesses into the state.
The other major fiscal bill to pass was HB 47, a constitutional amendment by Rep. Richard Nelson. Under current law state surpluses can only be spent in six specific areas. One of those is to pay off some of the liabilities in state retirement systems. Currently, the constitution requires that 10% of all surpluses be used for that purpose. If voters approve this amendment, that percentage will rise to 25%.
Education Issues
By far and away, the most significant developments in education – both positive and negative – happened on the spending front.
A teacher pay raise was an issue throughout the session. In the end the Legislature agreed to give all teachers a $2,000 raise. They also set aside $25 million for districts to provide targeted raises for highly-effective teachers or those in critical shortage areas such as math and science, though that was below the amount BESE requested. A bigger issue is that instead of including the raises in the state’s education spending formula, the MFP, they funded them as a separate appropriation. That means the raises are technically not permanent. They are only funded for one year, and lawmakers will have to revisit this same pay raise in 2024.
Higher education saw some of the most significant increases ever, with more than $180 million coming from a combination of recurring revenue and one-time money. Together those revenues cover things such as a faculty salary increase, increased operational expenses, needs-based financial aid, allied health and nursing programs, high-demand workforce initiatives, campus safety, and various research units within postsecondary education.
Fairing less well was early childhood education. This was always going to be a challenging year for that. Last year the Legislature pumped an additional $200 million in one-time money into programs to expand access to early care and education. The governor’s executive budget proposal cut that to $52 million. After getting zeroed out by the House, and the Senate restoring only a small portion of that, they wound up at about $44 million.
In terms of education legislation, there were a lot of bills, but not many substantive measures passed. The most significant was HB 12 by Rep. Nelson which requires schools to hold back students in third grade if they are unable to read above the lowest achievement level on an early literacy screener. Though it did generate some controversy, it contains several exceptions and interventions to help students improve their scores and it passed with bi-partisan support.
Other items of note include:
- SB 163 by Sen. Sharon Hewitt: Building on the success of recent efforts to improve early reading skills, this legislation requires specialized training for teachers in foundational math instruction.
- SB 177 by Sen. Patrick McMath: This bill envisions using federal funds that have been sent to school districts around the state to put in place additional instructional programs to accelerate learning for students who fail to achieve mastery in reading or math.
- HB 462 by Rep. Rick Edmonds: This legislation creates additional transparency for public schools by requiring school districts to post fiscal information on their websites including budgets, revenues, expenditures, contracts, and audits.
- In response to the teacher shortage impacting school districts across the state, several bills were passed that aim to streamline teacher certification processes in the hopes of getting more qualified teachers into the classroom.
Finally, two major bills to create Education Savings Accounts that allow parents to use public funds to educate their children in settings outside of public schools received fairly strong support in the House, but stalled in the Senate.
Commentary
From CABL’s perspective, it made sense for lawmakers to exceed the spending cap. The cap was put in place years ago to prevent the overgrowth of government in times when revenues were plentiful. This budget doesn’t seem to do that. For the most part it spends non-recurring revenue on one-time expenses, mostly infrastructure projects. Whether it’s bridges, highways, coastal restoration, old buildings, or deteriorating water systems, Louisiana has a lot of needs these dollars can address in responsible ways. The major new recurring expense is a teacher pay raise which is a top priority for most lawmakers.
Targeting $450 million to pension debt also makes sense. By making that a priority, the House got the Senate to commit a significant amount of money to shrinking the liabilities in some of the state’s retirement systems. That is also fiscally sound and saves millions over the long-term.
It is unfortunate that the session ended in the chaotic manner that it did. Negotiations can be difficult, and tensions often run high, but there needs to be more time and transparency when making decisions over such huge sums of money.
It also remains to be seen what the fiscal impact of this session’s spending will mean in a couple of years when some current taxes are removed from the State General Fund. But when stepping back from all the confusion, it appears lawmakers ended up with a fairly balanced approach to spending that will hopefully serve the citizens of the state for years beyond the span of typical state budgets.