Anatomy of a budget deficit

When state governments cut taxes, there is less revenue available to fund basic services like healthcare and public education. That simple truism – sometimes lost on state policymakers – is at the core of Gordon Russell’s comprehensive look at the factors behind the $1.6 billion budget shortfall.

The reason for the yawning chasm between revenue and expenditures is basic: Louisiana simply isn’t collecting as much tax money as it was when Jindal took office, and the spending cuts he has made, though substantial, haven’t kept pace with the declining revenue. In the last fiscal year, state government collected $10.3 billion in taxes and fees. That’s 8 percent less than it took in during the fiscal year ending in 2009 — 16 percent less when adjusting for inflation.

While there are several reasons for the revenue drop, the biggest is the Legislature’s decision to enact a series of tax cuts in 2007 and 2008, when Louisiana’s budget was running large surpluses.

The Stelly plan had enshrined an exemption for the sales taxes Louisianians paid on food and utilities, a tax long derided by critics as regressive, and it had raised income taxes on higher-income earners and limited deductions to restore the revenue that would be lost from the sales tax exemption on necessities.

Meanwhile, the distribution of the tax burden has also shifted in recent years, thanks in part to higher tuition and fees charged to students to make up for cuts in state support.

“The tax burden in this state has been shifting from those at the top to those at the middle and bottom, both through tuition and through income tax cuts,” said Jan Moller, director of the left-leaning Louisiana Budget Project. “When you repealed Stelly — and this was not just Jindal’s doing — you disproportionately helped taxpayers at the very highest levels. “So the richest corporations and the wealthiest taxpayers have had their loads lightened. And folks at the middle and the bottom have not seen big tax cuts, but they’ve seen cuts in services, and they’ve seen fees go up. A lot of the shortfall has been made up in fees and fines. So the cost of everyday living has gone up.”

The truth about TOPS

While many state programs and services have faced deep cuts in recent years, the TOPS college scholarship program has been growing at a steady pace, as annual tuition hikes drive up the cost of the scholarships. But Dillard University President Walter M. Kimbrough, in a column for Gannett’s Louisiana newspapers, says the program as we know it today is a far cry from what was originally intended by its founder.

A December report presents a truth we must accept. The median income of TOPS recipients is double the average state income. Blacks (32 percent of the state population) are only 17 percent of recipients. In essence, the original group Mr. Taylor spoke to is not getting TOPS today. Some protested the report from the onset arguing that it would lead to the program no longer being merit based. But that was never the intent; it was conceived as a merit and need based program. The original program had an income cap of $35,000. Yet by 1997, legislators removed the income cap and it became a merit-only program.

The shadow governor

It’s fair to guess that most Louisianans knew little about a Washington lobbyist named Grover Norquist until a few weeks ago. But that’s changing rapidly, as Gov. Bobby Jindal’s staff openly acknowledges that Norquist’s Americans for Tax Reform was closely consulted on the governor’s budget proposal to ensure that it met the group’s anti-revenue purity test.

The AP’s Melinda Deslatte reports that Norquist’s influence is irritating to some of the legislators whose support Jindal will likely need in the coming weeks.

Lawmakers say they’ve been told at meetings with Jindal administration leaders that the governor only will support raising new cash for the state if the ideas don’t violate the D.C.-based organization’s guidance. That has Republican and Democratic legislators bristling that they’re being artificially limited in searching for budget solutions by a group that has no stake in what happens to Louisiana, rather than have a straightforward conversation about Louisiana’s tax structure and the wisdom of its tax breaks.

Meanwhile, The Advocate’s Greg Roberts weighs in with a lengthy profile that quotes several Republican operatives about the political dangers faced by politicians who break the anti-revenue pledge.

“Historically, Norquist and his organization have been the Good Housekeeping seal of approval for fiscal conservatives,” said Dan Schnur, a former Republican campaign consultant who now directs the Jesse Unruh Institute of Politics at the University of Southern California. “He still commands a tremendous amount of respect, and a conservative politician at any level looking to move up the ladder benefits immensely from his support and can be greatly damaged by his opposition.”

Hillyer: Legislature needs a backbone

The Advocate’s Quin Hillyer lays out a balanced approach to solving the budget deficit that includes tax increases, spending cuts and management efficiencies. On the tax front, Hillyer recommends a modest 75-cent increase in the tax on a pack of cigarettes (raising about $150 million), generating another $150 million by curbing some refundable tax credits, trimming the film subsidy program by $50 million and saving another $50 million by reducing tax credits for things like horizontal drilling. He also proposes to save $34 million by capping the TOPS program at current-year spending levels.

Meanwhile, Mark Ballard writes that legislators need to pay attention to a “mysterious” group of 96 exemptions to the state sales tax that collectively drain $769 million from state coffers each year.

A couple were drafted years ago in language that fit only one company, like Royale Airlines that went out of business 25 years ago or Grantham University that moved to Kansas after the 2005 hurricanes. Both tax breaks are still on the books. Another was aimed at vintage World War II planes, but the wording ended up also exempting taxes on the sales executive jets constructed in the 1980s. State Sen. Dan Claitor, R-Baton Rouge and a member of the Senate Finance Committee, offered at one hearing that a fan willing to plop down $8 for a beer at a professional football game probably wouldn’t blanche at paying 32 cents more, which would allow the state to get a taste, too.

Number of the Day

$35,000 – Original income cap for TOPS scholarships, which was removed in 1997 (Source: Shreveport Times)