Revenue “options” to fix the budget

Gov. John Bel Edwards inherited a perfect storm of revenue problems: Years of mismanagement by the previous administration left him a shaky state budget held together with roughly $800 million in unsustainable “one time” revenues. The collapse in oil prices added to the trouble as businesses across South Louisiana were forced to retrench, leading to a sharp drop in tax collections. Put it together and you’re left with a state government that needs $750 million just to pay the bills through June 30 and faces a $1.9 billion gap between revenues and expenses in the fiscal year that starts July 1.

To help solve the problem, Edwards laid out a “menu of options” late Tuesday aimed at shoring up the mid-year deficit and putting Louisiana on a path to more sustainable budgets. The short-term fixes include a 1 percent hike in the state sales tax, across-the-board cuts to protected funds, redirecting money from the BP settlement and tapping the state’s rainy day fund. The longer-term wish-list include reforms to the state income tax structure, a corporate tax overhaul and higher taxes on business utilities and cigarettes. The AP’s Melinda Deslatte has more:

Most noticeable to state residents would be Edwards’ proposal to raise the state’s 4-cent sales tax by another penny on every dollar spent. That would boost Louisiana’s average combined state and local sales tax rate, which currently sits at more than 9 percent, to the highest in the nation, according to the Tax Foundation. To get the money quickly to rebalance this year’s budget, Edwards’ revenue secretary Kimberly Robinson said the sales tax hike would kick in April 1 under the proposal. “I am serious when I say that raising taxes would not be my first, second or third option,” Edwards said. But he added later: “The need for additional revenue is now, and it’s acute.” Edwards’ top financial adviser, Commissioner of Administration Jay Dardenne, said the administration hoped the sales tax increase would be a “short-term bridge” and wouldn’t be a permanent tax hike.

Reuters’ Robin Respaut adds that, while oil prices are a major factor in the deficits, our Louisiana’s current problems also stem from years of mismanagement by the previous administration:

“Raising taxes is not my first, second, or even third option when seeking to fill the state’s budget shortfall,” said Edwards. “Unfortunately, those cuts will not be enough to bridge the enormous shortfall we face today.” The state’s overall budget problems stem from the drop in oil prices, but much of the shortfall also comes from previous excessive use of one-time money and lower-than-expected revenues, the governor’s office reported. Louisiana is now contending with years of unresolved structural budget deficits that have collided with a weakening state economy and a sharp drop in revenues from oil and gas extraction taxes, Moody’s Investors Services said in December. Moody’s rates Louisiana Aa2 with a negative outlook.

Low oil prices continue to rock the economy

As the price of oil continues to tumble, the consequences for Louisiana’s economy are obvious. The Advocate’s editorial board points out that despite Louisiana’s reduced dependence on oil revenues in recent years, low prices are beginning to translate into lost jobs, weakening local economies across the state:

More oil on the world markets raises fears that the price per barrel will tumble to $20, a low that hasn’t been seen in decades. The impact on both state and local revenue has been substantial here in Louisiana. In November, retail sales in Lafayette Parish — a national center for oil production and oilfield services— fell more than 7 percent compared with the same month in 2014. It’s the eighth consecutive month that sales were down. Those are the kind of numbers that cannot help but worry newly elected Mayor-President Joel Robideaux and the council, but at the state level, there are similar worries for Gov. John Bel Edwards and the Legislature. The budget forecast is based on a now-unreasonable $48 barrel price. That’s trouble, although not as bad as the mid-1980s when oil prices collapsed and more than 40 percent of the state budget was dependent on oil revenue. It’s still a serious impact.

State EITC a smart move

The Earned Income Tax Credit (EITC) has enjoyed bipartisan support for years as a proven anti-poverty tool. Now that changes to the federal EITC for working families have been made permanent, a new report from The Center on Budget and Policy Priorities points how much more effective the credit can be when states enact and expand their own version of the EITC. Erica Williams has the details:

Many working families with children struggle to make ends meet on low wages.  A full-time job at the federal minimum wage yields about $15,000 ― often insufficient income for a family to afford basic necessities.  The EITC, a federal tax credit for low- and moderate-income workers and their families, rewards work and improves the outlook for low-income children.  State lawmakers can build on the proven effectiveness of the federal EITC to address low wages with a state-level credit.  Like the federal EITC, state EITCs:

Help working families make ends meet.  Many low-wage jobs fail to provide sufficient income on which to live.  “Refundable” EITCs, which give working households the full value of the credit they earn even if it exceeds their income tax liability, provide low-income workers with a needed income boost that can help them meet basic needs.

Keep families working.  Refundable EITCs help low-wage working families pay for the very things that allow them to continue working, like child care and transportation.  They are also structured to encourage the lowest-earning families to work more hours.  That extra time and experience in the working world can translate into better opportunities and higher pay over time.  Three out of five filers who receive the federal credit use it just temporarily — for just one or two years at a time.

Reduce poverty, especially among children.  Over 10 million children in working families lived below the official poverty line (about $24,000 for a family of four) in 2014; millions of families modestly above that income level have difficulty affording food, housing, and other necessities.  The federal EITC is one of the nation’s most effective tools for reducing the struggles of working families and children. It kept 6.2 million people — over half of them children — out of poverty in 2013, and helped many with slightly higher incomes make ends meet.  State EITCs build on that record.

The problem with Louisiana’s jury rules

Marjorie Esman with ACLU Louisiana has a guest column in The Advocate outlining the ugly history behind Louisiana’s unique non-unanimous jury rule in noncapital cases. With Louisiana leading the United States in incarceration, criminal justice policies require extra scrutiny – especially as they relate to communities of color. Esman explains why this practice is bad news for both criminal justice and public safety in the state:

What’s wrong with non-unanimous juries? Many studies have compared unanimous with non-unanimous juries, from the process to the integrity of the decisions, and the results are incontestable. Non-unanimous juries are less thorough, jurors deliberate less, discuss fewer key categories and end deliberations faster. As a rule, non-unanimous juries reach quicker and more incorrect verdicts. When juries can disagree among themselves, they are far more likely to make a mistake and send an innocent person to prison. Incarcerating the innocent has enormous consequences not just for the person whose life is destroyed and for that person’s family, but also for public safety. It means that the actual perpetrator remains at large. We don’t do anyone a favor when we convict the wrong person…It’s time for Louisiana to join 48 other states by ending this unfair and unreliable practice.

Number of the Day

$216 million – Estimated amount of revenue that will be raised from a proposed 1-cent sales tax increase by June 2016 (Source: Reuters)