Published on February 18, 2014
State Budget Civic Academy Statewide Issues Conference Saturday, February 15, 2014
Louisiana Budget Basics Jan Moller email@example.com 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
A Louisiana Budget Project Report ... Louisiana Film Tax Credits: Costly Giveaways to ... and Georgia increased its own state tax credit by up to 30 ...
Giving Away Louisiana, ... the hole in the state budget. The tax, ... even richer than its movie giveaway. Louisiana covers half the cost of ...
Giving Away Louisiana, Part 1: Tax giveaways that total ... in the state budget. The tax, ... “It’s one thing to be cutting the budget and looking ...
But tracing the origins of Louisiana's budget crisis is ... And it's nearly $3 billion more than the ... Tax breaks critics say haunt the state budget now.
... It’s time to end tax-program giveaways; it’s up to Louisiana’s ... hole in the state budget. The tax, ... in Louisiana? | The Advocate ...
Giving Away Louisiana: Film tax incentives State's ... with other government giveaways. It’s that ... Louisiana Budget Project and a ...
... Illinois, Kentucky, Louisiana, Missouri, New York, Oklahoma ... U.S. states with no income tax; ... The current state budget can be found ...
01_106 — Louisiana Tax Commission ... the financial crisis from late 2008 and its subsequent ... Secretary of State. Secretary of State BUDGET ...
It's hard to imagine, but Louisiana actually had more ... The state budgets ... 30 percent of Louisiana's budget. Louisiana's gas tax collections are ...