Thursday, March 10, 2016

Thursday, March 10, 2016

Session ends with budget gaps; Editorial: Now comes the hard part; A balanced federal budget is not very balanced; and Diminished earnings = Political angst

Session ends with budget gaps

The 25-day special session finished with a furious flurry of bills being passed in the closing minutes after hours of negotiations. When it was all over lawmakers had agreed to temporarily remove some exemptions on the existing 4-cent state sales tax, raise that tax by a “clean” penny and higher levies on cigarettes and alcohol. But as a disappointed Gov. John Bel Edwards noted shortly after adjournment, the moves still left a $30 million gap in the current-year budget, an $800 million shortfall next year – and did virtually nothing to deal with Louisiana’s long-term structural deficit.


The Times Picayune’s Julie O’Donoghue and Kevin Litten have more on the shaky end solution:


Even the money that the Legislature managed to raise to address the current $900 million budget crisis is mostly short-lived. A large chunk of the new funding relies on a temporary sales tax hike, one of the levies economists and tax experts specifically advised Louisiana shouldn’t raise. Another large revenue-raiser put in place is the temporary suspension of existing sales tax exemptions, a funding source that will go away in four years. And there is no guarantee that some of the other money the Legislature is relying on to fill the budget hole will be available. Edwards and lawmakers could run into trouble collecting $200 million from the BP oil settlement that is helping to fund the budget this year. Another $80 million requires Louisiana’s Bond Commission to sign off on refinancing state debt. Though not factored into the overall deficit, the Legislature is also hoping an additional $300 million can be generated from making the state’s five entities that manage Louisiana’s Medicaid program pay more. But that money requires the federal government to approve higher rates, something health officials worry won’t happen. Lawmakers declined during the session to tackle difficult financial issues, such as adjusting income tax deductions or fixing the confusing way sales tax is collected. There is almost universal agreement that state’s inventory tax system is a problem, but no serious conversation about fixing it took place.


More coverage:


  • Jeremy Alford of covers the story for The New York Times, including a quote from a Baton Rouge-based  research organization.


For all that the Legislature accomplished in its special session, some critics noted that the changes lawmakers passed were temporary in nature and did not fundamentally alter the tax code and what Moody’s Investors Service called a “structural deficit.” “They did the absolute bare minimum that was required of them,” said Jan Moller, the director of the Louisiana Budget Project.


Editorial: Now comes the hard part
The special session may be over, but The Advocate’s editorial page reminds us that lawmakers are due back in Baton Rouge on Monday for the start of the three-month regular session. And the state’s budget problems aren’t going away, as there remains an $800 million gap between revenues and projected expenses in the 2016-17 budget that will be constructed in the months ahead.


All we can hope is that making hard decisions will get easier with practice. Those tough choices were essentially deferred during the eight years of Gov. Bobby Jindal’s administration, as Jindal used an array of accounting gimmicks to forestall the state’s day of budgetary reckoning.


A balanced federal budget is not very balanced
Those who want to force the federal government to balance its budget often claim that this is something families and states are required to do. But as Robert Greenstein and Joel Friedman from the Center on Budget and Policy Priorities report, this is a flawed theory since families and states rely on borrowing for things like college tuition or capital projects. More importantly, a balanced federal budget would likely mean deep cuts to programs that help low- and moderate-income families.


Last year, congressional Republicans adopted a budget calling for nearly $5 trillion of cuts in domestic programs over ten years, with about two-thirds of those cuts coming from programs focused on low- and moderate-income households — even though such programs account for about one-quarter of all program costs.  That budget would have made health insurance unaffordable for tens of millions of Americans, increased poverty and serious hardship, and squeezed investments in programs such as education and basic research that can boost opportunity and future productivity growth.


A better approach, they argue, is to address the federal deficit through a mix of tax increase and program cuts, along with controlling the growth of spending through the tax code.  


The major successful deficit-reduction efforts of the past have relied on a balanced mix of program reductions and revenue increases.  They include the bipartisan budget deal of 1990 (under President George H.W. Bush) and the Democratic plan of 1993 (under President Clinton).  Those plans contributed to transforming the huge deficits of the early 1990s into four straight years of budget surpluses starting in 1998.


Diminished earnings = Political angst
An op-ed in the Washington Post by Jared Bernstien of the Center on Budget and Policy Priorities, links stagnant wages of blue-collar workers to the populist anger characterizing this political year. He argues that while there is a real link between wages and rising anger, there are several other factors at play, including big business bailouts during the recession and the fact that most economic growth going to the top 1 percent. To prove the link, he first looks at real hourly earnings of blue-collar worker in manufacturing:


…the Bureau of Labor Statistics provides a long, historical look at the real hourly earnings of production, or blue-collar, workers in manufacturing. The story couldn’t be simpler: their hourly wage doubled from the 1940s to the 1970s but has flat-lined since.


He also analyzes the real median and 25th percentile annual earnings of white men aged 25-54 years old.  


For both low- and middle-earning white guys, there’s a small bump up in the full-employment 1990s, though no great shakes. But since 2000, it’s stagnation and worse. The real median wage is down 14 percent since then; the real low wage is down a whopping 26 percent.


Number of the day

$30 million – The remaining current-fiscal-year Louisiana state budget deficit. (Source: The Advocate)