Louisiana State Budget and its Tax Giveaways
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Louisiana State Budget and its Tax Giveaways



A presentation on the Louisiana State Budget and its tax giveaways. Shared at the Together Louisiana Statewide Issues Conference on February 15th, 2014.

A presentation on the Louisiana State Budget and its tax giveaways. Shared at the Together Louisiana Statewide Issues Conference on February 15th, 2014.



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Louisiana State Budget and its Tax Giveaways Louisiana State Budget and its Tax Giveaways Presentation Transcript

  • State Budget Civic Academy Statewide Issues Conference Saturday, February 15, 2014
  • Louisiana Budget Basics Jan Moller jan@labudget.org 225.925.2424 www.labudget.org
  • About Louisiana Budget Project Provides independent, nonpartisan research and analysis of public policy issues and their impact on low- and moderate-income Louisiana families Visit www.labudget.org
  • Poverty is a daunting problem • Compared to other states, Louisiana has: • 3rd highest rate of poverty (nearly 20 percent) • 4th highest rate of child poverty (28 percent) • 8th lowest median household income (slightly less than $43,000 a year) • 12th lowest health insurance coverage, which also puts families at higher financial risk
  • Recent trends are troubling
  • Workers are treading water • Wages have been stagnant or falling for years • Since 1979, median wages have increased 1 percent, productivity is up 35 percent
  • Louisiana’s Experience • Louisiana was in the middle of an artificial boom that brought record surpluses when the Great Recession began • Then revenues plunged by 29 percent, but have recovered somewhat • FY 2008: $10.1 billion • FY 2010: $7.2 billion • FY 2014: $8.3 billion
  • Louisiana vs. other states • • Louisiana experienced 5 straight years of midyear budget shortfalls, more than most other states. Revenue growth is still anemic The states that took a more “balanced approach” to the recession that included targeted cuts and new revenues are starting to see surpluses again
  • Why Did Revenues Drop? The weak economy is only partly responsible for the revenue drop between 2009-2011: • • • 52 percent due to weak economy 27 percent due to tax cuts (Stelly Plan repeal) 21 percent due to mineral revenue decline Total loss over 2 years: nearly $3 billion  Source: Legislative Fiscal Office
  • Revenues are not recovering • Even as the economy recovers, state revenue growth has been sluggish at best • Louisiana is taking in the same amount of revenue (adjusted for inflation) as in the late 1990s, even though the population has grown • State revenues as a percentage of overall economy are at a 20-year low
  • Boom, Bust, Treading Water State General Fund $12.00 In billions $10.00 $8.00 $6.00 $4.00 $2.00 $0.00
  • Budget gimmicks • To balance the budget, Louisiana has relied on a number of measures: • • • • One-time money from property sales and legal settlements Tuition and fee increases Spending down various trust funds Amnesty for delinquent taxpayers This is not sustainable budgeting. It is clear we have a structural budget problem.
  • The Impacts of 5 Years of Cuts • Four years of frozen funding for public schools • • Five years of cuts for colleges and universities • • $560 less per student by not funding inflation $700million and counting, while tuition climbed 74 percent Health care services have been cut and charity hospitals privatized
  • How is the budget built? Louisiana's Budget by Source (in billions) Federal Funds, $9.89 Total Budget: $25 billion State General Fund, $8.62 Self Statutory Generated, Dedications, $2.45 $4.03
  • State General Fund Most state general fund spending is “nondiscretionary,” giving legislators little flexibility State General Fund $8.62 billion Discretionary $2.76 NonDiscretionary $$5.85
  • Discretionary General Fund By Subject Area Everything else, 13.3% Education, 37.7% Health care and social services, 49% Discretionary SGF: $2.76 billion Only 11% of total budget
  • Higher ed: 5-year trend North Dakota Illinoisb Alaska Montana Texas California Maryland Wyoming Indiana Utah Vermont Nebraska South Dakota New York Maine Rhode Island North Carolina Tennessee New Jersey Colorado Mississippi West Virginia Georgia Oklahoma Connecticut Arkansas Kansas Florida Delaware Virginia South Carolina Kentucky Massachusetts Oregon New Mexico Minnesota Alabama Iowa Idaho Missouri Washington Wisconsin Hawaii Ohio Pennsylvania Michigan New Hampshire Nevada Arizona Louisiana -45.0% -34.4% -0.4% -0.5% -0.5% -2.9% -3.3% -3.4% -4.0% -4.3% -4.4% -6.7% -6.7% -7.7% -8.1% -8.2% -8.2% -8.6% -8.6% -8.9% -9.9% -10.0% -12.8% -13.2% -13.8% -14.4% -15.3% -18.2% -18.4% -21.3% -21.8% -24.4% -20.0% 9.4% 8.4% 8.1% 8.0% 7.7% 6.7% 6.6% 5.9% 5.6% 4.7% 4.5% 2.9% 2.8% 1.3% 0.4% 0.3% 5.0% 61.4% 35.1% 20.2% 30.0% Source: Illinois State University 55.0%
  • Health care and education at risk • Legislators only have true discretion over 11% of the $25 billion budget—and most of that goes to health care and higher education • This is why critical services have faced deep cuts since 2008 • Without sustainable revenue, Louisiana will continue to under-invest in human capital
