First, I want you to know how grateful I am for the honor of representing you in Baton Rouge. I take the responsibility seriously, and I try very hard to do my best to improve our state and to secure a good future fo rour children.
This year, the Louisiana Legislature goes into session to consider mostly money matters. This “fiscal” session deals with the state budget. Because our budget for this fiscal year (July 1, 2016 through June 30, 2017) was not balanced,we had a Special Session in February to reduce spending.
Special Session Results
There was a $304 million deficit at the end of 2016, mid.way through the Fiscal Year. To deal with that, some $82 million in cuts were made. And, $99 million came from the “Rainy Day Fund” – money set aside for just such emergencies. Not all of the state’s financial problems have been solved, and even the popular TOPS scholarship program did not get enough funding for the full school year at full rates.
Major cuts were made in health care, but because of Medicaid expansion — Louisiana’s working poor are now getting Federal medical insurance ..some mental health and addiction treatments will continue. The Legislature itself had its budget cut by $3.5 million, and the Attorney General’s office budget lost $2 million.
Areas that did not see budget cuts included Higher Education and the Department of Corrections. Louisiana has to focus on stabilizing our tax and budget situation so that we can prioritize our investments for a more prosperous future.
Revenue: Funding Vital Programs and Services
This Legislative Session will deal with revenue, as well as spending cuts. As you might guess, the real problem is that Louisiana does not have enough money (along with Federal money that goes to the state) to cover the costs of keeping Louisiana running. As all of us know, there are only two things to do when you get in this fix: bring in more money or spend less. First, how do we bring in more money?
One option is to either fully or partially reinstate the Stelly Plan. From 2002 to 2009, Louisiana depended on personal state income taxes to help balance the budget. Under the Stelly Plan (named for Rep. Victor P. “Vic” Stelly ofLake Charles), an increase in the personal income tax rate was approved by voters as a tradeoff for lower sales taxes on food and utilities. After the Stelly Plan was repealed in 2009, income tax revenue dropped drastically, which was balanced out in the aftermath of Hurricanes Katrina and Rita when the state saw large amounts of incoming revenue for rebuilding. After that came to a halt, the budget crisis became an annual event, and we have experienced 15 mid.year deficits in the last 9 years.
In addition, this year, the Legislature will again look at the policy of deducting Federal taxes on both business and personal state income tax forms – this lowers the amount of taxable income and reduces revenues for the state. Louisiana is one of only three states allowing this. This will not affect the personal income tax for most Louisiana taxpayers, as this deduction requires itemization …filing long form tax return –which isn’t used by many. Louisiana voters may have the opportunity to approve a Constitutional Amendment to remove the deduction for income taxes paid in exchange for lower individual and corporate tax rates.
Out of the 149,000 corporations in this state, LAST YEAR 129,000 CORPORATIONS PAID NO INCOME TAXES IN LOUISIANA. NONE AT ALL. In addition to examining federal deductions, the Legislature will inspect all the tax credits and tax exemptions these businesses currently enjoy, and determine if some should no longer apply. Taking these important measures would introduce long.term structural reform to our fiscal policy, bring in more revenue and prevent more cuts to higher education and healthcare.
Louisiana now has the highest combination of state and local sales tax in the nation. Remember, paying ten pennies tax on every dollar you spend can add up: and for low wage workers that can be a big hit on the wallet. One of thoseLouisiana tax pennies will run out in 2018, and not renewing it will cost the state $880 million. To make up for some of this loss, the existing sales tax could be extended to new transactions and items. But, that is not enough.
One of the proposals we will study is a Commercial Activity Tax – a tax on business sales. This would be a welcome source of funding for the state.
Of the 414,000 businesses in Louisiana, 389,000 would pay only $250 a year. If sales are under $1.5 million a year,the tax will be no higher than $750 a year. The largest businesses would pay .35 percent above $1.5 million in sales.The Commercial Activity Tax would begin in 2018 – the current Corporate Franchise Tax would phase out over ten years.
Cuts: Spending, Saving and Reinvesting Wisely
If Louisiana can bring in more money with the tax solutions suggested, then we can save some of our most important programs. Remember, when the Legislature makes cuts, there are some things paid for with dedicated funding that cannot be changed. But, the Legislature can freely cut things paid for from the General Fund. Sad to say, that includesEducation, Higher Education and Health Care. Having those three categories in the General Fund means they are one place the Legislature goes to make cuts.
However, we are hopeful that the money coming in from reworking taxes will be enough to • fully fund the TOPS scholarships for all of the next school year, • give more to the public health care system that serves the disabled and the poor, and • give a little bit more (2.75%) to the K12 education system to make up for losses due to inflation.
And, in other good fiscal news, last year voters approved a Constitutional Amendment to create a new Revenue Stabilization Trust Fund. Any excess oil and gas revenue and corporate taxes would go in the fund, and when it reaches$5 billion, up to 10 percent could be spent on construction projects and roadwork. Another portion of oil and gas money will pay down state retirement debt.
In another area, Criminal Justice, reforming the system could save Louisiana serious money. Louisiana spends $700million a year to put a higher percentage of our population in jail than any other state, or country, in the world. States like Texas and South Carolina have seen the crime rate go down when the imprisonment rate goes down. TheJustice Reinvestment Task Force has recommended some reforms that we must seriously consider, that will save the state money and reinvest money into programs to reduce recidivism and aid with meaningful reentry.
Increasing the Earned Income Tax Credit would immediately benefit the working poor. This program refunds money to low income people filing Federal tax returns and has a multiplier effect of 1.5 to 2. Currently on state tax returns, Louisiana offers the lowest percentage of the Federal Earned Income Tax Credit of any state – 3.5%. On another measure for the working poor, Louisiana currently has a minimum wage of $7.25, and we should consider raising that.
This year, as always, I remain hopeful that Louisiana’s problems can be managed, and we can make some sensible plans for our future. I will be doing my best to help find sensible, workable solutions, and looking for ways to work with my colleagues to come up with creative ways of making progress.
I welcome your ideas, I look forward to reading your answers to the survey questions,and, as always, if there is anything you need from me, just let me know. I am always glad to work with you.
Walt J. Leger III
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