State budget propped up by federal aid

State budget propped up by federal aid

Louisiana’s slow economic recovery from Covid-19 will continue and leave the state with $228 million less to spend in next year’s state budget, a forecasting panel determined on Tuesday. But state economists told the Revenue Estimating Conference that the ultimate size of the budget gap is unclear, due largely to the prospect of additional federal relief from the incoming Biden administration. Still, lawmakers acknowledged that Louisiana’s budget would be in much more dire straits without the nearly $900 million in one-time money and other income relief that the state has already received from the federal government. The Times-Picayune | Baton Rouge Advocate’s Sam Karlin reports

In the current fiscal year, which ends June 30, economists said federal aid helped buoy the state’s revenue collections, after Congress and the Trump administration agreed to stimulus checks, boosted unemployment and other aid. The panel voted to recognize an increase of $292 million in the current year compared to the previous forecast, though that is still a drop of $289 million from the actual money received last year. And that includes $90 million in funds that lawmakers and Edwards agreed to use from the state’s rainy day fund to help stave off cuts. “The income support we’ve gotten from the federal government is what has gotten us to where we are today,” said Greg Albrecht, an economist for the Legislative Fiscal Office.

Repealing state income tax isn’t a solution 
Louisiana’s legislative session doesn’t kick off until mid-April. But other states’ legislative sessions are already underway, and policymakers in places like West Virginia, Arkansas, Mississippi and Montana are proposing cuts to state income taxes. Similar ideas have already been floated in Louisiana, where income taxes make up nearly one-third of the state general fund. Wesley Tharpe and Michael Leachman of the Center on Budget and Policy Priorities explain why income tax cuts are catastrophic to state budgets and promote economic inequality.  

States that sharply cut income taxes in the past have reaped sharply lower state revenues, as common sense would predict, and the tax cuts have consistently failed to produce an economic boom. In the early 2010s, Kansas, Maine, North Carolina, Ohio, and Wisconsin cut personal income taxes by large amounts in hopes of boosting their economies. But all five saw slower growth in private-sector gross domestic product than the United States as a whole over the next few years, and four of the five saw slower growth in private-sector jobs. Kansas’ massive income tax cuts wreaked so much havoc on the state’s ability to pay its bills and save for the future, let alone invest in people and infrastructure, that lawmakers voted on an overwhelming, bipartisan basis to reverse them in 2017. 

The Biden agenda 
Once the pomp and festivities of the inauguration have subsided, all eyes will be on President Joe Biden’s policy agenda. The new commander in chief will become president at arguably one of the most divisive times in American history and as the Covd-19 pandemic continues to ravage the country. While a new pandemic relief bill will be an immediate push by the new administration, the AP’s Bill Barrow outlines other, long term policy proposals, like health care, that we can expect from the 46th president. 

Biden wants to build on President Barack Obama’s signature health care law through a “Medicare-like public option” to compete alongside private insurance markets for working-age Americans. He’d also increase premium subsidies many people already use. Biden’s approach could get a kick-start in the pandemic response bill by expanding subsidies for consumers using existing ACA exchanges. The big prize, a “public option,” remains a heavy lift in a closely divided Congress. Biden has not detailed when he’d ask Congress to consider the matter. 

Politico’s Laura Barron-Lopez and Alice Miranda Ollstein explain that Biden will waste no time in setting his agenda. 

On his first day in the White House, Biden will sign 15 executive orders covering the pandemic, economic relief, immigration, climate change and racial equity. He will also move to freeze dozens of last-minute Trump administration regulations and send an immigration bill to Congress that will provide a pathway to citizenship for millions of undocumented immigrants. The collective effort was characterized by multiple senior White House officials as “undoing” and “reversing” policies implemented by Trump that were “harmful” or “inhumane.” They’re also aimed at addressing the “overlapping and intertwined crises” that the Biden administration inherited, Gina McCarthy, the incoming White House domestic climate policy director, explained Tuesday on a call with other senior officials.

Out of power, fiscal conservatism returns to GOP
Republican lawmakers are returning to their fiscal hawkish ways now that a new president is coming in. Speaking at Treasury Secretary nominee Janet Yellen’s confirmation hearing, GOP leaders discovered a newfound affinity for cutting spending. The New York Times’ Alan Rappeport explains the hypocrisy displayed at the hearing that is likely a preview of future arguments against Covid relief and other policy proposals. 

Despite backing $1.5 trillion in tax cuts and more government spending under Mr. Trump, Republicans have been sounding increasingly hawkish about the national debt since Mr. Biden won the election. Questioned about how the United States could afford the policies that Democrats are proposing, Ms. Yellen argued that such proposals were fiscally responsible. “To avoid doing what we need to do now to address the pandemic and the economic damage that it’s causing would likely leave us in a worse place economically and with respect to our debt situation than doing what’s necessary,” she said.

Programming Note
Join LBP on Facebook Live today, Wednesday, January 20th, at 9:30 am, as we recap the REC meeting and preview what the incoming Biden administration means for Louisiana.

Job opportunity: State Policy Fellowship
The State Policy Fellowship is an exceptional opportunity to develop in-depth policy expertise.  Fellowship responsibilities include tracking and analyzing legislative proposals and state budgets as well  as conducting research and analysis on state budget, tax and other issues to improve the lives of  families from all backgrounds. Fellows will also produce reports and other materials for use by  policymakers, journalists, advocacy groups and civic organizations and collaborate with community based advocates to engage the public on the impacts of public policies on their communities. Check out the information session on Thursday, January 21 at 3:00 PM ET. Click here to register

Number of the Day
$70 billion – Increased funding proposed by the Biden administration for historically black colleges and universities and other schools that serve underrepresented students. (Source: Associated Press