State legislators finally departed Baton Rouge on Friday.
But they will be back – sooner than expected.
Lawmakers went home on Friday after passing a state budget on the ninth day of the special session, after being roundly criticized for failing to reach agreement on it during the two months of regular session.
But they will have to return to Baton Rouge in yet another special session to solve a bigger budget problem – one that they didn’t come close to solving during the regular session.
And no one can be certain whether they will find the political will to settle on a solution – which will almost inevitably involve some combination of spending cuts and tax increases – when they reconvene.
“Unfortunately, when the Legislature gets back to a special session, they will have a menu of things they won’t like that they have discussed already,” said Steve Sheffrin, a Tulane economics professor who has twice helped produce reports detailing tax and budget options for lawmakers. “There’s no magic bullet out there that will solve the problem.”
The problem is a $1.2 billion deficit that will suddenly materialize on July 1, 2018, when temporary taxes approved by lawmakers in 2016 – principally a penny increase in the state sales tax – will vanish.
Lawmakers deliberately made the tax increases temporary to try to force themselves to find a solution during this year’s regular session. Their failure to do so is what’s forcing the still-unscheduled special session. It can take place anytime within the next year, with the best guess that Gov. John Bel Edwards will call it in early 2018, although in a press conference Friday he would not commit to a date.
If they didn’t have to return for the special session – which will be the fifth so far in Edwards’ term – lawmakers wouldn’t be back to Baton Rouge until the 2018 regular session begins on March 12. (By law, they cannot raise taxes during that session hence the need for the special session.)
It was no, no, no, no. It was no, again and again.
The budget approved on Friday covers the fiscal year that begins on July 1. The looming budget deficit – known inside the State Capitol as the “fiscal cliff” – will hit one year later. Addressing it is a formidable task because the deficit amounts to nearly 15 percent of the $9.5 billion portion of the state budget that the Legislature can spend every year, and many cuts would cause the state to lose two or three times as much money in matching federal dollars.
"It’s going to be hard," Edwards said.
In the regular session, his proposals to head off the fiscal cliff leaned heavily on taxes.
The governor embraced the recommendations of a blue-ribbon task force that spent 2016 studying the tax system. In general, the panel, which included Sheffrin, called for eliminating tax breaks while reducing tax rates, including the sales tax, which when added to the sales taxes added by each locality is now the highest in the country at an average of 10 cents per $1. Among its recommendations, the task force called for making changes to individual and corporate taxes that would raise more money, allowing the state to reduce its reliance on sales taxes.
But the House Ways and Means Committee – dominated by anti-tax conservatives – killed bills modeled on recommendations from the task force that would have raised big dollars.
The centerpiece of Edwards’ plan, meanwhile, did not come from the expert panel and took legislators by surprise. It sought to replace the state’s corporate taxes with a tax on business income, to be known as the corporate activity tax. It faced immediate opposition from business lobbies and garnered so little support from Republicans and Democrats alike that it died without a vote before Ways and Means.
Edwards then challenged the Republicans who hold a majority in the House to offer their own plan. None was forthcoming.
The Republican majority did pass a budget that its supporters said would have reduced half of the looming budget deficit through cuts. But Edwards and the Republican majority in the Senate rejected it, saying the plan would harm health care programs for the poor and disabled, would force the early release of inmates and would cut funding for public colleges and universities. A coalition of moderate Republicans and Democrats in the House rebuffed the House Republican leadership and passed a budget that restored the funding. But the revised budget eliminated any savings.
Another major effort to reduce spending was offered by state Rep. Rob Shadoin, R-Ruston, who took aim at “statutory dedications,” the practice by which state dollars automatically flow into various trust funds, making the money unavailable for the annual budget process. Shadoin sought to have all of that money go straight into the state general fund. That would force groups that have been receiving the statutory dedications to fight for their money each year.
Shadoin’s measure, House Bill 236, which could have freed hundreds of millions of dollars a year for possible cuts, died even though it received a favorable 61-32 vote. It needed 70 votes to pass and advance to the Senate for consideration.
