The budget architect for incoming Gov.-elect John Bel Edwards said Wednesday the state’s financial problems are far worse than previously thought and will require several coordinated measures to correct — possibly including tax increases.
Lt. Gov. Jay Dardenne, in his first news conference as commissioner of administration-designee, acknowledged “we’re going to look” at raising taxes. But he wasn’t specific and underlined that all options are on the table.
Spending cuts are part of the mix, as are rollbacks of some tax breaks, along with a substantial revamp of how the state collects and spends taxpayer dollars, he said. But state government is about $1.9 billion short on revenue, including a gap of up to $750 million that must be bridged by the end of June.
“It’ll be very difficult to do without having some sources of new revenue,” Dardenne said when asked directly how the Edwards administration is going to balance the budget without tax increases.
Dardenne batted back questions about specific taxes that might be in play, repeating that all ideas would be considered.
“The harsh reality is there is no immediate fix that we can point to and say, ‘If we do this, we can say this will be the way out of this mess,’ ” he said. The administration’s plan will be released soon.
Edwards, a Democrat, will be inaugurated Jan. 11 and has promised to call a special session after the Feb. 9 Mardi Gras holiday for legislators to tackle the problem.
The Legislature would need to approve any tax increases or any rollback of tax breaks.
That might be a tall order, Senate Finance Committee Chairman Jack Donahue said in an interview after the news conference. The Mandeville Republican said the administration should look at what the state gives away in the form of tax incentives.
“Before I say raise taxes, I think we need to do everything we can besides raising taxes,” Donahue said. “But I just don’t believe that where we are at, that you can cut your way out of this. It’s just not possible.”
But the message of the day was that state government faces a $1.9 billion shortfall.
“We knew the budget was a mess, but it wasn’t quite as dramatic as we’re now finding out,” Dardenne said, adding that he thinks it is worse than the fiscal crisis of the 1980s.
The Revenue Estimating Conference ruled Nov. 16 that the state’s coffers came up about $487 million short for paying its bills from the last fiscal year, which ended June 30, and for the current one, which began July 1. The Jindal administration proposed — and legislators adopted — midyear fixes.
But Dardenne said many of those corrections have not materialized.
At the same time, the price of oil and natural gas, the taxes and royalties on which make up a significant portion of the state’s budget, continues to slide. Added into the projections are a decline in sales tax collections and a dramatic slump in corporate income taxes. Together, the numbers collected since the REC met show a new $400 million to $450 million shortfall for the fiscal year that ends June 30.
In addition to being short on revenue, the state also needs about $300 million to make payments, Dardenne said. (The two figures combined add up to a $750 million shortfall in this year’s budget.)
“The economists tell us our budget is set up to spend money we won’t have,” Dardenne said.
About $190 million of the $300 million comes from the Jindal administration underestimating how many people would use Medicaid, he said.
Another $20 million is scheduled to pay public schools and $20 million more for the Taylor Opportunity Program for Students, or TOPS, the popular program that pays college tuition. Dardenne says the state doesn’t have the money.
Stafford Palmieri, commissioner of administration for Gov. Bobby Jindal, wrote in an email that the expenditures Dardenne cites are covered in the supplemental budget bill that allows legislators to fund when the amount of money needed for a program changes. She added the Medicaid deficit and its causes have been discussed for two months.
Decreasing revenue since the REC are just estimates, she wrote. “The numbers are just projections and they continue to move throughout the year.”
For the next fiscal year, which begins July 1, the state is about $1.3 billion short of the money necessary to cover the existing state services with inflation, Dardenne said. That amounts to about 15 percent of the state general fund available to spend.
“We are going to speak the truth, frankly and boldly,” Dardenne said. “We are ending the era of gimmicks and trickery. We’re blowing away the smoke and breaking the mirrors regarding the state budget.”
Dardenne blamed Jindal, a fellow Republican. He said the Jindal administration relied too much on gimmicks like balancing the budget with “one-time money” — funds from a source that won’t reliably produce revenue next year — and using funds set aside for other purposes.
At the same time, Jindal granted tax exemptions that were more generous than the state could afford and did not address the problems with the way Louisiana collects and spends taxpayer dollars.
Jindal defended his budgeting practices in a prepared statement.
“The state budget is balanced, like it has been every year for eight years in a row,” Jindal wrote in an emailed response to a reporter’s question. “We made a choice not to raise taxes for eight years and instead to cut the size of government in order to balance the budget. Raising taxes hurts job creators and small businesses. Raising taxes would be an easy way for government to be flush with money again, but we have always believed and continue to believe that raising taxes is the wrong approach for our economy.”
The Public Affairs Research Council of Louisiana has been warning about the fundamental imbalance between revenue and spending, so the crisis Dardenne described came as no surprise, said Robert Travis Scott, head of PAR.
“It’s a very difficult situation that the new administration is facing,” Scott said in an interview after the news conference. “It’s very difficult to make changes in revenue and cuts in the middle of fiscal year. You only have a smaller part of the year to work with.”
Tom Clark, a Baton Rouge lawyer who leads the business group Committee of 100, agreed that cutting state spending cannot be the only solution. “C100 urges our political leadership to identify ways to eliminate the structural deficit and place our state on a fiscally stable platform permanently, which includes addressing revenues and exemptions while seeking ways to streamline and create efficiencies,” Clark said in a prepared statement.
Stephen Waguespack’s Louisiana Association of Business and Industry last year labeled efforts to trim tax exemptions and credits a de facto tax increase on many in the business community. But it’s too early to pull out those sharp knives again, he said in an interview Wednesday.
Some of the tax breaks are not providing a benefit, and those should be scrubbed, he said. “But we’re getting perilously close to the special session, and I think we soon need to start talking more specifics about which exemptions and credits we’re talking about, which rebates, which tax increases. It’s time to start having that discussion,” Waguespack said.
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