Monday, March 7, 2016

Monday, March 7, 2016

A bridge too far; Local government unhappy with sales tax hike; Nonprofit property-tax exemptions; and Running out of road

A bridge too far
As legislators scramble to fill a $900 million gap in this year’s budget before Wednesday’s 6 p.m. deadline, business interests proposed raising the state sales tax even farther than the “clean” penny that’s already been approved by the House and Senate. But that was too much for many, including LBP, which argued in a new blog post that business interests need to share in the sacrifice necessary to rebalance the budget.


With Louisiana facing a $900 million budget gap that threatens critical health and education programs, a temporary one-penny increase to the state sales tax is a reasonable solution – as long as it’s part of a broader framework of revenue increases and prudent budget cuts. Even so, raising the state sales tax from 4 percent to 5 percent would make Louisiana’s combined (state & local) sales tax rate the highest in the country, according to the Tax Foundation.


While the Legislature has few options for raising short-term cash, it could do so by temporarily suspending the inventory and motion picture tax credits, or by removing the sales-tax exemption on business utilities. Gov. John Bel Edwards agrees that business needs to pay more, saying he would not support additional sales taxes unless business shares in the sacrifice. But as’s Julie O’Donoghue reports, the Legislature doesn’t agree.


“I am not open to it until there is due consideration to all these other measures,” said Edwards, pointing to a sheet with business taxes that hadn’t left the Louisiana House yet. Yet a couple of hours after Edwards told this to reporters, the House voted down at least one of the business tax hikes the governor had specifically said he wanted approved. A proposal to increase business utility taxes only received 49 votes in the House. It needed 70 to pass.


So where does that leave things as the hours tick to adjournment? At least $130 million short of the money needed to fill the budget hole, which means colleges, health care facilities and other service providers could be in for steep cuts in the weeks ahead.


Local government unhappy with sales tax hike
Critics of high sales taxes often point out that they disproportionately hurt the poor, who spend a greater share of their income on basic necessities. But there is another group that is concerned about the Legislature’s reliance on sales taxes to fill Louisiana’s yawning budget gap: local governments. In a state where the homestead exemption provides residents with some of the nation’s lowest property taxes, local communities often rely on sales taxes to pay for community services such as police, fire protection and schools. As The Advocate’s Rebekah Allen reports,


Ronnie Harris, executive director of the Louisiana Municipal Association, which represents local governments, said public perception is sour on sales taxes that exceed 10 percent. “I call it the double-digit ceiling. When you hit 10 percent, in the minds of people, they say, ‘OK, that’s enough,” Harris said. “It diminishes the political ability of asking the public to pay anymore.” Harris said any size increase will be tough in local governments, which have to levy their own local taxes for services like fire departments and libraries and to fund new construction. But ultimately, the LMA said that local governments would be even more severely impacted if the state is unable to close the midyear budget deficit.


Nonprofit property-tax exemptions
Nonprofit organizations like churches, schools and charities in Louisiana, as elsewhere, are exempt from paying property taxes. But Louisiana’s exemption is broader than most, and that means many properties that play no role in furthering a nonprofit’s mission are off the tax rolls. The editorial board reviews a recent report from the Bureau of Governmental Research (BGR) and agrees that the time is ripe for reform.


Nonprofits here don’t have to pay taxes on properties they lease for profit. They can buy up land as an investment and not pay taxes on it. They can start a commercial operation that they say is related to their nonprofit mission, and they won’t have to pay taxes on that, either. … Louisiana should limit the kinds of organizations that can apply for tax-exempt status to those that are doing religious, educational, charitable and cultural work. Those organizations that have private memberships and exist chiefly to benefit their members shouldn’t be able to avoid paying taxes on the properties they own. There are some provisions in state law that have been drafted to give one specific organization an exemption, ostensibly because they fall outside of the general categories of organizations are exempt. But if they fall outside those categories, then they shouldn’t be exempt. On the most basic level, whether a property should be exempted from taxation should be based not on who owns that property but how that property is being used.


Running out of road
The Advocate’s Mark Ballard looks at the trial balloon floated last week by state Rep. Cameron Henry of Metairie, who suggested in a Senate committee that if the Legislature can’t find the money to plug the current-year shortfall it could just “roll” the deficit into the 2016-17 budget. That didn’t sit well with Senate President John Alario and others, who said the state has a constitutional obligation to balance its budget each year.


House Republicans are as unwilling to sponsor more spending cuts that could shut down vital state services as they are to back increased taxes, leaving few options. Armed with Tums, John Carpenter, who heads the Legislative Fiscal Office, pointed out: “I do not believe that the Constitution allows you to knowingly roll over a deficit.” What actually is contemplated in the constitutional procedure, Carpenter said, is that lawmakers in good faith, using numbers they believe are accurate and correct, have to balance the budget prior to the July 1 start of the next fiscal year. Then, if the revenues don’t come in as anticipated by October or so, a deficit is declared, and the budget is rectified midyear.


Number of the Day

$319 – Annual tax increase for a middle-income family in Louisiana if the state sales tax is raised by a “clean” penny (Source: Institute on Taxation and Economic Policy research for LBP)