Gov. John Bel Edwards unveiled his executive budget for the coming fiscal year on Monday at a meeting of the Joint Legislative Committee on the Budget in Baton Rouge. By his own admission, however, the budget is not one Edwards supports or wants to see enacted.
That’s because Louisiana is facing a fiscal cliff: the expiration of temporary taxes that passed in 2016 to help address the $3 billion shortfall left by Gov. Bobby Jindal in his final budget year. Edwards has no choice but to recommend $993 million in cuts in his new budget, given that the temporary taxes enacted in a series of special sessions in 2016 expire on June 30, the end of the state’s fiscal year.
Whether key Republicans, particularly in the Louisiana House, feel the same way as Edwards remains to be seen. Whatever the outcome, the unveiling of the executive budget marks the unofficial start of the 2018 legislative cycle, which could include one or more special sessions as Edwards works to get the state’s fiscal house into something resembling order.
Jan Moller of the Louisiana Budget Project argues that lurching from fiscal crisis to fiscal crisis is no way to run a government.
“The executive budget is completely unacceptable, and should be enough to convince every legislator that tax reform cannot wait. If it wasn’t already obvious, it should now be clear to everyone that the fiscal cliff is real, and that cutting our way out of this mess is not a viable option,” Moller said in a prepared release. “This budget would devastate Louisiana’s hospitals, compromise public safety and help drive the state’s best and brightest to other states by wreaking havoc on our public universities. And it would be absolutely devastating to low-income families and people with disabilities who depend on the safety net.”
But Steve Waguespack, leader of the Louisiana Association of Business and Industry (and Jindal’s former executive counsel), argued on a Shreveport radio station on Tuesday that the fiscal cliff is “only a speed bump.” He wants the Legislature to wait and see how deep the hole actually is before making any decisions.
The federal Republican tax package that became law in December clouds matters in a good way for both sides by reducing the extent of state’s revenue shortfall and, with that, the need for new taxes. The tax bill will produce new revenue for Louisiana through changes in itemization options for taxpayers. Current Louisiana law allows state taxpayers to, in essence, double up on itemized expenditures made on federal taxes. Reduced itemization means fewer deductions on state income taxes, which will mean more money into state coffers while federal taxes decline. Estimates are that the change could bring several hundred million dollars in new revenue for the state, but the exact amount is not yet clear.
Peering Over the Fiscal Cliff
The painful budget cuts include slashing $663 million from the Louisiana Department of Hospitals, which would affect the state’s ability to draw down as much as $2 billion in federal Medicaid funding. For a list of the cuts, go here.
The cuts represent 10.35 percent of the state’s forecast $9.55 billion General Fund. That money comes from state taxes, including income and sales taxes, as well as revenue from oil and gas production, which also includes severance taxes and royalties from production on state-owned lands and water bottoms.
According to the governor’s presentation, General Fund revenue will constitute 28.9 percent of all state spending. The rest of the $25 billion or so comes from federal revenue (41 percent), fees and self-generated revenues (13 percent) and statutory dedications (12.8 percent). Statutorily dedicated funds include money dedicated either by law or by amendments to the Louisiana Constitution; these include things like lottery proceeds, college tuition paid to universities, and vehicle registration fees. The federal dollars coming into Louisiana include funds for Medicaid, food stamps, disaster recovery, and highways.
In addition, voters have approved a series of constitutional amendments since the current constitution took effect in 1975 that have the effect of blocking legislators and governors from cutting funding for certain programs. As a result, most of the cuts to the state budget come from those parts of the General Fund that are not protected by either the law or the Constitution — and as it turns out, those unlucky funds are for healthcare and higher education.
Despite complaints from Republicans about alleged growth in Louisiana government spending, the General Fund spending proposed by Edwards for 2018 is less than the $10.5 billion spent by Bobby Jindal in his first budget.
The Jindal Fiscal Hangover
In 2016, a contingent of House Republicans (who had defeated Edwards’s choice for House Speaker) argued that the $3 billion budget gap left over from Jindal could be closed without new taxes. While cooler heads prevailed, the taxes that did pass were regressive ones — a statewide one-cent sales tax with no exemptions, and a tax increase on alcohol sales. That drove an inordinate share of the burden of financing government onto the backs of working people and the poor.
