With Louisiana staring down a $1.4 billion budget shortfall, the 2015 race for governor will focus in part on what to do about a raft of tax incentive programs and giveaways that have quintupled over the past decade and now roughly match the size of the deficit.
The Legislature meets in April, and a comprehensive study of the state’s tax structure — including recommended reforms — is due by then. But there’s a consensus that this year is unlikely to see wholesale changes to state tax policy.
Gov. Bobby Jindal is in late lame-duckhood and is focused on his presidential ambitions. Also, it’s an election year for the Legislature too, likely dampening whatever enthusiasm lawmakers might have for reforms that would upset some voters.
But there’s likewise wide agreement that the state’s current path isn’t sustainable. Many expect the runaway growth of the incentives’ fiscal impact — in particular those for inventory tax rebates and film production — will continue. Absent some change, that will likely translate into further cuts to vital programs like higher education, which has already seen its state funding slashed by more than half in less than a decade.
The four announced candidates for governor — state Rep. John Bel Edwards, a Democrat, and Public Service Commissioner Scott Angelle, Lt. Gov. Jay Dardenne and U.S. Sen. David Vitter, all Republicans — generally agree that Louisiana’s budget has already absorbed too many blows.
Jindal did not respond to a request for an interview.
“Higher ed has been cut way too much,” Vitter said, adding that roads, bridges and other transportation infrastructure vital to the state’s economy also have been badly shortchanged in recent years.
Dardenne concurred, saying the damage to higher education done by the cuts of the last few years “will take an awful lot of time to repair.”
Broadly speaking, all of the candidates find it incongruous that the state’s economy is robust by many measures, yet its fiscal situation is precarious. In five of the last six years, the Legislature has had to balance the budget with one-time money, such as proceeds from property sales, and midyear cuts have become an annual rite when the gimmicks don’t all pan out.
“There’s a disconnect between how the budget is doing and how the economy is doing,” Vitter said. “It’s like they’re on two different planets. And that has led to these recurring budget cuts, and decimated some areas of the budget, like higher ed.”
Edwards sees a similar pattern. “For years, our governor has told us we’re doing better in job creation and investment, but year after year, we’re facing deficits of a billion dollars,” Edwards said. “How can that be?
“I believe we have a structural problem where we are incentivizing job creation and growth to the point where there’s no new revenue to show for it. If you’re growing the economy and not raising revenue, you have a structural problem.”
The candidates mostly agree that too often, state officials have approved open-ended giveaways without sufficient analysis of the potential impacts — and without adequate follow-up as the costs spiral, often beyond lawmakers’ wildest imaginations.
“The process when a legislator raises revenue or gives money away to a special interest is not robust enough,” Angelle said. “We need some prefiling deadlines that are much in advance of deadlines for ordinary bills, simply because the staff doesn’t have the time to do sufficient economic analysis. The fiscal staff is drinking from a fire hydrant during that period.
“Too many times, we introduce a bill and put together a fiscal note that says, ‘This is what is going to happen,’ and whether it does or not, we tend not to go back and look. I’ve never seen a report where we go back and say, ‘This is what we said; what actually happened?’ ”
No tax raises
Each of the candidates made it clear they’re not interested in raising taxes.
Edwards said he isn’t necessarily opposed philosophically to a tax increase but that the notion of one is “a remote possibility in today’s climate.”
While tax hikes are clearly a nonstarter, all four candidates said they would be willing to consider raising revenue through the elimination or paring back of giveaways that are deemed to be boondoggles.
That’s something Jindal has mostly refused to do, in part because he is trying to remain true to an anti-tax pledge he signed, promulgated by the conservative lobby group Americans for Tax Reform. As interpreted by Jindal, that pledge bars the governor from signing off on any measure that would result in the state receiving additional revenue, even by ending a wasteful program or renewing an existing tax. (A rare exception: Jindal didn’t stand in the way of the Legislature’s decision to eliminate by 2017 a program that pays for 50 percent of homeowners’ solar panel installations.)
“That, in my view, does not constitute a tax increase,” Dardenne said. “I understand the argument the governor has made, but I would not say any tax renewal is going to be an increase and therefore I’m not going to renew it.”
Dardenne said Jindal’s policy of promising to veto anything that could possibly be construed as a tax was regrettable.
“It eliminates the marketplace of ideas, which is the Legislature, where things ought to be discussed and debated,” he said. In a similar vein, he said Jindal was shortsighted to reject the possibility of expanding the state’s Medicaid program by using federal money — a key feature of the Affordable Care Act — without a careful study of the idea first.
Edwards said he would not take orders from “(ATR President) Grover Norquist and his group,” adding that “your pledge ought to be to the people who elected you, not some outside interest group.”
And Vitter, though he is the only one of the four candidates to sign Americans for Tax Reform’s pledge, expressed similar sentiments.
