A brewing legislative push to reduce or eliminate parish inventory taxes could trigger automatic property tax increases — without additional voter approval — by local governments that carry long-term debt, some parish assessors and state officials say.
Whitney Joseph Jr., assessor of St. John the Baptist Parish, estimates that St. John’s School Board and parish government would have to raise the tax rate by a combined 16.6 mills to keep meeting their debt payments for what are known as general obligation bonds. That would bring the total millage rate to about 134 mills and raise a typical homeowner’s tax bill by about 14 percent.
“You’ve got to be able to pay your debts,” Joseph said. “So whatever my bond millage needs to be to pay that debt, that’s what you have to raise it to.”
Other officials even say the state constitution provides local governments at least the procedural — though politically perilous — option to recoup additional property tax revenue lost from eliminated inventory taxes through reassessments.
Like the possible debt-related tax increases, such tax hikes could happen without additional voter approval when taxing bodies take annual votes to set property tax rates, these officials say.
The specter of higher local property taxes comes as Gov. Bobby Jindal’s administration has said it is open to eliminating inventory taxes, which are local property taxes paid on all manner of business goods being held for sale. The taxes would be axed in a deal with businesses to cut or end the state’s increasingly expensive inventory tax credit program, which was created more than two decades ago to ameliorate the effects of the inventory tax. Many business and state officials view the tax, which few other states have, as an impediment to Louisiana’s economic competitiveness.
State leaders are trying to fill a $1.6 billion hole in next year’s state budget. The Jindal administration has proposed doing away with the bulk of the tax credit program in a manner that is revenue-neutral and not seen as a tax increase by Washington, D.C.-based anti-tax crusader Grover Norquist.
Like a game of pick-up sticks, though, Louisiana’s intertwined and counter-balanced tax code can spur unexpected consequences when part of it is pulled free of the pile.
Officials in parishes that rely most heavily on inventory taxes, such as St. John, St. James and others, are raising concerns that in addition to making draconian cuts to services, they would ultimately have to pass on tax increases to homeowners and small businesses to recoup some of the revenue lost for the benefit of the biggest industries and the state budget.
“We are going to shift the tax burden,” St. Charles Parish Assessor Tab Troxler said.
Jindal administration officials and their legislative allies are promising to help find replacement revenues for local governments, possibly through a higher cigarette tax or more aggressive sales tax collections.
But officials like Joseph and St. James Sheriff Willy Martin Jr. say they are skeptical of such promises from a state government that has had trouble balancing its books.
Other parishes that aren’t as reliant on inventory taxes but still count on them for significant revenue are also watching the issue closely.
In East Baton Rouge Parish, home to the ExxonMobil refinery, the inventory tax doesn’t represent as big a share of the tax base as it does in St. James and St. John. However, East Baton Rouge, which took in the most inventory taxes of any parish in 2014, would lose $43 million without them. The public schools, sheriff and BREC would see the largest revenue reductions in the parish, losing nearly $16 million, $6 million and $5.6 million, respectively.
“Obviously, I don’t want to see it go away,” East Baton Rouge Parish Assessor Brian Wilson said. “It’s about 10 percent of our tax base, and ... 10 percent is significant.”
A statewide tally of each parish’s general obligation bonded debt wasn’t available from the state, but many local government entities, such as school boards, sheriff’s offices and parish governments, use the bonds for roads, schools, buildings and other kinds of public infrastructure.
While other kinds of government bonds can be backed with a sales tax or a set millage rate, general obligation bonds carry broader authority to tap public coffers.
Local governments can’t issue the bonds without voter approval. But when voters do grant that authority, they are not pledging to pay a specific tax rate — rather, they are offering their government’s full faith and credit to cover the debts with the necessary property taxes.
The issued bonds are essentially an agreement between the bondholders and the local government: In return for providing the upfront dollars, the bondholder is promised the principal back plus a return from pledged revenues.
In most cases, tax rates match estimates that officials often provide to voters before they head to the polls, because of stable or rising taxable assessed property values.
But the loss of the inventory tax would throw a wrench into the usual predictability. Several parish officials said the resulting drop in taxable assessed values would require subsequent property tax hikes to ensure debts are paid.
How much of an increase depends on the size of the debt and the significance of inventory taxes to a particular parish or city’s tax base.
In St. John, where inventory taxes account for 42 percent of the tax base, the 16.6-mill increase necessary to cover the parish’s general obligation debt would equate to a 73 percent increase in millage rates dedicated to the long-term debt, Joseph said.
The increase alone would cost a homeowner with a $150,000 home an extra $124.50 per year, effectively to fill a hole in the state budget.
Even if the state helps come up with new revenue, property tax increases could be in the offing. St. Charles’ Troxler said he is not sure parish governments can legally supplement lost property tax revenue with the promised state revenue sharing and avoid an increase.
Others said workarounds are possible.
Brandon DeCuir, a Baton Rouge lawyer who does government bond work, said bondholders are aware of the risks associated with government bonds, such as property taxes not being renewed. He believes governments could tap other sources to keep paying debts.
“They can do that. It wouldn’t necessarily undermine the existing transaction,” DeCuir said.
In addition to setting higher tax rates to cover bonds, Joy Irwin, the assistant legislative auditor, said taxing bodies can go above voter-approved and even constitutionally set maximum millage rates to recoup lost revenue when the tax base falls.
Some assessors, including East Baton Rouge’s Wilson, question whether that’s possible. Whether or not it’s legal, officials may have political reasons for being loath to jack up tax rates beyond what voters approved.
Irwin, who is also the Legislative Auditor’s Office’s director of local government services, noted elected officials in each taxing authority would have to decide whether to take that option.
“The levy of a tax is a political decision,” she said.
St. James Parish Assessor Glenn Waguespack, who has railed against the potential loss of inventory taxes, doubts elected officials in his parish would go for the full 69 mills needed to make local governments whole from the loss of inventory taxes.
“I can’t see us rolling up (69) mills, not without tarring and feathering us and throwing us in the Mississippi River,” Waguespack said.
He said that, at most, government bodies in St. James might agree to seek 10 to 20 mills.
Robert Travis Scott, president of the nonpartisan Public Affairs Research Council, said state leaders are aware of these problems and are trying to come up with a solution that doesn’t pull the rug out from under local government.
“It’s not as if those concerns are over there in a vacuum somewhere and we’re not paying attention to them,” said Scott, whose group is studying inventory taxes.
He added that questions being raised about the effect on general obligation debts may cause some people to avoid making the changes too broadly or quickly.
Tim Barfield, secretary of the Department of Revenue, has said the administration would prefer to see the inventory tax changes made through a constitutional amendment, in part to minimize expected legal challenges. An amendment would require two-thirds approval from both houses of the Legislature and statewide voter approval.
St. Charles Assessor Troxler said he thinks the whole issue needs to be studied for several years to tease out the concerns from all sides.
“I think the whole thing is a very complex issue,” he said. “There is no way in the world that I think we ought to jump in, in one legislative session, having the concerns we have, jump in and go do something that’s in desperation.”
The Advocate reporters Rebekah Allen and Andrea Gallo contributed to this story. Follow David J. Mitchell on Twitter, @NewsieDave.