Louisiana Fiscal Reform Act II

Last week, Dr. Jim Richardson, the LSU economics professor, widely acknowledged to be the Dalai Lama of Louisiana fiscal and tax policy and long-standing member of the state’s Revenue Estimating Committee presented a study of Louisiana tax policy. He was assisted in the study by two economics professors from Tulane University, Dr. Steven Sheffrin and Dr. James Alm.
The study was commissioned by House Speaker Chuck Kleckley and Senate President John Alario and paid for by the legislature and Tulane University.

This tax study could lead to Dr. Richardson’s second involvement in a comprehensive fiscal reform effort, the first dating back to the late 80’s as oil revenues were waning and Louisiana was struggling to place itself on sound fiscal footing. Back then, it was Governor Buddy Roemer who attempted comprehensive tax reform based on a plan by Dr. Richardson and others, but unfortunately it didn’t go so well.

Roemer had just come off an improbable gubernatorial victory in which he soared from the back of the pack to a first place primary finish in a few weeks. In fact, Roemer’s 1st primary showing was so impressive that the incumbent Governor Edwin Edwards withdrew the night of the primary, a move that would later haunt Roemer since he was denied his electoral mandate. Some credit for Roemer’s surprise showing was due to groups such as the Louisiana Council for Fiscal Reform, that Dr. Richardson also advised, which skillfully framed the election in the context of dramatic fiscal reform, which Roemer embraced as a revolutionary candidate in 1987. Roemer though was not able to duplicate his initial success with the electorate into significant policy reform.

Despite being bright and well intentioned, Governor Roemer had a knack for impaling himself on his preachy rhetoric and know it all persona, which immediately alienated the legislature and eventually alienated voters. By the time that he was able to pass a watered-down fiscal reform package on his second attempt in 1989, the electorate had wearied of Roemer and his attempt to tie the fiscal reform constitutional amendment to himself doomed it to failure and also cratered his administration as well. Seeking re-election in 1991, Governor Roemer finished a surprising third in the governor’s race behind Edwin Edwards and David Duke.

This led to the fabled Edwards/Duke “race from hell” that deeply tarnished Louisiana, even though the guy in white robe didn’t win. Still the race most remembered for the slogan “Vote for the Crook- It’s Important,” was a negative turning point in Louisiana and helped usher in Louisiana’s version of the Dark Ages, when everything was about gambling, gambling and more gambling. There were problems with gambling from the start, including irregularities alleged in riverboat licensing and then the brawl to control the land-based casino. Then, the temporary casino went bankrupt, prominent legislators were indicted for video poker corruption and of course, Governor Edwards was eventually tried and convicted in connection with the gambling scandal.

The timing of Louisiana’s Dark Ages was unfortunate as the ‘90s brought unparalleled prosperity to other parts of the nation since with the advent of the personal computer and the Internet. During this time Louisiana was probably the last place that anyone would want to relocate a business.

Things seemed a bit better in the new millennium. While the 2008-2009 recession hit Louisiana hard, it didn’t seem to be quite as hard as states like Nevada and Florida perhaps because our sputtering economy had less of a distance to fall. Also, there was still a great deal of Katrina money in the system and propping up industries. Actually, many aspects of the state economy seem to be progressing fairly well until the price of oil dropped recently.

Still, the state’s public sector which was flush just a few years ago has been subject to five years of continuing cuts, primarily in the areas of healthcare and higher education. The future does not appear much better due to items such as rising pension obligations that have exacerbated a structural deficit.

So now we face the prospect of the Act II of Louisiana fiscal reform. The goal of Dr. Richardson’s study was to design a system with sufficient, predictable revenues, that was also competitive to businesses as well as fair and simple. Much of the suggested changes involved items that have been in discussion, namely the large number of tax expenditure items which deplete the tax base.

