Legislative leaders and Gov. John Bel Edwards failed to completely close the budget gap Tuesday night that threatens deep cuts in state government services, less than 24 hours before the special session ends.
Louisiana House and Senate leaders and Edwards met periodically throughout the day and into the evening but called it quits at about 9:15 p.m.
“There’s still no deal yet,” said Senate President John Alario, R-Westwego. “There aren’t enough votes on either side. I do think things will work out in the end.”
As he entered a Capitol elevator, Alario did provide welcome news to those who have been fearful of having classes canceled or losing their state health care: the two sides are only $18 million shy of ending this year’s budget shortfall. Another source, however, put the gap at $38 million, and said that was contingent on passing legislation that was not certain.
Republicans meeting in the speaker’s first-floor office declined to discuss the negotiations.
Six freshman Republicans met separately with Edwards Tuesday night in a sign of division within GOP ranks.
Other sources said Democrats in the House refused Tuesday night to go beyond the already-approved 1-cent increase in the state sales tax with an extra 0.25 cents – as Republicans are seeking. Republicans, meanwhile, refused to agree to the Democrats’ proposal to raise more money by changing income tax brackets, a plan that would primarily hit upper-income taxpayers.
The developments Tuesday night come after the Legislature has been meeting for the past 24 days in a special session punctuated by partisan maneuvering, heartfelt pleas by the disabled to protect their home health care and lots and lots of talk about taxes.
All of that comes to a head Wednesday when lawmakers have until 6 p.m. to reach a final deal with Edwards to avoid disrupting classes at LSU and the other state universities and colleges and to prevent state hospitals from turning away patients.
Both chambers will begin meeting early Wednesday and will have to pass several major pieces of legislation to get the money they need.
The House and the Senate will have to agree on Wednesday whether the 1 cent they have accepted will last 18 months (the House version), five years (the Senate version) or somewhere in between. It would begin on April 1.
Senators are planning to amend an income tax bill Wednesday by state Rep. Julie Stokes, R-Kenner, to change tax brackets to raise more money.
The two sides must also agree on whether they will eliminate sales tax exemptions on one, two, three or all four of the sales tax pennies, which is part of House Bill 61.
House and Senate leaders have been wrangling the past several days over the exact mix of spending cuts and tax increases to fill the final shortfall, which stood at $117 million when the two chambers adjourned late Tuesday afternoon to begin negotiations in private.
Whether a final deal is reached, it appears either way that folks in Louisiana will pay more to smoke, rent cars, to drink beer, wine and liquor, to rent short-term rentals and to make consumer purchases. Businesses might have to pay more for their utilities and lose a variety of tax breaks.
Lawmakers and Edwards have said over and over again that they didn’t want to raise taxes but had no other choice given the $900 million budget gap they inherited from Gov. Bobby Jindal and last year’s Legislature, at a time when the drop in oil prices has cost thousands of workers their jobs and slowed the state’s economy.
“Today we face the largest budget deficit in our state’s history,” Edwards said as he inaugurated the special session on Feb. 14 before a joint session of the Legislature. “As I see it, how you respond to this call — how I, how we — will determine the course of Louisiana’s future.”
Lawmakers have been trying to fill not only the $900 million midyear gap by June 30 when the current fiscal year ends, they have been attempting to make a serious dent in the $2 billion deficit for next year, a problem they will have to begin tackling immediately Monday when the regular session begins.
The key public action Tuesday took place when the Senate Revenue & Fiscal Affairs Committee approved a measure involving the state sales tax that would raise $100 million this year – or a good chunk of the way to covering the entire shortfall.
In its unanimous vote, the committee — over the vociferous objections of business lobbyists — took HB61 that would eliminate nearly all 200 exemptions on one penny of the four-penny state sales tax and took away the exemptions on all four pennies.
In legislative parlance, the committee was “cleaning” the pennies, or stripping away exemptions for everything from buying Mardi Gras beads stamped with a krewe emblem to the leasing of helicopters to explore and produce oil and gas.
