Cigarettes will cost more as will selling vehicles, and the business community will have fewer tax credits available in the $25 billion state government spending plan Gov. Bobby Jindal signed into law Friday.
“The budget continues the trend of making smart reductions to the size of government, while strengthening the state’s health care system and protecting higher education,” Jindal said in a prepared statement about the operating budget for the fiscal year that begins July 1.
Lawmakers leaned heavily on raising revenues — over spending cuts — to bridge a $1.6 billion deficit and pass a balanced state operating budget, as required by law.
About 80 percent of money to address the shortfall came from increasing taxes on cigarettes and fees on vehicle titles, rolling back tax breaks and instituting other revenue-raising measures, said Robert Scott, head of the Public Affairs Research Council of Louisiana. Another 20 percent came from reducing spending.
“It’s very clear this was a tax and revenue solution, not a cut in spending solution. State government won,” Scott said.
Legislators poured much of the money into public colleges and universities as well as health care for about one-fourth of the state’s residents — both faced draconian cuts in state support because of the deficit. Some of the money was put back into state programs, such as increasing support for public K-12 schools.
The budget includes $2.36 billion to fund higher education across the state and $265 million for the popular Taylor Opportunity Program for Students, which pays college and university tuition for qualified students.
Additionally, the $9.65 billion in funding for the Department of Health and Hospitals is an increase of 1.5 percent over the previous fiscal year, according to the administration.
“It’s certainly a good thing that with the deficit we had that they did not resort to any more critical cuts to services,” said Jan Moller, head of the Louisiana Budget Project, a Baton Rouge-based think tank that analyzes fiscal issues from the perspective of how they impact low- and moderate-income families.
Jindal said the fiscal year 2016 budget reduces the size of state government nearly 3 percent by reducing spending within state agencies and increasing efficiencies.
“We have all worked hard to create a balanced budget that greatly reduces our reliance on one-time funding by raising new recurring revenue and creating savings and efficiencies that will be realized every year,” Commissioner of Administration Kristy Nichols said in a prepared statement.
She said the moves “not only dramatically closed” the revenue gap, but it was done in such a way as to help fix some of the structural imbalances in the state’s financing system. “It was a huge accomplishment,” she said.
State Treasurer John N. Kennedy said the New York credit rating agencies, whose opinions are important in determining how much state and local governments pay to borrow money, may not improve the state’s credit rating because of the budget but they probably won’t downgrade the rating, either.
“This one is more balanced than last year and the year before, in the sense that there’s less smoke and mirrors, but there are still gimmicks in it,” Kennedy said.
For one thing, when compared to previous budgets, the fiscal year 2016 version uses only about half as much money that won’t be available next year.
The revenue shortfall, estimated at $1.6 billion for the fiscal year beginning July 1, was created, largely, by the use of “one-time” revenues — money available this year but not next — to pay for operating expenses that are there year in and year out. Also contributing was a downturn in the economy, which caused businesses and individuals to spend less, as well as last fall’s abrupt collapse in oil prices, which are tied to the royalties and severance taxes that make up part of the state’s revenues.
The initial plan, released by Jindal in February, cut state support for higher education and health care to a level that disturbed legislators and officials.
In the end, they passed 14 measures that changed tax breaks, allowing the state to keep money it otherwise would have to pay out.
Stephen Waguespack, head of the Louisiana Association of Business and Industry, said it was clear legislators showed no appetite for anything but raising revenues — and mostly on the business community. His staff’s reading of the finalized bills indicate that businesses will pay roughly $665 million more in taxes than was paid last year when all the breaks were in place.
“They didn’t want to hear about ideas to reduce government. They didn’t want to hear about any ideas to reform entitlements,” Waguespack said. “They didn’t want to hear any ideas about unlocking funds and using some of those dedicated dollars.”
Lawmakers raised taxes on cigarettes by 50 cents per pack, thereby generating $106.4 million; increased fees on vehicle titles by $50, which should bring in $59.8 million more; raised a host of other fees; and rolled back tax breaks, primarily for businesses, which is expected to bring in about $450 million. Another $22 million a year is estimated to come from raising the price tag for getting an official state driving record from $6 to $16.
Jindal signed on Friday afternoon the bills setting up the limits on the tax breaks.
Among the tax break rollbacks Jindal approved was legislation that puts a cap on the film tax credit at $180 million. The state expects to save $77 million next fiscal year, based on how many of the tax credits were turned in last year.
The film industry had been pushing Jindal to veto House Bill 829, which came together in the final 90 minutes of the legislative session. But legislators and fiscal officials raised concerns about where to find the money that would have become unavailable with a veto as well as the fear that without a limit on how many of the tax credits could be turned in that the film makers would rush to turn in the outstanding notes, which could have required the state to pay out up to half billion dollars.