  • FY 15 Executive Budget Proposal • Proposed budget: $25 billion ($8.6 billion SGF) • Decrease of $624 million from last year (mostly federal money) • Fewer cuts than we have seen in recent years, but not cause for celebration • The proposed budget does little to undo the damage of the last 5 years
  • Status quo in education • Provides $12 million in new funding for K-12 students (also makes permanent last year’s one-time bump of $70 million) • Colleges will keep funds from tuition increase and receive a modest bump in state support • No new funding for early childhood education, despite bipartisan agreement on its importance and Act 3 reforms passed in 2012
  • Patching together health care • Modest expansion of home care services for people with disabilities, many stuck on waiting lists for years • Increase in funding for charity hospital private partners, but federal approval still pending • No coverage expansion for low-income adults will leave quarter of a million Louisianans uninsured
  • Future outlook is troubling • Uncertain federal financing for charity hospital partnerships • Bills are due: • • • • Rainy Day Fund: $300 million (2016) Road repair backlog: $14 billion College infrastructure: $1.8 billion Invest in children, expand health care access, fix the coast…
  • The Bottom Line • “We’re running out of things to cut in state government.” – Sen. Jack Donahue The evidence is crystal clear: More revenue is needed to fund critical services and the investments in our people that are crucial to a strong, 21st century economy
  • Public Reaction • 68% say budget has been cut enough • 89% concerned about cuts to LSU hospitals • 80% said Louisiana residents will lose access to health care (Source: Southern Media & Opinion Research)
  • Where does our revenue come from? Major Sources of State General Fund Revenue $3,000.00 In Millions $2,500.00 $2,000.00 $1,500.00 $1,000.00 $500.00 $0.00
  • Who Pays in Louisiana? Source: ITEP
  • Louisiana’s Taxes Are Low State Rank Total State & Local Taxes (as percent income) 1. New York 12.8 2. New Jersey 12.4 3. Connecticut 12.3 47. Louisiana 7.8 48. Tennessee 7.7 49. South Dakota 7.6 50. Alaska 7.0 Source: Tax Foundation
  • … Especially Property Taxes State Median Property Tax on Home (2009) 1. New Jersey $6,579 2. Connecticut $4,738 3. New Hampshire $4,636 4. New York $3,755 48. West Virginia $464 49. Alabama $398 50. Louisiana $243 Source: Tax Foundation
  • But Sales Taxes are High State Sales tax rate (state & local avg. percent) 1. Tennessee 9.45 2. Arizona 9.12 3. Louisiana 8.85 47. Delaware None 47. Montana None 47. New Hampshire None 47. Oregon None Source: Tax Foundation High sales are a burden on low-income families and are a big reason our tax system is so regressive
  • Revenues will be a central issue • Tax exemptions reform has been an ongoing issue for years • Sales tax modernization and enforcement of online sales tax collection is emerging • There is growing realization that Louisiana has a structural deficit and inadequate revenue • Our tax system is regressive
  • Tax Exemption Reform “Tax exemptions are tax dollars that are not collected and result in a loss of state tax revenues available for appropriation. In this sense, the fiscal effect of tax exemptions is the same as a direct fund expenditure.” – Louisiana Dept. of Revenue
  • Exemptions Grew 167% in Ten Years (figures adjusted for inflation) 2001 2011 $1.82 billion Tax Exemptions $8.29 billion State Taxes $4.84 billion Tax Exemptions $7.77 billion State Taxes
  • Tax Expenditures Are Mostly Hidden • Louisiana’s tax code includes 468 different exclusions, credits, exemptions and other loopholes worth a combined $4.98 billion • Tax expenditures have the same effect as other government spending, but receive far less scrutiny • Corporate tax exemptions have grown dramatically in recent years
  • Not All Exemptions are Bad • Sales tax exemptions on groceries, nonprofits, pharmaceutical drugs, and residential utilities are broad-based and effective • The state Earned Income Tax Credit (EITC) is a costeffective, proven anti-poverty initiative • A reasonable degree of corporate tax uniformity with other states can help keep Louisiana competitive
  • But many are in need of review and reform • Most exemptions have no “sunset” and are not regularly reviewed by the legislature • We do not know if taxpayers a getting a good return on investment for exemptions passed in the name of economic development—in fact, in some cases we know we are NOT • Every dollar that goes toward an exemption is a dollar that can’t be invested in education
  • Motion picture tax incentives • Film productions eligible for 30% of in-state expenses, and 5% of payroll for residents • After 10 years, there are fewer than 3,000 direct jobs that often last 4 to 6 months. We’re paying roughly $60,000 per job in subsidies • Louisiana spent $231 million on film subsidies last year, and $1 billion over the last decade Louisiana needs to phase down or cap the program
  • Tax reform is not going away • Revenue Study Commission (2012): Recommended changes to exemption process—no results • Gov. Jindal’s Tax Shift (2013): Parked. • Kleckley Blue Ribbon Commission (2014): ? Continued engagement on this issue is critical