Kathleen Blanco has only been governor for two months. However, she already may deserve an apology -- from critics who have accused her of breaking a campaign promise to lower two business taxes. Blanco, a conservative, pro-business Democrat, may have fallen victim to rising expectations for business development, which she herself helped to raise during her recent campaign. And she may be advised to drop one major tax proposal and hurry up plans to phase out the two regressive taxes on business. But contrary to accusations, Blanco did not lie, renege or "crawfish" on her campaign promise to lower the two taxes when she issued her first legislative call.
The uproar began March 7, after Blanco issued her first legislative call. Her agenda for the ongoing special session of the Legislature (which must end by March 23) contains 15 issues, of which the first three are key. Item No. 1 would make permanent a 2.8-cent state sales tax that businesses pay on their utility bills, as well as other, smaller taxes. Those levies generate $160 million for state coffers; they have been "temporary" taxes for 18 years. Item No. 2 would commence the multi-year phase-out of sales taxes on manufacturing machinery and equipment (MM&E), and Item No. 3 would spell the beginning of the end of the archaic corporate franchise tax on borrowed capital. The latter two taxes are frequently cited as the main reasons why Louisiana has so little business growth and virtually no manufacturing base.
Combined, the two taxes raise at least $275 million annually. That's a big chunk for a new governor facing an inherited budget deficit of $500 million. But when Blanco proposed delaying for one year the repeal of the taxes on MM&E and borrowed capital -- and then phasing the taxes out over seven years -- many felt betrayed. Business groups had made elimination of the two taxes a top priority in the governor's race, and all of the major candidates bought into the idea. However, Blanco appears to have consistently tied phase-outs of the taxes to revenue performance. In separate campaign endorsement interviews with Gambit Weekly on Oct. 28, 2003, both Blanco and her Republican opponent, Bobby Jindal, declined to commit to an immediate phase-out of the taxes. Said candidate Blanco: "[W]e are going to key [tax rollbacks] to revenue growth. We can't just eliminate a bunch of taxes and expect to continue to pay for education and health care. You have to carefully move them down."
Blanco told us she expected to call a special session to renew the "temporary" state sales taxes, though she said nothing about making them permanent. But renewal of the temporary taxes was and is basically a foregone conclusion. Lawmakers see the issue as their best leverage against the governor ("The Joke's On Us," March 21, 2000) and generally set the temporary taxes to expire over a two-year period -- or twice in a governor's four-year term. New Orleans attorney C.B. Forgotston, a former chief counsel for the House Appropriations Committee, notes that because of a recent change in the state constitution, legislators have a rare opportunity to use the temporary tax issue to play what he calls "let's make a deal" three times in Blanco's term. Forgotston predicts Blanco's plan to make the levies permanent will fail.
Lest we forget, the real reason Louisiana is in a tax pickle today is because former Gov. Mike Foster, in the name of education, pushed for higher taxes while retaining temporary taxes. He also quelled attempts by the Louisiana Association of Business and Industry (LABI) to roll back the tax burden on business. In 2002, LABI President Dan Juneau recalls, then-Lt. Gov. Blanco was the only statewide elected official to call LABI and offer support for the embattled tax-reduction bills. Had the bills passed, Blanco and Louisiana might not be in this mess today.
Blanco and Juneau are allied together again, sort of. Both want to phase out business taxes on MM&E and borrowed capital. Juneau hopes to begin the phase-out earlier -- starting July 1 -- if the state Revenue Estimating Conference recognizes an additional $15 million in revenue growth between now and June 30, 2005. "We think that is going to happen," Juneau says. "It will shorten her eight-year time frame to seven years."
We think Blanco can accelerate the phase-out by keeping a campaign promise to "take the slush out" of the Legislature's $16 million annual slush fund. Blanco wants the much-maligned urban and rural economic development funds to be used as "seed money" to leverage federal and private funding. But we agree with Forgotston, the private Public Affairs Research Council, and others who favor eliminating the $16 million per year funds so the state can immediately begin phasing out the sales tax on MM&E and borrowed business capital. Such a move would send a needed signal that Louisiana is improving its business climate -- now, not later.