Monday, January 26, 2015

Monday, January 26, 2015

The Uneven Recovery; GOP Governors Buck Party Line on Taxes; Colleges bracing for deep cuts; and Legislators considering pension raid

 

The Uneven Recovery

Families have now heard for years that the economy is recovering. Here in Louisiana, an industrial boom along the Mississippi River corridor and in the Lake Charles area is promising tens of thousands of new jobs. But despite the sunny talk, most working families aren’t seeing the results in their paychecks.

 

That’s because all—literally all—of the income gains in Louisiana in the three years after the recession went to the top 1 percent of households, according to a new analysis of income tax records from the Economic Analysis and Research Network (EARN). During that same time period, the bottom 99 percent of households combined actually lost income.

 

Economic growth wasn’t always this unequal. Prior to 1979—an era of industrial growth and policies that favored the middle-class—working families fared much better. Even as wage growth slowed after 1979, gains were more broadly shared during economic expansions. The years 2009 through 2012 are a huge outlier, with all the gains going to the top.

 

Unequal income growth isn’t unique to Louisiana. But Louisiana is one of 17 states where the top 1 percent captured all of the income gains post-recession. And there is evidence that growing inequality is a hurdle to economic growth and could also be hurting state tax collections, leaving fewer resources to pay for higher education, infrastructure and health care, as LBP explains in a new blog post.

 

GOP Governors Buck Party Line on Taxes

Louisiana isn’t the only state facing a major revenue shortfall this year. But unlike in Louisiana, governors in other states are looking to new or expanded taxes to fill part of the gap, The New York Times reports.

 

At least eight Republican governors have ventured into this once forbidden territory: There are proposals for raising the sales tax in Michigan, a tax on e-cigarettes in Utah, and gas taxes in South Carolina and South Dakota, to name a few. In Arizona, the new Republican governor has put off, in the face of a $1 billion budget shortfall, a campaign promise to eliminate the unpopular income tax there.

 

“It’s not based on partisanship; it’s based on common sense and good government,” said Gov. Rick Snyder of Michigan, a Republican who has urged voters to support a ballot measure that would raise $1.9 billion by increasing the sales tax and gas tax. “We’ve been underinvesting in Michigan for some time, so I view it as a way to, long term, save us resources.”

 

It’s a different story in Louisiana, of course, where Gov. Bobby Jindal plans to patch a $1.4 billion gap (which will almost certainly grow this afternoon when the revenue forecast is revised) without new revenues.

 

Colleges bracing for deep cuts

Even though the full extent of the budget shortfall won’t be clear until later today, higher education leaders have been working behind the scenes with legislative leaders on ways to limit the damage. The AP’s Melinda Deslatte reports that suggestions range from calling the Legislature into special session to suspending some tax breaks or raising student fees or the tax on cigarettes.

 

LSU System President F. King Alexander said without changes, many of Louisiana’s colleges would be forced to declare “financial exigency,” the equivalent of campus bankruptcy. He said the LSU main campus in Baton Rouge would have to stop the hiring of more than 100 new faculty members and lay off another 200 – for a school that ranks 46 out of the United States’ 50 flagship universities on what it spends per student before any reductions.

 

The Advocate’s Mark Ballard follows in a similar vein, and notes that the tax breaks being eyed for a possible rollback include the state’s Enterprise Zone program and a 2010 law that exempts businesses from paying sales taxes on utilities.

 

And the AP knocks down the notion, advanced by the administration, that oil prices are chiefly to blame for the state’s financial travails.

 

Louisiana has struggled through repeated financial gaps since 2008. The state treasury has taken hefty hits from the national recession combined with sizable tax cuts approved by Jindal and his predecessor when the state’s finances were flush. Jindal has refused to raise taxes. But rather than match state expenses to annual revenue, he and lawmakers have turned to property sales, legal settlements, fund balances and other one-time sources of cash to fill gaps.

 

Legislators considering pension raid

While state revenues have been flat in recent years, the same isn’t true of the stock market, which has been soaring. And that means the retirement plans for teachers and state employees have been faring better than usual. They’re still badly underfunded, but The Advocate’s Marsha Shuler reports that there is a combined $300 million balance in accounts that are set aside for cost-of-living raises.

 

Some fear the cost-of-living dollars will be raided to help plug the $1.4 billion shortfall in the state budget. But others say the raises are badly needed to cope with rising health-care premiums caused in part by  Gov. Bobby Jindal’s decision to raid a $500 million reserve fund in the state Office of Group Benefits.

 

Number of the Day

$109 million – Amount the state will save, over 26 years, by taking advantage of low interest rates to refinance $649 million in highway debt. (Source: Treasurer John Kennedy via AP)