So this legislative session will apparently be the starting gate for Fiscal Reform Act II. With the exception of a few years when stimulus money or disaster money flooded the coffers, the state has really been struggling financially since the failure of Fiscal Reform Act I. Hopefully, we learned something and can have a better result this time.

Budget presentation by Dr. Jim Richardson: Final Presentation Louisiana Tax Study March 10 2015

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Louisiana Facing a Budget Battle for the Ages, With National Implications

Louisiana is facing perhaps its worst fiscal crises in decades and this time no one is exaggerating for political rhetoric purposes. I spoke recently to the state’s chief economist, who put it quite bluntly; “We have a $1.6 billion deficit and this one is REAL. Listen to me! It’s REAL!” It’s not as if the other deficits were fake, but they always happened to be paired with some handy one time money to fill the gap. This time there’s no Katrina money or stimulus money or BP money or rainy day money or some other money pot or two tucked away somewhere convenient that’s going to magically appear to save the day.

To make matters even more interesting, a powerful national group, the Americans for Tax Reform has become involved in the budget battle and Louisiana’s governor, Bobby Jindal, appears to be actively seeking the Republican nomination for President. So our little state problem now has national implications.


SO HOW DID LOUISIANA GET HERE?

There is plenty of blame to go around and I’ll even accept my share for supporting all of the business incentive legislation during my time in Baton Rouge. But if you want to really start at the beginning, you can blame the guy whose statue faces the State Capitol and whose indelible imprint on the structure of Louisiana state government persists today. During his dynasty in the 1920s and 30s, Governor Huey Long created a powerful, centralized state government which controlled all the money and ran the state in a populist tradition of two chickens in every pot, a college in every community, and state support of many local functions such as law enforcement and K-12 education.

This overbearing state structure works well during flush times like oil booms and disaster windfalls, but tends to sputter when the going gets rough and state government finds itself saddled with paying increasing inventory tax credits on local ad valorem tax and having a large share of its budget spoken for in the Minimum Foundation Program for local schools. In addition, with few exceptions such as the rainy day trust fund, state government has not done a particularly good job of “saving” money, either spending it or refunding it to the taxpayers.

While refunding money to the taxpayers in the form of repealing Stelly or excess itemized deductions certainly feels warm and fuzzy at the time, you better be damned sure that you don’t need the money because you can’t just ask for it back. An editorial in USA Today, http://usat.ly/196sZvm, highlighted the fiscal problems of two states which cut taxes, namely, Louisiana and Kansas.

Louisiana budget problems are also exacerbated by its constitution, which restricts the legislature’s ability to spread the cuts. Many departments were proactive in protecting their budgets in the constitution, and those two areas of which were left out when the music stopped (in a high stakes game of musical chairs) were higher education and health care. Not surprisingly, these two areas bear a disproportionate amount of fiscal pain. In addition, the constitutional provisions also make it very difficult to reform institutions such as higher education such as many of the changes require a two thirds vote and it’s sometimes difficult to get two thirds of the legislature to agree on what day it is.

SO WHAT DOES LOUISIANA DO? I don’t think we have any other choice but to bite the bullet and look for revenue options, as a $1.6 billion cut focused on two areas of the state budget, which have already been significantly cut over the past five years is going to be devastating. And this time, It’s REAL!

I’m a conservative Republican, but I don’t think that it’s necessarily COMMUNIST TO MAKE BUSINESSES PAY FOR THE PRIVILEGE OF DOING BUSINESS IN YOUR STATE, particularly one with abundant natural resources such as Louisiana. Average citizens pay for the privilege of using resources of the state so business should also.

Ideally, the tax system should ideally be broad-based and equitable, being based upon someone’s ability to pay and/or their use of government services. However, existing tax incentives deserve a different level of scrutiny since they constitute special treatment and are generally targeted to certain industries, that are favored for some policy reason or because the state expects some type of economic return, such as job creation, infrastructure improvements or some other economic gain. Since average people don’t get these kinds of incentives, they should be granted with care and the state needs to get something worthwhile in return. Otherwise, why do it?

