Louisiana’s Republican-controlled Legislature is expected to hold additional deliberations to address severe budget cuts after both chambers passed separate budgets constrained by reduced revenue estimates for fiscal 2019.
Gov. John Bel Edwards on Monday called the second special session of this year, saying he had warned lawmakers that there would not be enough revenue to fund the state’s priorities.
Louisiana expects a $648 million budget deficit for fiscal 2019 because of expiring temporary taxes.
The House passed a $27 billion budget on a vote of 55-47 on April 19, prompting the Edwards’ administration to send notices to 37,000 Medicaid recipients about potential program cuts, including 17,000 to nursing home residents.
On Tuesday, the Senate on a 27-10 vote passed a $28 billion budget plan that includes Medicaid and hospital funding for the poor excluded from the House budget. The Senate budget would impose cuts of nearly 25% on state agencies, colleges and universities, health and social services programs, and the judiciary.
The current budget is $29.5 billion.
“Both the House and Senate have now validated what we’ve been saying all along – you cannot fashion a budget that adequately funds our priorities without maintaining a portion of the revenue that is expiring,” said Edwards, a Democrat.
The Legislature is in regular session scheduled to end June 4.
Technically, the Senate’s version of the budget is now in the House, which could approve and send it to the governor, setting the stage for a veto.
Edwards said he expects lawmakers to adjourn on Friday, and return to Baton Rouge May 22 for a special session to address fiscal issues through June 4. The procedure is necessary because Louisiana’s constitution prohibits consideration of revenue-raising matters in even-numbered years.
The budgets passed by the two chambers reflect most of the gap caused by expiration of temporary revenue-raising measures, including a 1% sales tax hike slated to fall off the books June 30.
Edwards said he isn’t asking lawmakers to raise new revenue, but to maintain a portion of the temporary revenue stream to ensure adequate funding for health care services, medical schools, higher education, and state college scholarship and related grant programs.
Edwards’ proposal calls for maintaining 0.5% of the 1% temporary sales tax. He also proposed $120 million in spending cuts and other policy changes that he says would result “in a $400 million net tax cut for the people of Louisiana.”
“This [upcoming special] session will give us another opportunity to permanently address the budget challenges we face year after year, and I am optimistic we will get it done,” Edwards said.
During the regular session, the Legislature ignored Edwards’ ideas and forged ahead with severe budget cuts. Some in the Senate called their version of the spending plan a “pretend” budget to show how severe reductions would need to be.
After the state said it would notify thousands of Medicaid recipients of program cuts, House Appropriations Chair Cameron Henry, R-Metairie, accused the administration of failing to prioritize his chamber’s planned spending reduction to protect the elderly.
“It is time for the governor to come to us and have a better understanding of we think is the best position for the state to be in,” Henry said. “We are spending more money than we are bringing in.”
Under Edwards plan, the state sales tax would be reduced to 4.5% from 5%.
On Monday, the conservative-leaning Pelican Institute in New Orleans and the Buckeye Institute’s Economic Research Center called Edwards’ plan a tax increase because it extends half of the 1% temporary sales tax due to sunset June 30.
They said their study shows keeping the 0.5% sale tax, as proposed by Edwards, would negatively affect employment resulting in the loss of 1,400 jobs and it would reduce gross domestic product by $86 million in one year.
Proposals to adjust individual income tax brackets and reduce the amount individuals can deduct of their taxes will lead to further job losses and reduced GDP, they said.
Edwards’ office said in a statement Tuesday that the governor is not asking for individual income tax brackets to be adjusted.
Louisiana is one of five states in the nation that allows taxpayers to deduct from state taxes the amount they paid in the prior year. Edwards has proposed eliminating this deduction, a move that has seen some support.
“Their analysis isn’t based in reality and contains more commentary than facts,” Edwards’ statement said. “Republicans and Democrats in both the House and Senate have signaled support for stabilizing funding in state government to end the repetitive cycle of fiscal challenges.”
The administration has said the state’s unemployment rate continued to drop while the 1% temporary sales tax increase was in effect the past two years. At 4.6%, the jobless rate is at a 10-year low.
Since taking office in January 2016, Edwards has butted heads with the GOP-led Legislature over spending.
To close a budget gap in his first year, lawmakers agreed to enact the extra penny sales tax and other revenue enhancements for two years. That fiscal bump, which Edwards now calls a fiscal cliff as the revenues expire, was designed to give lawmakers time to work on tax reform and long-term measures to stabilize the state budget.
Since that time, five special sessions, including one earlier this year when lawmakers adjourned without passing any bills, failed to produce any long-term budget fixes or tax reforms.
In March, S&P Global Ratings said that while it expects modest improvements in the state’s economy and fiscal trends, uncertainty continues to loom concerning the fiscal 2019 budget.
“In our view, political risk - as evidenced by the legislative gridlock during the [March] special session - has emerged as a credit weakness, which has the potential to stunt what otherwise has been recent positive momentum in the state,” said S&P analyst Oscar Padilla.
Louisiana’s budget imbalance led S&P in 2017 to downgrade the state’s general obligation bond rating to AA-minus from AA. It also maintained a negative outlook.
Padilla said that while the legislature and governor work to craft the state's next budget, “we will continue to assess whether any measures provide for a sustainable framework to maintain long-term structural balance.”
Similar issues led Moody's Investors Service to downgrade its GO rating to Aa3 from Aa2 in February 2016. It also maintained a negative outlook. Fitch Ratings assigns an AA-minus rating and stable outlook to the GOs.
Analysts view Louisiana’s constitution as a favorable credit factor, because it requires all incoming revenue collections be deposited into the Bond Security and Redemption Fund to pay debt service before any other bills.
Edwards has called on lawmakers to work on 30 issues during the upcoming special session, though the proclamation does not include bill numbers.
While the session includes consideration of the budget as well as the state’s capital outlay and omnibus bond bills, it also calls for lawmakers to take action on the Deepwater Horizon oil spill’s economic damage collection fund.
The state already received an upfront payment of $200 million in fiscal 2016, and expects annual payments of $53.3 million for economic damages to begin in fiscal 2019.
Sen. Eric LaFleur, D-Ville Platte, has proposed in Senate Bill 555 creating the Louisiana Economic Financing Corp. to issue bonds securitizing the $53.3 million in annual payments for economic damages created by the 2010 oil spill.
Bond proceeds would be used for the budget stabilization fund, the elderly and health trust funds, and transportation projects.
SB 555 passed the Senate on a 35-0 vote April 18 but has been stalled in the House Committee on Appropriations since April 25.