The budget debate, redefined

The budget debate, redefined

The $1.9 trillion American Rescue Plan Act has upended budget negotiations at the state and local level, where governments that once were bracing for budget cuts as a result of lagging revenue collections now face an unprecedented influx of federal relief dollars that may come with fewer strings attached than previous rounds of aid. The AP’s Melinda Deslatte reports that Louisiana is still waiting for official guidance from the U.S. Treasury Department, but that Gov. John Bel Edwards’ administration is drawing up plans for how to spend the state’s $3.4 billion share. 

The list of proposals — and needs in poverty-ridden Louisiana — is long. … Beyond the unemployment fund, (Commissioner of Administration Jay) Dardenne said the administration likely will propose steering dollars to the state’s struggling tourism industry, water system improvements and expansion of broadband internet around the state. Edwards is expected to announce his detailed recommendations before the legislative session begins.

Cities, towns and parish governments in Louisiana will divide $1.8 billion. A team of Advocate reporters found that officials are being cautious while awaiting guidance. But the new law offers plenty of flexibility for local governments – some of which have been financially devastated by the pandemic and others that have seen few, if any downturn in revenues.  

According to the legislation, cities and parishes can also use the money to provide assistance to households, small businesses, non-profits and industries that were negatively impacted by the pandemic – like tourism, travel and the hospitality industry. The aid could also be used to boost the pay of “essential” employees who had to work throughout shutdowns and in response to the pandemic, which opens that up to an array of sectors like law enforcement and other first responders.

Click here for a detailed breakdown of the American Rescue Plan Act by LBP’s Jackson Voss. 

Confusion over tax cut provision?
The American Rescue Plan Act prevents states from using their federal relief dollars to finance tax cuts. The provision is designed so that states avoid the mistakes that Louisiana made in 2007-08, when legislators approved massive tax breaks at a time when federal recovery dollars were artificially lifting state revenues. But Louisiana Attorney General Jeff Landry and his GOP colleagues claim the language is unclear. This comes as some legislators push for tax cuts during the lawmaking session that starts April 12. Mark Ballard, Capitol bureau chief for The Times-Picayune | Baton Rouge Advocate, reports

The provision was added to keep politicos from making the ever-popular move of cutting taxes, using the stimulus money to cover the government’s lost revenues, then take credit for putting cash into taxpayer pockets, rather than stabilizing government budgets. The sponsor of that amendment, West Virginia’s U.S. Sen. Joe Manchin, a Democrat, took to the Senate floor last week to say his objective was not to stop states from doing their main jobs of choosing which services are funded with the state general fund revenues available.

How to collect unpaid taxes
The federal government does a pretty efficient job at collecting income taxes from ordinary wage earners by withholding them from people’s paychecks. It is far less efficient at making sure corporations pay what they owe under the law, as there is no similar withholding mechanism. Studies have suggested that unpaid corporate incomes taxes amount to $600 billion per year lost to tax cheats. A former IRS commissioner, Charles Rossotti, is proposing to fix that by creating a third-party verification system, similar to the W-2 forms that employers provide for their workers, for corporations. The idea is gaining currency on Capitol Hill, as a New York Times editorial explains:

The government has a basic obligation to enforce the law and to crack down on this epidemic of tax fraud. The failure to do so means that the burden of paying for public services falls more heavily on wage earners than on business owners, exacerbating economic inequality. The reality of widespread cheating also undermines the legitimacy of a tax system that still relies to a considerable extent on Americans’ good-faith participation. 

Stimulus dollars could help in opioid fight
Deaths from drug overdoses are increasing faster in Louisiana than in any other state, and have spiked since the start of the Covid-19 pandemic. But a provision tucked into the American Rescue Plan Act could help states by providing increased funding for outpatient treatment. As Anna Bailey of the Center on Budget and Policy Priorities reports, the temporary federal dollars must be used to enhance services, and can be used to help people with substance use disorders (SUDs). 

Among its provisions boosting Medicaid, the American Rescue Plan Act includes one year of enhanced federal funding for home- and community-based services (HCBS), which states can use to boost such services targeting SUDs, and a strong financial incentive for states that haven’t expanded Medicaid to quickly do so. States can use these provisions to shore up access to SUD services during the pandemic and build a more equitable system for the future. For instance, they can extend coverage to more people with low incomes and cover a full continuum of SUD services, compared to the patchwork that most states currently provide.

Number of the Day
50% – Increase in households’ use of “charitable food” between December 2019 and December 2020. An estimated 19.7% of nonelderly adults used food assistance in December, compared to 13.7% before the pandemic (Source: Urban Institute)