Louisiana’s financial situation continues to deteriorate, with a top economist projecting the state will end the fiscal year on June 30 with a $200 million deficit because of lower-than-expected corporate tax collections.
The analysis by LSU economist Jim Richardson appears to mean the $600 million shortfall that Gov. John Bel Edwards has been asking lawmakers to close during the special legislative session is actually $800 million.
Edwards told reporters Friday that he hopes Richardson’s report encourages legislators to raise more revenue.
Facing opposition from anti-tax conservatives in the Louisiana House, the Legislature has approved only $222 million of the $600 million that Edwards has been seeking to prevent deep cuts to the safety net hospitals, LSU’s medical schools, K-12 schools, public colleges and universities, the TOPS scholarship program and the prison system.
If the Legislature raises no more than the $222 million, that money would have to fill the projected $200 million deficit from this fiscal year, with little left over, Edwards said.
“We haven’t raised additional dollars yet for some of these priorities in a real sense,” he said.
With the special session ending Thursday night, legislators appear to have only three bills that could raise more revenue.
The biggest of them, Senate Bill 10, would raise an estimated $139 million next year by allowing companies that qualify for both the industrial tax exemption and the inventory tax credit to claim only one of them. Business groups are trying to kill the bill.
As The Advocate reported Thursday, corporate income and franchise tax collections through May were only $50 million, compared with $359 million expected by the time the full fiscal year ends one month later.
It’s not clear whether the state is collecting less from corporations because the state’s economy is in a recession or because corporations are aggressively claiming the plethora of tax breaks available to them.
In an interview Friday, Richardson said corporate tax collections in June appear likely to reach a total $150 million for the fiscal year, or about $200 million less than expected.
Richardson delivered this news Thursday night at Edwards’ request to him, House Speaker Taylor Barras, R-New Iberia, Senate President John Alario, R-Westwego, Commissioner of Administration Jay Dardenne and other top state economists and budget officials. On Friday, Richardson said collections from state sales, income, excise, oil and gas and other taxes have not increased enough to offset the below-projections corporate tax revenue. He added that state officials won’t know the final revenue numbers until November or so.
Richardson’s analysis carries special weight because for more than 25 years, he has served as the one independent member of the four-member panel that meets regularly to determine the state’s fiscal situation.
The $200 million deficit, Richardson said Friday, means the Legislature has to choose between not funding that amount of programs and services or raising an equivalent amount of taxes.
“That’s the choice we’re always faced with,” he said.
To put things in perspective, not making up that $200 million could mean not filling the $150 million shortfall for the Taylor Opportunity Program for Students and the $44 million shortfall for K-12 schools.
Reflecting their diverging ideas on taxes, Alario said Richardson’s report shows the need for more taxes, while Barras said he hopes that delayed tax payments by companies in parishes flooded this year will reduce the $200 million deficit projected by Richardson. (Richardson said that is unlikely.)
SB10 is a new idea to raise more dollars, emerging only in the past week. It is sponsored by state Sen. Rick Ward III, R-Port Allen, who says lawmakers over the years have been overly generous in handing out tax breaks to companies.
He and other top officials believe manufacturing companies would choose to claim the industrial tax exemption — because it is much more lucrative — over the inventory tax credit.
Having lower claims on the inventory tax credit would save the state money because of the tax credit’s unusual nature. Under it, the state reimburses companies for their inventory tax payments to local governments. The tax credit will cost the state more than $500 million this year.
A new study by Together Louisiana, a statewide group that favors higher taxes on big companies and the wealthy, could fuel support for Ward’s bill under the notion that corporations are overly subsidized by the state. The study reports that Louisiana has the most generous industrial tax exemption in the country, allowing companies to avoid all of their property taxes to local schools, sheriffs and fire departments for 10 years, in two five-year increments.
According to the group, the tax credit costs local taxpayers an astronomical $535,000 per job.
Ward’s SB10 will be before the House Ways and Means Committee on Monday morning. If it passes there — which is no certainty because Republicans hold a 12-7 advantage on the panel — the bill then would pass to the full House.
Alario hopes it will win approval in the House but isn’t betting on it.
“I have not gotten any indication that they’re willing to do more than they’ve done so far,” he said in an interview Friday.
Barras, in a separate interview, called it “an interesting concept,” adding that he needed to learn more about the measure.
Also before the Ways and Means Committee on Monday is Senate Bill 6, which would raise $50 million by eliminating tax rebates — but not the tax credits — taken by big companies on their inventory taxes. State Sen. JP Morrell, D-New Orleans, is the sponsor.
The last viable tax bill is House Bill 38, which, in its current form, would raise $113 million next year by taking away half of a tax break that goes to the 23 percent of taxpayers who itemize deductions on their federal income tax returns. They are mostly people who earn $100,000 or more per year.
HB38 didn’t have the necessary 53 votes on Thursday when it was supposed to be voted on. The sponsor, Rep. Malinda White, D-Bogalusa, asked that it be heard instead on Sunday evening.
HB38 was amended in the Ways and Means Committee to expire in two years and then, under a complicated scheme, return the lost deductions to taxpayers.
White wants to strip off that amendment and replace it with one that would continue to allow taxpayers to take 100 percent of their excess federal itemized deductions on their state tax returns but no longer be allowed to take the deduction for the state and local taxes they pay to the federal government. Under that change, the bill would raise about $50 million rather than $113 million.
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