At 4 p.m. March 9 — two hours before the special legislative session was to end — a secret deal between the state Senate president, the Louisiana House speaker and two business lobbyists collapsed and threatened to blow up the frenzied effort to eliminate the state’s immediate budget deficit.
A new deal — one that was less favorable to the business interests at the insistence of a Republican lawmaker from Monroe — came together in the final minutes of the session. The House and the Senate then passed two bills that will raise sales taxes while at the same time allowing numerous politically favored industries to avoid those higher taxes.
State budget staffers on Thursday — eight days later — were still grappling with the exact impact of the bills because legislators added the tax breaks so late on the final day of the special session.
“Things were moved in and out,” the Legislature’s chief economist, Greg Albrecht, said in an interview. “The bills were largely rewritten.”
Rewriting the bills has complicated life for Albrecht and the other staffers of the Legislative Fiscal Office, who estimate how much each bill will raise.
It wasn’t until Wednesday — a week after the special session ended — before Albrecht and his colleagues felt comfortable reporting that a 1-cent increase in the sales tax would raise $214 million from April 1 to June 30. The measure, House Bill 62, also included last-minute provisions exempting a number of businesses from paying that extra penny in sales taxes.
A separate measure, House Bill 61, will remove a number of exemptions to the existing 4 cents of the state sales tax and raise $66 million by June 30, Albrecht’s shop estimated Wednesday, after needing several days to review the changes made on that final day of the special session.
The $280 million in new tax revenue — $214 million from HB62 and $66 million from HB61 — provided nearly one-third of the money legislators needed to fill a $900 million or so shortfall by June 30. In the end, they fell short by $70 million, Albrecht reported Wednesday to state leaders. As a result, Gov. John Bel Edwards will have to cut $70 million in state programs next week, with the state’s colleges and universities and public hospitals expected to bear the brunt of the burden.
With only a 25-day special session, Edwards and legislators turned to the easiest way to raise taxes to help plug the immediate shortfall — increasing the sales tax from 4 cents per dollar to 5 cents. (Consumers pay about 9 or 10 percent in sales taxes because of extra levies added by local governments.) Rep. Katrina Jackson, D-Monroe, sponsored HB62, the measure that will raise the sales tax by a penny.
Needing to raise more money, a Senate committee approved HB61 by Rep. Jay Morris, R-Monroe, so that it would eliminate tax breaks from all four pennies of the existing state sales tax. Ending the exemptions and exclusions for the favored transactions and purchases now would make them subject to sales taxes.
Within the State Capitol, legislators and Edwards administration officials said they were trying to “clean” the new penny as well as the existing four pennies of the exemptions and exclusions that legislators had created over the years.
Business lobbyists swung into action to keep the pennies as dirty as possible by getting lawmakers to make their clients’ activities exempt from the sales tax changes in HB61 and HB62.
The farm sector particularly had success. The final version of Jackson’s HB62 exempts 13 farm activities from sales taxes, including new farm equipment used in poultry production, pharmaceuticals administered to livestock for agricultural purposes and materials used in the production of crawfish and catfish.
“Agriculture has traditionally not been taxed,” Jackson said in an interview, explaining why those exemptions were added.
In all, HB62 includes about 60 exemptions to the new penny of sales tax, including offshore vessels, and trucks and trailers used in interstate commerce. Albrecht calls it the not-so-clean penny. The bill does tax utility bills paid by businesses, a payment that has been exempt from the existing four pennies.
Jackson and legislative leaders cut a deal to tax machinery and equipment used in manufacturing for only the first three months that the tax will be in effect and not for the next two years — at the demand of the Louisiana Association of Business and Industry and other business groups.
LABI, the Louisiana Chemical Association and others then sought to add the manufacturing tax break to the list of sales exempted from Morris’ HB61.
That led to the early morning meeting on the final day of the special session between Senate President John Alario, R-Westwego, House Speaker Taylor Barras, R-New Iberia, Stephen Waguespack, the president of LABI, and Greg Bowser, the chief lobbyist for the chemical association.
By the time their hourlong meeting ended at the Senate president’s office, Alario and Barras agreed to grant the manufacturing tax break, and the business lobbyists agreed not to use their political clout to try to kill either HB61 or HB62.
“Business had stepped up to the plate in agreeing to pay the additional taxes on utility bills,” Alario said in an interview, in explaining why he favored exempting the manufacturing purchases from paying sales tax in Morris’ bill.
In an interview, Bowser said he agreed to have the chemical association review whether to drop its lawsuit challenging a tax increase approved by the Legislature last year. Dropping that lawsuit — which now appears unlikely — would free up contested tax revenue for the state and help plug the short-term budget deficit.
That afternoon, the Senate passed Morris’ HB61 to eliminate exemptions and exclusions on numerous sales tax breaks but not begin taxing sales of manufacturing equipment or machinery. The bill then went to the House for its approval with only two hours before the session was to end at 6 p.m. That’s when Morris said he learned — to his dismay — that the manufacturing tax break had been added to his bill.
“I was not aware of the deal,” Morris said in an interview Thursday. “I was not invited.”
A fiscal conservative with a populist streak, Morris believes big businesses aren’t paying their fair share of taxes.
He insisted the House reject the Senate’s version of the bill.
Over the next 90 minutes, by threatening to kill his own bill, he got Alario and Barras to agree to make the manufacturing sales subject to the sales tax, although the amount taxed will drop over the next three years.
With that final deal, the House and the Senate approved the tax measure in the final minutes of the special session and left staffers scrambling to figure out the impact.
Follow Tyler Bridges on Twitter, @TegBridges. For more coverage of government and politics, follow our Politics Blog at http://blogs.the advocate.com/politicsblog.
Editor's Note: This story was changed on March 20, 2016, to correct Rep. Katrina Jackson's party affiliation.