The document summarizes information from a presentation on Louisiana's state budget challenges. It notes that Louisiana has high rates of poverty and low incomes compared to other states. The state relies heavily on one-time budget fixes and has underfunded education and health care as a result of budget cuts. The budget has a structural deficit because revenues have not kept up with needs, and the tax system is overly reliant on sales taxes and contains many exemptions that reduce revenues. Reform of tax exemptions and a more balanced revenue approach are needed to address the budget problems.

1. State Budget
Civic Academy
Statewide Issues Conference
Saturday, February 15, 2014

2. Louisiana Budget Basics
Jan Moller
jan@labudget.org
225.925.2424
www.labudget.org

3. 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

4. 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

5. Recent trends are troubling

6. 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

7. 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

8. 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

9. 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

10. 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

11. Boom, Bust, Treading Water
State General Fund
$12.00
In billions
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00

12. 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.

13. 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

14. 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

15. 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

16. 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

17. 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%

18. 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

19. 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

20. 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

21. 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

22. 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…

23. 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

24. 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)

25. 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

26. Who Pays in Louisiana?
Source: ITEP

27. 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

28. … 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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