The Jindal administration rolled out a budget plan Friday that avoids much of the doomsday scenario spawned by a $1.6 billion revenue shortfall — partly by scaling back state tax credits — but still imposes significant cuts to government spending.
The budget plan includes suggestions for raising money, including the possibility of a tax increase on cigarettes.
Gov. Bobby Jindal’s commissioner of administration, Kristy Nichols, said the proposed $24.5 billion budget for fiscal year 2016, which begins July 1, would reduce spending on state services by 4.7 percent, or $1.2 billion, and would eliminate 727 state positions.
To fill more than a third of the revenue hole, Jindal would revamp tax credits to raise $526 million, largely from the inventory tax. That proposal prompted a wave of criticism tweeted by the business community.
The proposed budget also suggests legislators approve increased fees at colleges and whacks spending for health services, mental health and substance-abuse treatment centers, as well as for programs that provide criminal defense lawyers for people who can’t afford one. Another money-saving measure could close seven state-run historic sites.
On the public safety front, Jindal would make money available to fund training classes for State Police and to increase their pay.
The Department of Education would take a heavy hit, Superintendent of Education John White said in statement Friday after Nichols presented the budget during a hearing before a legislative committee. The governor’s budget would slice state dollars for standardized tests by 47 percent and the operating budget for the Education Department by 48 percent, White said. White supports Common Core testing, while Jindal opposes it.
State aid for public schools essentially would be frozen at $3.6 billion for the sixth time in the past eight years. But the money that funds vouchers, which parents can use to pay tuition to private schools, would rise by 9 percent.
Historically in Louisiana, what the governor proposes in February is typically close to what the Legislature approves in May or June.
House Democratic Party Caucus Chairman John Bel Edwards said the Jindal proposal is a pretty good starting point but still leaves some questions unanswered.
Unlike in previous years, Edwards said, the Jindal administration is recommending, rather than commanding, possible ways of raising revenue.
One idea is increasing the tax on cigarettes. Nichols said the administration would accept such a tax if the money raised equals the amount paid out in a new tax credit that would help families defray the increased cost of higher education.
Such a move could contribute about $100 million to the state’s general fund fairly quickly, give higher education a chance to raise fees on its own to cover part of the state’s reduced contribution, and allow families a chance to write off the expense on their taxes down the road.
“I don’t view it as any more than a suggestion,” said Jack Donahue, R-Mandeville, Senate Finance Committee chairman. But it’s an idea that could pass the Legislature, particularly because Nichols said it was acceptable to Jindal, he said.
Jindal has refused to accept any revenue-generating ideas that are not “revenue neutral,” meaning the amount of money raised would be offset by a cut somewhere else.
Democratic state Rep. Ted James, of Baton Rouge, said the logic is a somewhat tortured way to get around Jindal’s allegiance to national anti-tax activist Grover Norquist, whose pledge not to raise taxes has been signed by the governor and many members of the Legislature.
Democratic state Rep. Katrina Jackson, of Monroe, said she is concerned because not every family could afford $2,000 more in fees that the colleges could charge and then wait several months to write it off on their taxes.
“Don’t you think that (additional upfront fee) would serve as a deterrent” to low-income students trying to go to college? Jackson asked Nichols. “I don’t understand the pass through.”
Edwards said the scheme just kicks the revenue problem down the road because the state eventually will repay the money paid out by families. “This is how we got into this situation with exemptions in the first place,” he said.
Higher education officials were expecting to see the state reduce its contribution by $400 million for colleges, universities, technical schools and other programs. But a plan to tap money from tax exemptions lowered that hit to about $211 million.
If a plan to increase fees doesn’t work, said LSU President and Chancellor F. King Alexander, the state’s reductions to higher education would be about $567 million.
Southern University System President Ron Mason noted that the cuts outlined by Jindal are much less than higher education leaders had been bracing for but still significant. “The only manageable scenario is zero cuts,” he said.
Jindal’s plan relies on increased fees for students, dubbed “excellence fees,” as well as increasing the price of advanced degrees that aren’t directly tied to the state’s Taylor Opportunity Program for Students, which covers tuition for many attending college.
The administration’s proposal maintains funding for the Workforce Investment for a Stronger Economy Fund, which was created last year to enhance programs in high-demand fields. TOPS would receive $284.3 million, a slight increase.
The Jindal budget also includes $526 million of new revenue from turning refundable tax credits into nonrefundable tax credits. Taxpayers could still use the credits to pay off their tax bills. But anything above what they owe would stay in the state treasury. The state currently pays the taxpayer the excess amount.
Refundable tax credits have grown annually at about 10.8 percent, Nichols said, adding that last year, the state wrote checks for $589 million in credits above what taxpayers owed.
Nichols said converting refundable tax credits in a dozen programs would reduce expenses by $526 million. The hardest hit would be the Inventory Tax Credit, which companies pay to local government for goods on the shelf, office equipment and other business-related properties. The amount paid is then credited against state taxes, with anything above what the taxpayer owes being reimbursed.
The state expects to keep about $377 million from the Inventory Tax Credit after the tax liabilities are met. Officials with trade associations tweeted throughout Nichols’ presentation that this would raise taxes on businesses.
The solar industry, from which state government expects to hang on to $107 million, noted that the credits it enjoys already are being phased out, but Jindal’s plan endangers the industry’s future.
“The small business owners and entrepreneurs of the solar industry are working every day to ensure that each company is positioned to stand on its own two feet when those credits are phased out, but if changes are made haphazardly, the growing businesses will not survive,” Jeff Cantin, president of Gulf States Renewable Energy Industries Association, the industry’s trade association, said in a prepared statement.
State Sen. Francis Thompson, D-Delhi, said he’s “pleased that we have a temporary fix to the problems we have.” But he criticized the administration for its handling of tax credits and exemptions, saying education has suffered as the result of bad monitoring.
Revenue Secretary Tim Barfield said the administration will look at exemptions and credits and how they are used.
After the hearing, Nichols said the administration is open to reviewing any credit, provided that any reductions are offset by spending cuts.
Nearly 40 percent of the state budget is spent in the health care arena — $9.49 billion of the total $24.6 billion.
The largest portion of the health budget is $8.2 billion for Medicaid, the government health insurance program for the poor and uninsured. The appropriation marks a 1.1 percent increase over the current year. Normally, a nearly 3 percent medical inflation factor is worked into the budget.
“With the revenue situation in the state, that’s what we need to do right now,” state health Secretary Kathy Kliebert said of the lower allowance for inflation. “We are playing that close to the mark.”
The total Department of Health and Hospitals budget is projected to be $15 million less than what is in the current budget year because of reductions in non-Medicaid programs.
The budget plan calls for no cuts in Medicaid reimbursements to hospitals, physicians and other health care providers. Neither is there reductions affecting the administration’s Bayou Health program, in which private insurance companies are paid to manage Medicaid recipients’ health care.
But the spending plan continues to freeze expansion of home- and community-based services for the developmentally disabled and elderly. The budget also does not include $9.9 million in state matching funds for a network of health clinics that care for about 60,000 New Orleans-area residents.
“If the Legislature does not find a source of matching fund, the program cannot continue beyond July 1,” DHH Chief of Staff Calder Lynch said.
Elizabeth Crisp, Will Sentell and Marsha Shuler, of The Advocate Capitol news bureau, contributed to this report.