Despite the position of the Americans for Tax Reform, I think Republicans can modify tax incentives to obtain a fair return to the state without going to hell.

BUT IN EXCHANGE FOR BEING BAILED OUT, CERTAIN LOUISIANA INSTITUTIONS NEED TO ACCEPT STRUCTURAL REFORM. If the legislature is going to go to the business community and ask them to help reform business tax incentives, it is fair to request that recipient institutions, such as higher education, accept structural reforms.

LOUISIANA HAS TOO MANY FOUR-YEAR COLLEGES, FIVE TIMES AS MANY PER CAPITA AS THE STATE OF FLORIDA.

During the time that the education industry is going through perhaps its most starkest makeover in a century with the advent of digital learning, Louisiana is decidedly old-school with too many colleges, too many deans, too much redundant administration, and too many Boards.

I have nothing against colleges. I know that they are an important part of the communities that they serve. But no one doubts that the current higher education system is not only inefficient but not sustainable fiscally. The choices for higher education are to accept some reform or remain committed to a slow painful death.

THE LEGISLATURE HAS STUDIED HIGHER EDUCATION REFORM, BUDGET REFORM AND TAX CREDIT REFORM and it’s time to act. Prof. Jim Richardson is presenting his thoughts to the joint revenue/tax committees tomorrow and his thoughts will be quite interesting. Stay tuned.

At the Republican retreat last week, I made a comment about the voodoo junk science tax accounting used by the Americans for Tax Reform to Tim Barfield, who was presenting and heads the Louisiana Department of Revenue. Mr. Barfield responded that my comments were spoken like a true term limited legislator, which I am. Although I may be term limited, I’m certainly going out with a bang.

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Americans for Tax Reform Provides Solutions to Louisiana’s Fiscal Crisis

(Provided that the Legislature is Smart Enough to Understand and Embrace Them)

In my last blog post (http://bit.ly/1DLCzAg), I discussed the problems that the Scarlet T (TAXES!) posed for Republicans seeking to avoid catastrophic cuts of $1.6 billion to an already battered Louisiana fisc. I reported that under the strict guidelines provided by the Americans for Tax Reform, any tinkering with Louisiana’s generous tax incentives could result in being damned with the dreaded Scarlet T if the changes resulted in any increase in net revenue.

Turns out that my assessment of the organization’s position on taxes may have been premature, as Patrick Gleason, the Director of State Affairs for the Americans for Tax Reform, has proclaimed that changing tax credits from refundable to non-refundable is actually a “spending cut.” (http://onforb.es/1B8CvZc) Mr. Gleason’s recent comments in Forbes were in reaction to Governor Jindal’s budget presented last week proposing the reduction of tax credit outlays of $526 million by converting some refundable tax credits to non-refundable. In other words, the respective companies would only be able to apply the credits to their existing income tax liabilities and not obtain any additional refund payment for the year. The refundable credits affected included the Inventory Tax Credit, Wind and Solar Credit and about a dozen others. Needless to say, the additional funds will take some of the sting, about 30%, from what would’ve been absolutely devastating cuts, but which are still very serious.

The good news, particularly for those concerned about the Scarlet T, is that the refundable to non-refundable plan has been blessed by the Americans for Tax Reform. As mentioned above, Mr. Gleason has stated that “changing a tax credit from refundable to non-refundable is a spending cut, not a tax increase.”

Not that I wish to quibble with the group’s apparent flexibility on non- refundable tax credits, but I’m trying to follow the logic behind the apparent departure from the net revenue test listed in the ATR website. To me it seems that this so-called “spending cut” is not exactly a reduction in state spending, but rather a decrease in the refunds provided by the state, which technically is a net increase in revenue.

Not so, replies Mr. Gleason in his Forbes piece, stating that his position is a “fact” recognized by the federal government, citing the federal Joint Committee on Taxation. Is the federal government actually empowered to decide what a fact is? Mr. Gleason also cites the Washington Examiner in explaining how the refundable portion of a nonrefundable tax credit is actually spending.