“I’m committed to do right by the state, not to be guided by national political groups, or debates in places like Iowa and New Hampshire,” said Vitter, in a jab at Jindal’s White House aspirations. “I think that’s a real legitimate frustration with where Bobby’s been coming from for the last three years.”
Proposed overhaul failed
Jindal launched his only real effort to overhaul Louisiana tax policy in early 2013, as the Legislature convened. His plan was to eliminate the personal income tax, balancing the books by dramatically increasing the sales tax and trimming back some giveaway programs, including film tax credits and some severance tax rebates.
But the plan was derided in some quarters as a monument to Jindal’s own political ambitions rather than a real blueprint for change. Whether or not that was a fair critique, Jindal hadn’t done any of the political legwork needed to build support for the plan. Not only did the Legislature greet it with a Bronx cheer, but lawmakers essentially ignored his suggestion to come up with an alternative reform.
In the meantime, the status quo has essentially remained in place, and the state’s “structural deficit,” as some have labeled it, has continued to widen.
Vitter said that if elected, he would immediately “consider fundamental reforms” to state tax and budget policy. He wasn’t ready to say what shape those would take, but he said he believes every incentive program should be justified with “a clear, well-thought-out return on investment test … to make sure whatever we have is achieving whatever we want it to do.”
Edwards also said he’d consider major changes to tax policy. Without committing to specifics, he said he would promise voters to use the study being led by LSU professor Jim Richardson — due to the Legislature this spring — as a blueprint for change.
“My commitment is to take that study very seriously, and where recommendations are made, we need to follow through,” he said. “None of these programs are more important than adequate funding for higher education. None of those are sacred cows.”
Dardenne said he would like to see “a simplified tax code,” but he cautioned against making reforms that “just sound good.”
He added that wholesale changes to tax policy are extremely challenging to pass, requiring both a two-thirds vote of the Legislature and a majority vote of the people.
“I don’t think you’re going to just snap your fingers and get this done because there are too many constitutional hurdles,” Dardenne said. “That’s a product of us putting so much in our constitution … and that is a product of the public not trusting the government to do right.”
No specifics yet
No candidate was willing to say yet which specific tweaks in tax breaks ought to be considered, although it’s clear that some candidates favor some of the state’s incentives over others.
Dardenne, for instance, helped author the 2002 legislation that created the film program, and he said state-sponsored studies undercount the program’s positive impacts. Those studies have shown the state gets, at best, 23 cents back for every tax dollar it sinks into the program.
“I’m not going to concede it’s a net loser,” Dardenne said. “I really do believe in the intangible benefits and the spin-off benefits to businesses that may not show up directly on the balance sheets. … You can talk to people whose businesses are now thriving because that industry is here. And if that is not captured in the analysis … then that’s a flaw in the analysis.”
Dardenne does believe, however, that some of the excesses of the program should be reined in — for instance, he supports an effort to ensure that Louisiana income taxes are deducted from star actors’ salaries on the front end, something that doesn’t typically happen now. That is among the changes to the program that the film industry is expected to put its weight behind this year; the question is whether lawmakers — especially those from parts of the state that see little benefit from the film program — will try to mount a bigger assault.
Angelle, who oversaw oil and gas drilling in the state as secretary of the state’s Department of Natural Resources for eight years, believes Louisiana’s generous tax break for fracking wells has been a huge positive for the state. The break has saved energy companies more than $1.2 billion in the past five years, but Angelle said it has done far more for the state and he wouldn’t want to tinker with it.
“I’m convinced, at least from what I’m seeing happening in Louisiana: The cost-benefit ratio of the incentive for horizontal drilling is going to prove one of the best investments this state has ever made,” Angelle said.
The availability of cheap, nearby natural gas — partly a function of the tax exemption — has helped spur investments of about $70 billion in Louisiana, he said. Low-priced natural gas is used not only as fuel for the newly announced plants but also as an ingredient in their manufacturing processes.
“The employment growth in the energy industry has been one of the absolute, primary reasons that have led us out of the recession of 2008,” Angelle said. “It’s a seismic shift beyond anybody’s imagination. And it’s all because of the marriage of hydrofracking and horizontal drilling.”
Vitter, meanwhile, said he thinks all of Louisiana’s incentive programs deserve a hard look, but he thinks the so-called “megafund” — a discretionary pot of money that the state’s economic developers use to lure coveted projects — is important to the state’s future. The fund, which once had more than $500 million, has been almost totally depleted by Jindal’s economic team and the Legislature.
“I wouldn’t favor stripping all of these tools,” Vitter said. “The megaproject fund … played a major role in attracting IBM, ConAgra and others. I don’t think we should sort of disarm and cut off our opportunity to use incentives in a smart way.”
Capitol news bureau chief Mark Ballard contributed to this report. Follow Gordon Russell on Twitter, @gordonrussell1.