Shadoin or another lawmaker could revive this measure during the next special session.
The House Republican leadership did support one major revenue-raising measure during the regular session. That bill would have raised $173 million a year by renewing the state sales tax on some 100 transactions that had been untaxed in recent years.
But the House, at the behest of the Louisiana Chemical Association, gutted the bill by exempting businesses from paying sales tax on the electricity they use in manufacturing. With the bill now generating much less revenue, the full House killed it anyway because Democrats voted as a bloc against it. They wanted the House to support a similar measure sponsored by a Democrat.
Business interests flexed their political muscle Tuesday before the House tax panel, which r…
No other major revenue measures emerged from the Legislature.
The House did approve two major tax bills that mirrored task force recommendations. The measures would have given voters the option to give up a major tax deduction in return for having flat tax rates. But the Senate tax committee killed both measures because, senators said, they amounted to “piecemeal” changes. A major criticism: The changes did not raise more revenue, as the task force recommended.
“We failed at addressing our broken tax system and at addressing the billion-dollar fiscal cliff,” state Rep. Barry Ivey, R-Central, who sponsored one of the measures, said afterward. “Comprehensive tax reform by itself requires a monumental effort and leadership from the administration, the Legislature and stakeholders. That effort was not present this session.”
One of the questions to be answered in the coming months is what Edwards will propose to address the fiscal cliff.
He is the state’s dominant politician – and Louisiana governors have traditionally set the legislative agenda – but Edwards said on Friday that he is leery of offering another plan since it will have to originate in the House, which has so far given him a chilly reception.
"I will be looking for leadership in the House of Representatives to tell me that there is a plan that they will push towards," Edwards said. "If there is not, why would we come back (into a special session) and do what we just did, at the cost of $60,000 a day?"
Edwards said he wants to work with legislators in the coming months "to try to find common ground and stake it out, and where there’s not, build toward finding some."
“What we’ve seen in the past two years is that the House response to Gov. Edwards is ‘We hate your plan but don’t have one of our own,’” state Sen. JP Morrell, D-New Orleans, who chairs the Senate tax committee, said in an interview. “The same difficult solutions we have next year will be the same as this year. If the solutions were easy, the House would have utilized them.”
Many conservatives in the House say lawmakers must eliminate the upcoming budget deficit entirely through spending cuts.
“We’re going to have to say no to tax increases,” said state Rep. Alan Seabaugh, R-Shreveport. “When we do that, then we’ll have a serious discussion about budget reform.”
But Seabaugh and other conservatives haven’t provided specifics on where to cut – specifics that would undoubtedly prompt an outcry from entities facing the ax.
House Speaker Taylor Barras, R-New Iberia, said he believes any solution will have to include revenue-raising measures.
“I’m adamant that it can’t be all revenue, and it can’t be all cuts,” Barras said in an interview. “What combination of that is what we will spend the offseason working for.”
Barras believes that renewing at least a portion of the penny sales tax increase is a likely option, although that would face resistance from some members of both parties.
Senate President John Alario, R-Westwego, said lawmakers could renew the penny sales tax but only temporarily.
“You’ve got to find a way to fill that billion-dollar hole,” Alario said in an interview.
State Rep. Gene Reynolds, of Minden and head of the House Democratic caucus, believes no solution is possible unless Democrats get more seats on the Appropriations and Ways and Means committees. He believes their membership on those crucial committees should match the 40 percent that they have in the House overall.
“Until that changes, we’ll have the same result,” Reynolds said. (Barras hasn’t yet decided on the Democrats’ request.)
But any tax bill that might emerge from Ways and Means would still have to pass the full House.
During the next special session, moderate Republicans and Democrats in the House might revive their coalition. But while they reached 56 votes to pass the budget on Wednesday, they would need at least 70 votes in the 105-member House to pass revenue-raising bills.
“It’s going to take our caucus and the Republicans ahead of the special session to sit down and decide what we can do for the sake of the state and what we can’t do,” Reynolds said. “You’ll be closer to the fiscal cliff. Sometimes people react only when something is staring them in the face.”