Lawmakers also used $556 million of money that won’t be available next year.
Budget writers also cut about $400 million in funding to government programs and from “efficiencies” in the way government operates. Plus, they spent dollars from higher expected collections and made a series of financing moves to repurpose monies that will be available next year.
The Legislature also enacted the Student Assessment for a Valuable Education (SAVE) Credit Program, which fulfills Jindal’s demand for “revenue neutrality,” that is that tax increases are balanced by the same amount of tax decreases. Jindal signed Senate Bill 93 on Friday, which creates SAVE.
SAVE would assess a fee of about $1,500 per higher education student and raise about $350 million total, but only on paper. Students wouldn’t have to pay anything because an offsetting tax credit for the same amount would be signed over to the institution, which then would receive the money from state government. However, the SAVE fund would create a tax credit for the $350 million Jindal could use to offset $350 million of the new revenue that legislators raised.
Jindal also vetoed nine bills Friday.
Among the measures he rejected was a 1.5 percent – an average of about $30 a month – cost of living adjustment for about 130,000 retired state workers, teachers, as well as employees of the public schools and the Louisiana State Police.
Under a law passed last year that was aimed at stabilizing pension costs and long-term debts, a cost of living adjustment, or COLA, was supposed to wait until next year. But supporters argued that moving the COLA to the fiscal year beginning July 1 would help retirees handle the abrupt increases in the healthcare insurance premiums and deductibles that the Jindal administration imposed.
The COLA legislation, popular among legislators, remained controversial throughout the process. It took a vote by the full House to get the bill out of committee and in the last minutes of the legislative session, Democratic Rep. Jack Montoucet, of Crowley, threatened to not to move one of the key revenue raising measures, which he sponsored, unless COLA was approved.
House Bill 42 was a revenue neutral as it would be paid from excess earnings that accumulate only when the four statewide retirement systems had good returns on their investments, said Rep. Sam Jones, D-Franklin.
“The only reason to veto this is to prove something to some caucus in Iowa, or help a future governor sweep these retirement funds for an illegal purpose,” Jones said Friday. “This bill had reforms in it that would have made the systems (financially) stronger sooner. There is absolutely no way it would have any impact to our bond rating other than a positive one.”
Treasurer Kennedy said the New York credit rating agencies voiced concern about the state’s pension systems.
And Jindal quoted from two – Fitch’s and Standard & Poor’s – in his veto message.
Jindal signed one bill and vetoed another, both of which were prompted by the administration’s much-criticized management of the health insurance program that covers 230,000 state employees, retirees, teachers and their dependents. Group Benefits reserves declined from more than $500 million to less than half that in two recent years resulting in an overhaul of insurance offerings and higher premiums and out-of-pocket expense for members.
The governor signed Senate Bill 260, designed to provide more public oversight of the financial operations of the state’s health insurance program for state workers and teachers, called Group Benefits. It sets up a Group Benefits Estimating Conference, which would gather information that the commissioner of administration would have to consider when setting premium rates.
He vetoed House Bill 370, which would have given the committee authority to set the rates.
Jindal also vetoed House Bill 137, the Privatization Review Act, calling the idea “a broad-reaching expansion of bureaucratic government” that the governor says would discourage private sector partnerships with government.
HB137 would have required agreements with private companies being contracted to take over government-provided services to go through the competitive bidding process; require the legislative auditor to analyze the costs — including the so-called “legacy” expenses, such as insurance and pensions of state employees — and require legislative oversight of the contract. The bill also would require the records related to the privatization contract be available under the state’s public records law.
Supporters point to problems surrounding some of the public-private contracts, such as those LSU entered to run the state’s charity hospitals, which have ended up costing about twice what was promised initially.
HB137’s sponsor, Republican Rep. Kenny Havard, of St. Francisville, had tried for three sessions to win legislative approval for his idea, was admittedly angry upon receiving a call from one of Jindal’s aides about the decision.
“We still have two or three folks sitting in smoky back rooms handing out billions of dollars worth of contracts with no oversight,” Havard said. “Gov. Jindal had an opportunity to match his actions to his rhetoric, but again he put his self interest and ambitions ahead of the citizens of Louisiana.”
Jindal also vetoed legislation aimed at creating a way to collect sales taxes on purchases made over the Internet.
Fiscal authorities could estimate how much money House Bill 555 would raise. But the legislation would have put all retailers doing business in the state, whether located in Louisiana or not, to be treated the same in tax charges and collections. Jindal said until the U.S. Congress establishes “a uniform law on how states should handle companies that have no physical presence within their borders,” the bill threatens to expose Louisiana to litigation.