The so-called clean pennies would leave in place the exemptions for groceries and prescription drugs that are protected under the state Constitution.
“It’s very important to have every option available” in the final budget negotiations, state Sen. J.P. Morrell, D-New Orleans, the committee’s chairman, said afterward.
The Senate will take up HB61 on Wednesday, and depending upon the final deal, could eliminate sales tax exemptions on two or three of the four cents.
The Senate panel acted over the strong objections of business lobbyists who filled the committee room.
Stephen Waguespack, president of the Louisiana Association of Industry and Business, testified against removing exemptions on sales taxes, urging the Legislature to instead move forward with a plan to increase the state sales tax beyond just the single penny to generate more revenue to close the budget shortfalls for this year and next.
But Waguespack, who served as chief of staff in the Jindal administration and who played a central role in pushing several of the Republican governor’s budget plans, was not a welcomed guest before the majority Democratic committee.
“It’s hard for me to trust you. You helped create the problem we have,” said Sen. Karen Carter Peterson, D-New Orleans, to Waguespack amid his testimony opposing eliminating the exemptions. “You have no credibility. The things you have said ended us up in mid-year cuts every year.”
At least three other Democrats piled on, characterizing LABI as an obstructionist organization that is unwilling to take its share of cuts along with the rest of the state. Freshman state Sen. Jay Luneau, D-Alexandria, said LABI has opposed their measures forcefully but has done little to support other measures to shore up the budget.
“LABI needs to come to the table with some solutions. You’re just telling us we can’t pay anymore,” Luneau said. “But somebody has to pay because we cannot cut these essential services. What can you do to help us in that area?”
Although the state sales tax is four cents, the average combined rate in Louisiana is about 9 cents with the addition of local sales taxes. The House and Senate separately have approved raising the state sales tax by an additional penny, which, according to the Tax Foundation, would give Louisiana the highest average sales tax rate in the country. That extra penny would generate $210 million in revenue for this fiscal year, ending June 30.
Democrats have expressed concern about going beyond the single penny already approved because poorer people spend more of their total income paying sales taxes.
Morrell said LABI was behind the controversial proposal to further increase the sales tax.
Waguespack said he prefers increasing the sales tax over removing exemptions because the exemptions help businesses remain competitive.
He said in an interview after the vote on the amendment to increase the exemptions that the committee’s move was part of the last-minute maneuvering to reach a budget deal. He predicted the full Senate would approve the measure and that it would then go to a conference committee where negotiators from the House and Senate on Wednesday — the final day of the special session — would have to settle on the final amount.
“We hope to be part of the negotiations,” he said. Waguespack and a lobbyist for the Louisiana Chemical Association were standing outside Alario’s office after the Senate adjourned, waiting for the opportunity to join the negotiations.
Don Briggs, the president of the Louisiana Oil and Gas Association, said removing the exemption that companies get when they pay their utility bills will cost them big.
Energy accounts for 25 percent of the production costs for smaller companies, he said.
“We’re the unintended consequences of what they’re trying to raise in the big picture,” Briggs said.
Meanwhile, the Senate approved House Bill 27, a small increase in taxes on beer, wine and alcohol that requires final approval from the House on Wednesday.
The House approved House Bill 39, a 3 percent tax on car rentals that goes to Edwards, who has indicated that he will sign it into law. On Tuesday, the House and the Senate also approved House Bill 59, a 4 percent tax on short-term rentals, such as AirBnB.
Edwards signed into law a bill that raises the cigarette tax by 22 cents to $1.08, beginning on April 1.
Elizabeth Crisp of The Advocate Capitol news bureau contributed to this report. Follow Rebekah Allen on Twitter @rebekahallen. Follow Tyler Bridges at @tegbridges. For more coverage of government and politics, follow our Politics Blog at http://blogs.theadvocate.com/politicsblog/.