Nobody wants to say the T-word aloud, but the good-government groups reviewing the state’s dire budget situation say the incoming administration will be hard pressed to bridge the projected $1.8 billion deficit without raising taxes.
Plenty of ideas are out there, and Gov.-elect John Bel Edwards’ aides may give a hint at a news conference Wednesday morning about which ones they want legislators to embrace.
Some solutions are obvious: Spending will be cut; tax breaks will be rolled back; exemptions to some sales taxes will be removed; and mandatory spending on services will be undedicated.
At the end of the day, however, state government still will need to raise revenues, according to officials with the public policy think tanks that are drafting long-term strategies to stabilize the state’s teetering fiscal structure.
Enduring budget repairs are good, but they won’t come soon enough to raise about $280 million to cover this year’s deficit and another $1.5 billion, perhaps more, for the budget year that begins July 1.
“I don’t see how you get out of this fix without raising revenues. That’s a given at this point,” said Jan Moller, head of the Louisiana Budget Project, a Baton Rouge-based organization that studies fiscal issues from a middle-income perspective.
“The only question is, ‘How do you do it?’ ” he added.
Other groups studying budget issues are reaching the same conclusion.
Edwards, who will be sworn in Jan. 11, has made mostly general statements about addressing the budget crisis. In addition to deficits, state government’s budget has a $2 billion cash-flow problem, requires a bridge loan to pay for construction projects and, during each of the past few years, has needed raids on various savings accounts and sales of state assets to stay afloat.
“We simply cannot cut our way to a balanced budget,” Edwards told the New Orleans Chamber of Commerce on Dec. 18. “We’re going to have to put all options on the table.”
Though higher education and health care suffered over the years, budget writers have used short-term fixes to maintain the size of state government as revenue dollars have fallen off. First, the federal recovery dollars after the 2005 hurricanes went away. Then, the recession of 2008 lowered the amount of money coming into state coffers. The reversal of the Stelly tax changes removed about $800 million from the state’s annual revenue stream. And now the price of oil, which accounts for a large portion of the state’s taxes, has dropped by half.
Lt. Gov. Jay Dardenne — Edwards’ chief budget architect — may give some clue during Wednesday’s news conference about how the administration will address the structural problems that leave the state budget without enough money every year as well as how to bridge a $1.8 billion revenue gap during the next six months.
“The problem in front of us is, what do we do for next year? It’s really a question of, how do we balance the books? It’s not just, how do we do tax reform?” said Robert Travis Scott, head of the Public Affairs Research Council of Louisiana. PAR is a Baton Rouge-based government policy group.
“One thing that is clear to us is that one solution is not going to close the gap. There’s not just one big cut you can make; there’s not just one big revenue stream you can create to close this gap. The best way is to close it and take a little from various places,” Scott said.
Substantial savings will come from tinkering with spending protocols on mandatory big-ticket items, such as state employee pension debt and public schools operations. But none of those reforms will come fast enough.
PAR suggests removing legal restrictions on some of the money used only for specific services, permanently removing tax breaks that no longer benefit the state and trimming some sales tax exemptions. That would produce some savings.
Scott says the House Ways and Means Committee probably could find $100 million by lifting some sales tax exemptions. The Appropriations Committee might be able to free up $100 million by undedicating some 400 funds, and maybe another $100 million could come from altering the tax exemptions and credits.
Plenty of ideas are being floated about how to find the additional revenues.
“Raising revenue is often discussed as a silver bullet. However, if cost containment is not part of the equation, lawmakers will be pressed to raise revenue year after year to fund the ever-growing needs of state and local government,” the Louisiana Association of Business and Industry, the state’s largest lobbyist for business interests, told its members in a budget seminar.
Raising revenues has to be done in context of a better tax structure that maintains competitiveness for the business community and simplifies things for taxpayers, said Barry Erwin, head of the Council for a Better Louisiana, echoing the sentiments of the other good-government groups.
There’s talk of raising cigarette taxes, removing the remaining 3-cent sales tax exemption on the purchase of utilities by businesses, adding a charge on the motor fuels tax until the price of oil rises again and adjusting the income tax rates.
Budget writers also are considering increasing the state sales tax by a penny, which would raise about $750 million. And, perhaps, eliminating the federal income tax deduction, which allows taxpayers to deduct what was paid the federal government from state income taxes and would save about $735 million.
Raising money through a temporary tax that would end when revenues pick up is often suggested by business people and elected officials who attend Committee of 100 forums held around the state, said Michael Olivier, head of the group of business executives.
Politically, selling the need for a focused few revenue-raising measures that are linked to budget reforms may not be as hard as the recent anti-tax sentiment rhetoric suggests, said state Rep. Julie Stokes, a Kenner Republican who, as a certified public accountant, has been barnstorming the state explaining the budget crisis.
“My frustration has been from watching politicos telling people what they want to hear for years,” Stokes said. “I think people are ready to hear what’s really going on. They want to see the bigger picture. They want to play a part, and they want to make informed decisions.”
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