At the end of the tumultuous 2016 legislative sessions, lawmakers in both parties and in both chambers tacitly agreed that they would address the fiscal cliff in the 2017 regular session.
Instead, the House Republican Caucus, led by Rep. Lance Harris of Alexandria, adopted a different tack. At a retreat in August 2016, Harris and his caucus decided that they were going to do a deep dive into the budget to look for waste and other savings that could address the revenue shortfall without resorting to tax renewals or increases. They kept their plans to themselves.
When the 2017 Regular Session convened in April, Harris, House Speaker Taylor Barras (R-New Iberia) and House Appropriations Chairman Cameron Henry (R-Metairie) spoke in generalities about making shifts in the budget but refused to offer specifics. There was no discussion among Republican leaders in 2017 about addressing the temporary taxes or the fiscal cliff.
Playing keep away with the budget and ultimately giving Henry veto power over any Senate response to the House version of the budget, Barras and Harris saw the Republican Caucus fracture in the final days of the session in June. No budget was approved. Edwards had called a special session to start 30 minutes after the Regular Session as a precaution when signs of gridlock became unmistakeable.
Six days after Henry blocked the House from considering the Senate’s alternative budget plan, which was endorsed by Edwards, the House voted in the special session to approve a budget which was nearly identical to the plan the Senate had sent to the House a week earlier. Henry had rushed to Washington after his friend and mentor, Steve Scalise, was shot at a Congressional baseball practice, and wasn’t there to block the measure a second time.
In all, 13 members of the 60-member House Republican caucus broke with the leadership and voted with 41 Democrats to pass a budget over the Republican leadership’s objections. The votes enabled the state to avoid deep cuts in the Department of Health and the Department of Children and Family Services, which the House had made in their original version of the budget.
But the cuts the House attempted to impose in the 2017 regular session pale in comparison to those included in the Edwards fiscal cliff budget.
Reform Or Rescue
Edwards has met with business leaders about the budget in the months since the end of the special session. He’s also met repeatedly with Speaker Barras, with whom he served two terms in the House before being elected Governor.
Barras was a compromise choice among House Republicans for Speaker. He is not an ideologue, and the power in the caucus appears to reside with Harris and Henry. Henry is also politically close to former Senator David Vitter; both Henry and Scalise represent much of the same district that Vitter did when he was a member of the Legislature before getting elected to Congress.
Edwards wants to address the revenue issue before the start of the 2018 Regular Session, which is set for March 13. That would require a special session in February. He has stated publicly he will do this only if there is a measure of agreement with the Republican leadership on how to reform the state’s tax structure as well as address the fiscal cliff. That agreement has not materialized.
The problem for Edwards is that tax reform would require the support of two-thirds of the 105-member House and the 39-member Senate. Republicans hold majorities in both chambers. A fix that would produce meaningful results would be to restore the top two brackets of the state income tax, which were repealed in Jindal’s first year in office. The tax cuts weren’t Jindal’s idea (they originated in the House), but he signed the legislation. Edwards, then a freshman member of the House in his first session, voted in favor of the tax cuts that now haunt his budgets.
It would only take majority votes in the House and Senate to reinstate those tax brackets. Edwards says he has the votes to do that in the House. The Senate would likely approve the proposal easily as well.
If Edwards wants to have a special session in February, he’ll have to call it soon. He’s said he does not want to wait until after the regular session ends in June, because doing so would force departments and agencies to make plans and adjust programs on short notice.
While Edwards might prefer taking the path to tax reform, the intransigence of the Republican leadership in the House might force him to settle for reinstatement of the top income tax brackets. Combined with the death of the temporary sales taxes, that alone would make Louisiana’s tax structure more progressive. It might not be the grand achievement the Governor is seeking, but it may well be one that would put the state back on the sound financial footing that it was on before Bobby Jindal destabilized state finances while eyeing his run for the White House.