BRADENTON, Fla. – After budget deficits every year since 2011, Louisiana lawmakers will soon take on proposals to substantially overhaul the state's tax system.
Gov. John Bel Edwards on Friday formally ordered legislators to return to Baton Rouge to tackle a $304 million mid-year shortfall, after already cutting $314 million to close a fiscal 2016 deficit discovered when the books were closed for that year.
The special session starts Monday and is scheduled to run through midnight Feb. 22, but Edwards said he expects adjournment to be earlier.
Edwards, a Democrat, needs the GOP-led Legislature to open portions of the state budget over which he has no control, "to spread cuts across government and minimize cuts to the critical state services," he said.
"We are taking a deliberative, responsible approach to cutting spending and balancing our cuts with the use of $119 million from the Rainy Day Fund," said Edwards, who has said he would propose specific cuts for lawmakers to consider, in addition to tapping the emergency reserve.
Edwards has received pushback from some lawmakers about using the Rainy Day Fund, which has a $359.8 million balance, although it has been used numerous times when the state experienced mid-year budget problems in the past.
"After years of budget shortfalls and mismanagement from the previous administration, there are no easy decisions anymore," he said. "I am confident the legislature will support this effort until we can make the necessary reforms to our state's budgeting practices."
State officials face an even more daunting slate of tax and budget reform measures during the regular session that begins April 10 and runs through June 8.
The measures, expected in a package of bills backed by Edwards, will be based on the recommendations of the 13-member Task Force on Structural Changes in Budget and Tax Policy that are designed to correct the budget imbalances and put Louisiana on a more sustainable fiscal path going forward, officials said.
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"It's an excellent indictment of the current tax system," said panelist Robert Travis Scott, president of the Public Affairs Research Council of Louisiana. "These are not alternative facts. These are 'THE' facts."
What's important about addressing changes this year is the so-called "fiscal cliff" the state faces, said co-task force chairman James Richardson, the state's chief economist.
A year ago, during a special session, the state sales tax was increased to 5% from 4%, and many exemptions and tax credits were modified, suspended or reduced.
Many of the temporary revenue measures expire June 30, 2018, and absent further action the state is expected to face a deficit of $1.5 billion in fiscal 2019.
The state should not enact new temporary measures and push the problem further down the road, said Richardson, a professor of economics and public administration at Louisiana State University.
Richardson also warned that implementing the vast changes recommended by the task force will not be done "in one night or one day or even in one year."
The task force found that the state general sales tax, the individual income tax, the severance tax, and the corporate income and franchise taxes together represent almost two-thirds of the overall state revenue base.
In fiscal 2000, exemptions, deductions, and tax credits represented about 39% of the actual collections of various state tax collections.
By fiscal 2015, the exemptions, deductions, and credits were more than 100% of state tax collections.
"That means the value of all exemptions, deductions, and credits in fiscal 2015 was larger than the total collections of all those taxes," the report said. "The tax base has been eroded by special provisions."
Among the state's most significant spending problems is the unfunded accrued liability of the state pension systems, the task force said.
"The UAL is a more than $20 billion debt created by past decisions that places a serious stress on the state budget," the report said. "It arises from historically inadequate funding of the state pension system."
The system, established in the state's constitution, is a benefit to current and former state employees that takes the place of Social Security.
The two largest pensions - Louisiana State Employees' Retirement System and Teachers Retirement System of Louisiana – required annual payments of $600 million in 2006 that have since grown to $1.6 billion annually.
The task force suggested lawmakers enact recommendations of the Louisiana Legislative Auditor and establish a more accurate rate of expected return for the pension investments.
"A lower expected rate of return would cost the state more in the short term but, if warranted, would make a sounder financial plan for the long term by limiting further the possibility of creating new UALs," the report said.
The task force recommended that state officials consider 28 recommendations to reform budgeting and spending, the state sales tax, the personal income tax, corporate taxes, ad valorem taxes, and economic development incentives.
The No. 1 budget and spending suggestion of the panel is to "avoid budgeting practices that allow for spending beyond available recurring revenues."
The report also suggested expanding the sales tax base while reducing the rate to 4% from its current 5% and eliminating taxpayer and corporate deductions for federal income taxes on state filings.
The task force report is a "bipartisan proposal aimed at solving Louisiana's challenges and planning for the future," said panelist Jay Dardenne, who is also Commissioner of Administration and the governor's budget chief.
"I hope it will serve as a clarion call," said Dardenne, a Republican. "It's an attempt to provide some direction for Louisiana's future in a way that will create stability and a fair and broad-based system to help us avoid lurching from year-to-year and from cliff-to-cliff as we have done for so long in Louisiana's past."
Dardenne said Edwards will wrap the task force's recommendations into a legislative package to be considered during the regular session.
"These [recommendations] have to be taken as a whole," he said. "You can't cherry pick individual parts that you think are good and exclude others that may be to your individual detriment."
