Tuesday, November 17, 2015

Tuesday, November 17, 2015

Budget hits a wall; Louisiana’s cash position slipping; Third tax amnesty starts this week; and OMV money-grab part two


Budget hits a wall

The Revenue Estimating Conference–the four-member panel tasked with determining how much Louisiana has to spend–met yesterday and the news was worse than most were expecting. Melinda Deslatte with the Associated Press has details:

The budget hits keep on coming in Louisiana, with a new $370 million midyear deficit emerging Monday and more red ink on the horizon…Senate President John Alario said he didn’t think the budget could be rebalanced by tapping into reserve funds and patchwork fixes. He expected Jindal’s plan to include cuts to programs and services. “I don’t think you can avoid any cuts,” said Alario, R-Westwego. “I don’t think there’s enough smoke and mirrors around to balance these numbers out.” Alario said he hopes public colleges can be largely shielded from slashing, but he doesn’t expect health care services will escape reductions. The joint House and Senate budget committee will discuss Jindal’s latest plan Friday.


In addition, the forecasting panel also downgraded next year’s revenue forecast, adding another $324 million to the budget gap confronting the winner of Saturday’s gubernatorial runoff:  


The shortfall for the 2016-17 fiscal year that begins July 1 had been pegged at $713 million, but it was boosted by another $324 million when the Revenue Estimating Conference lowered next year’s forecast. Corporate income, severance, sales and individual income taxes all are coming in below projections, Jindal administration economist Manfred Dix told the four-member Revenue Estimating Conference. “Very depressing,” Dix said to sum up.


Economists also said the growth in the deficit was in part driven by the short-term solutions agreed to by legislators and the governor last session:


Meanwhile, lawmakers’ efforts to scale back corporate tax breaks to drum up more money for the treasury appear to have generated less cash than expected, according to Albrecht and Dix. Businesses cashed in tax credits and rebates early and reworked the use of those tax break programs to try to lessen the blow to their bottom line. “It appears there was a rush on tax credits,” Alario said.


Louisiana’s cash position slipping

The Legislative Auditor said in a report on Monday that Louisiana’s ability to borrow from different funds to pay its bills throughout the year is being gradually weakened. Thankfully, the state isn’t about to run into cash flow problems, but the auditor says it is something that policymakers need to keep an eye on as they attempt budget and tax reform:


Typically, the state collects more of its revenues towards the end of the fiscal year, but the state’s expenses come due throughout the year. When the state’s General Fund does not have cash to pay the state’s bills, as is often the case in the fall of each year, state law allows the State Treasurer to dip into, or “borrow,” this money from 280 other smaller, designated funds to pay bills due right then. Typically, at any one time, the state has $2.5 to $3 billion available for such “interfund borrowing” from these other funds.


Now, a new report from the Legislative Auditor’s office says that this past fiscal year Louisiana borrowed at an all-time high from these various smaller designated funds to pay expenses that came up throughout the year…Auditors found that, as of Oct. 30, 2015, the state’s interfund borrowing totaled $1.475 billion — $491 million higher than last year. On Oct. 14, 2015, the state hit an even-higher peak of $1.8 billion in borrowing from these other designated funds to pay the state’s daily expenses.


“While this rise in borrowing is unlikely to result in significant cash flow problems for the state this year, legislators considering changes next year to taxes, tax credits, or exemptions will now have to carefully consider how those changes will affect the state’s cash flow,” state auditor Daryl Purpera said. “We will now want to ask: If we change the way we tax, how will that affect when during the fiscal year the state collects money or pays out expenses? Otherwise, at some point, the amount of borrowable cash sitting out there to pay bills over the course of the year may not be adequate to cover the amount of borrowing required.”


Third tax amnesty starts this week
It isn’t a surprise that Louisiana’s budget is a mess given the irresponsible budgeting of recent years. Instead of making reforms that raise steady revenue, the Jindal administration has relied on gimmicks to “fix” budget shortfalls, like tax amnesty programs. The last amnesty period started on Monday, according to Katherine Sayre with nola.com:


The state has opened a 30-day tax amnesty program to collect overdue tax bills and tax returns. Louisiana has offered an amnesty period for three years now, but state officials said this will be the final for at least the next 10 years. The application period ends Dec. 15. Taxpayers who apply and settle with the state can arrange a six-month payment plan with the final payment due May 1, 2016. Louisiana has set a goal of collecting $50 million through the program.

State economists have been clear that amnesty programs don’t raise new revenue, but simply accelerate future payments in to the present. In other words, we’re borrowing from the future.


OMV money-grab part two

Alongside tax amnesty, the Office of Motor Vehicles’ quest to collect old debts–some of which go back decades and many of which drivers claim are fictional–is yet another attempt to gin up money in a piecemeal fashion. A month after sending out 1.2 million letters seeking payment last month, the OMV is mailing another 700,000 this month, reports Maya Lau with the Advocate:


The OMV has collected $8.155 million of the total $444 million sought since it began sending letters about expired auto insurance Oct. 13, Edmonson said. The organization has cleared 55,000 accounts. About 39,000 records belonged to people who paid a fee, while some 17,000 records were cleared without payment because the drivers were found to not owe the fines, he said. Some 330,000 of the initial 1.2 million letters were returned because of old or incorrect addresses, he said. Much of the controversy about OMV’s mass mailing centered on drivers who said they were being shaken down for fictional insurance infractions or for violations as old as 1986. Edmonson acknowledged the initial letters — and the backlash — created a “very overwhelming” situation for the OMV and that he hadn’t read the first notices. He conceded the tone of the missives was too stern.


Number of the Day
$370 million – Mid-year shortfall that legislators and the Jindal administration will attempt to close on Friday, on top of a $117 million deficit from last year (Source: Associated Press)