When it was clear lawmakers would not offer voters a new constitution, and there would be no package of Article VII amendments targeting finance and taxation, House Speaker Phillip DeVillier reached out to his membership to explain the situation.
DeVillier told reps the approaching budget gap, whatever it ends up being, is due to the scheduled sunset of the 0.45 percent temporary state sales tax and a variety of other factors, like an expiring 2% tax on business utilities and the legislative decision to redirect vehicle sales taxes into transportation funding.
“But we have options,” the speaker added, “that can be considered that will balance the budget, including finding efficiencies in government and creating a more predictable tax structure for the state.”
In other words, spending cuts and tax reform—in that order, according to his statement.
As luck (or planning) would have it, Gov. Jeff Landry has given state agencies a mandate to tighten their belts.
The Division of Administration is forecasting a shortfall of about $340 million for the next fiscal year, according to Joint Budget Committee testimony. That’s less than what was projected earlier this year.
But there’s a major catch.
The total doesn’t include $248 million in additional dollars for educational initiatives, including teacher pay stipends, that lawmakers would like to continue funding. Include those costs, and the total gap rises to approximately $588 million, which in turn—believe it not—is a bit higher than the $558.8 million shortfall the Landry administration was anticipating in January.
In response, over the next two months, Appropriations Chair Jack McFarland will bring in department and agency heads that receive the bulk of the state general fund dollars to present their suggestions to save money. He expects to have multiple agencies at the proverbial table each week.
“We’re asking them to say, ‘Where can we do better?’” McFarland says. “Where can we save money rather than having to cut [services]?’”
The Department of Health is one obvious target. But McFarland hopes not to focus the brunt of the cuts on LDH, noting the importance of the department’s mission and its ability to draw down federal dollars that multiply state efforts.
LDH did not respond to questions about whether there are significant savings to be found in the department, or whether the department could benefit from an overhaul, as is already happening at the Department of Transportation and Development, the Department of Energy and Natural Resources, and Louisiana Economic Development, among others.
The results of DOTD’s reorganization study are due to the Legislature by Jan. 15. But DOTD is largely funded by the state gas tax, so McFarland doesn’t anticipate giving it as close a look as the departments that rely on the general fund.
Rep. Jerome Zeringue, who has chaired Appropriations in the past and remains on the committee, wants to hone in on statutory dedications and tax exemptions, while acknowledging that all of them have stakeholders ready to come to their defense. He says he supports dedicating auto sales tax revenue to roads and bridges, but suggests lawmakers may consider tapping the brakes on that plan and keeping some of the money flowing into the general fund for now.
As for tax reform, a special session between now and next year’s regular fiscal session remains a possibility, though legislators want to know that there’s a clear plan in place for what they hope to accomplish. Revenue Secretary Richard Nelson is in the process of trying to figure out if there’s enough of a consensus to pass a meaningful package.
Nelson is discussing proposals with legislators including reducing exemptions, taxing services or digital goods like streaming, and implementing a flat income tax rate of around 3% with a higher standard deduction.
“If we can reach that consensus before the session next year, I think that there’s a good possibility we can have a special session,” the secretary says.
Nelson told the Baton Rouge Press Club that lawmakers wanted to reduce agency spending to pay for tax cuts. Asked last week how realistic a tax reduction is in the current budget environment, he said it depends on how you define a tax “cut.”
If you’re using the current baseline, including the temporary taxes, a reduction is doable, he said, noting the surpluses of recent years. But if you let those taxes roll off, Nelson said, “I don’t think you can take tax cuts on top of tax cuts.”
Senate Revenue and Fiscal Affairs Chair Franklin Foil says he and House Ways and Means Chair Julie Emerson are working on holding a joint committee meeting in early September to hear more about tax credits and other issues that could be part of a tax reform package.
The main reason to try and have a special session this year is if lawmakers decide constitutional changes are needed, Foil says. While it may be too late to get anything on the ballot in November or December, a fall session would give lawmakers time to send proposals to voters in March, he says; otherwise, a session early next year would work just as well.
