Wednesday, May 6, 2015

Wednesday, May 6, 2015

Tax showdown in the House; House panel unlikely to obey Jindal’s anti-tax dogma; Budget mess jeopardizes state projects and; Tick, tock on budget time bombs

Tax showdown in the House

The House is expected to vote Thursday on a slew of tax bills that together would raise hundreds of millions in revenue to help the state close the $1.6 billion budget gap. Many business leaders, accustomed to getting their way at the Legislature, are warning that tax increases would hurt Louisiana’s economy.  Tyler Bridges of The Advocate reports:

 

At stake are tax breaks enjoyed by practically every business in Louisiana, but especially those to produce solar energy, make movies and television shows, invest in inner-city neighborhoods and create jobs for low-income residents. Wealthy individuals also stand to lose some tax breaks, and smokers are facing at least a 32-cent per pack increase in cigarettes.

 

In the meantime, The Advocate’s Lanny Keller tries to decode the complicated relationship between Gov. Bobby Jindal and his former chief of staff, Stephen Waguespack, who now heads the state’s largest business lobby and is leading the charge against any effort to make corporations bear some responsibility for closing the state’s $1.6 billion budget deficit.

 

“The lack of interest in learning the lessons of our growing private sector should be scary for anyone hoping for good economic policy to come out of this session. The money grab is on and folks don’t care where the money comes from,” Waguespack said. Well, that’s something that should be challenged on intellectual grounds. According to the conservative-leaning but nonpartisan Tax Foundation, Louisiana has one of the lowest burdens of state and local taxes in the country. LABI and many others have pointed out that this burden is poorly distributed but fixes for that require more flexibility — somebody’s taxes go up if you adjust somebody else’s — than Jindal and Waguespack showed in office. The dogma of no-tax-increases gives precious little scope for real tax reform; Jindal actually killed the people’s decision for tax reform when he repealed much of the landmark 2002 Stelly tax plan.

 

House panel unlikely to obey Jindal’s anti-tax dogma

The House Appropriations Committee is preparing to make changes to Gov. Bobby Jindal’s executive budget proposal, and Julie O’Donoghue of Nola.com reports that the committee’s version of the $25 billion spending plan is unlikely to adhere to the governor’s edict that it not include a net increase in state revenue.

 

Appropriations Committee Chairman Jim Fannin is looking for nearly $800 million more dollars in extra revenue to help stave off budget cuts to higher education and health care services. The extra cash will surface through a series of new taxes and tax credit scheduled to be taken up by the Louisiana House Thursday (May 7), but it’s not clear which specific measures will be used yet. The House Ways and Means Committee, has moved a number of pieces of tax legislation — a cigarette tax increase, film tax credit rollback, gas tax hike and others — but no agreement has been reached about which instruments will be used to raise revenue at this point. Still, one thing is clear. Whatever budget emerges will probably not abide by the “no tax” pledge Jindal signed with Americans for Tax Reform, an anti-tax advocacy group based in the Washington D.C. area. The initial state budget will likely rely on tax increases and tax credit rollbacks Americans for Tax Reform would not approve — unless a corresponding state spending cut is found elsewhere.

 

Budget mess jeopardizes state projects

With the state quickly running out of money and no solution to Louisiana’s fiscal issues on the horizon, the Treasury Department will try to raise $335 million in the New York financial markets to pay for state construction projects. Mark Ballard of The Advocate reports:

 

Some of the state’s construction projects will run out of money this month, others can make it for a few months, but all the funds will be gone by September, according to the Treasury Department. “We’ve got to go raise the money. We don’t really have a choice,” State Treasurer John N. Kennedy said in an interview Tuesday. “They’re burning through capital outlay money like it was West Virginia ditch water.” Generally, governments raise money for construction projects — capital outlay in government-speak — by selling bonds. The proceeds are spent then repaid over time with interest using taxpayer dollars. Large financial houses bid on the bonds for investments and resale.

 

The State Bond Commission usually picks the bidder offering the lowest interest rate. Bidding for this sale begins at 10 a.m. Wednesday.

 

Tick, tock on budget time bombs

No matter how the Legislature resolves this year’s $1.6 billion budget shortfall, there will be plenty of fiscal problems awaiting the next governor and the lawmakers who survive their re-election campaigns this fall. As The Advocate’s editorial board reminds us, the state is still doing battle with federal health authorities over $260 million in one-time dollars that was generated through the privatization of the state’s charity hospital system in 2012.

 

Among the financial problems of Jindal’s rushed-through privatization of charity hospitals, the U.S. Centers for Medicare and Medicaid Services, called CMS, has rejected reimbursement of advance lease payments from the private providers. The state used $260.8 million in advance lease payments to prop up the deals involving public hospitals, including those in New Orleans, Lafayette and Houma. DHH had asked CMS to reconsider its disallowance of $189.9 million in federal financial participation for the hospital deals using the lease payments as the state share. The disallowance covered Jan. 1, 2013, to May 23, 2014. “After careful consideration, CMS cannot accept the arguments advanced by the State in its request for reconsideration,” CMS acting director Vikki Wachino wrote.

The state is appealing the ruling, meaning that any money the state will ultimately owe the feds will have to be found by the next administration.

 

Correction: Yesterday’s Daily Dime incorrectly reported that a bill to scale back the inventory tax credit failed in committee, only to be passed after it was watered down. In fact, the initial bill that failed was the amended version, which later passed after it was brought up for another vote.

 

Number of the Day

$7 Billion – Projected revenue that would be generated over 10 years with a 1 cent increase in sales tax (Source: The Advocate)