“Refundable tax credits allow you to get back your taxes, and then more.

For instance, say your state gives you a tax credit worth the entire cost of sending your kids to ballet class. Say ballet class cost is $1,000. Say your state tax liability was only $800. If the ballet-credit were “refundable,” you’d end up owing zero dollars in state taxes, and then you’d get a $200 check.

So, a refundable tax credit is basically a direct government subsidy.(emphasis added)”

Using this analysis, then it seems like the great bulk of Louisiana tax credits are actually direct government subsidies since the beneficiaries receive considerably more benefits over and above their payment in taxes. Consequently, Louisiana legislators have new options to “reduce spending” by cutting direct government subsidies, without having to worry about the Scarlet T.

Not surprisingly, Louisiana business groups are not quite on board with classifying these changes as spending reductions, since they serve to increase the taxes on their member companies. My response to these groups is that it is a “fact” that these credit changes are spending reductions and not tax increases.

Another revenue option suggested in the Governor’s budget, which was also blessed by the Americans for Tax Reform, is an additional fee directed to higher education institutions that would be offset by a tax credit which would in turn by offset with revenues generated from raising the cigarette tax to the southern average of $100 million. Got that. For example, students would be assessed an extra $2000, that could be offset with a credit, which would be funded by a $100 million cigarette tax increase. But wouldn’t it be a bit simpler to increase the tobacco tax and simply allocate the funds higher education? Not exactly, according to the Americans for Tax Reform, reverting back to the net revenue model and claiming that the increase in taxes has to be offset by a tax credit so that they would be no net revenue. Interesting. However, this analysis does offer the legislature the flexibility to raise as much taxes as it wants provides it enacts an offsetting tax credit.

If none of this makes whole lot of sense to you, I’m in agreement. If Louisiana has to depend on national groups to bail us out of our problems, then God help us. The good news is that I have been in discussion with many of my colleagues in the legislature and we are ready to roll up our sleeves and tackle our fiscal problems, despite the Scarlet T. We might not be as smart as the national group, but we will certainly do our best. Stay tuned!

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Does the Scarlet “T” Deter Republicans From Wise Policy Choices?

During the Puritan era, women convicted of adultery were forced to wear the Scarlet “A” on their dresses at all times to publicly shame them for their crime. Today, Republicans who support any form of revenue increase are branded with the Scarlet “T” by their opponents and fervent ant-tax groups for their unpardonable sin of supporting TAXES. Being stuck with the Scarlet T can be fatal to a Republican, particularly during a primary election when GOP candidates are trying to position themselves as furthest to the right with the party faithful.

As a Republican state legislator from Louisiana, I’ve certainly avoided the Scarlet T like the plague, even on measures that I didn’t have a particular problem with, such as extending four cents of the tobacco tax. In fact, the closest I ever came to the Scarlet T was to support a driver’s license fee increase for highway litter abatement, with such a user fee being distinguished from a tax because it funds a specific service. Even then I was attacked by a few as a heretic Republican, despite that fact that the fee increase was only $1 and payable once every four years.

Perhaps the most prominent anti-tax group is the Washington D.C. based Americans for Tax Reform, which challenges federal and state office holders to sign a pledge to “oppose any and all efforts to increase taxes.” Tax increases are interpreted very broadly to include any net revenue increase. The group has its own distinctive Scarlet T for politicians who violate their tax vows, namely public humiliation in its “Hall of Shame.”

I don’t like taxes and ran on an anti-tax, starve the beast platform. But after five years of constant cutting, including slashing 80% from higher education and limiting health care access for the most vulnerable, I’m simply tired of all the continuing carnage.

Unfortunately, state revenues continue to languish. Perhaps recent tax incentives granted to certain industries were generous and created unintended loopholes. I supported them all in the name of economic development, but now question the wisdom of giving away so much money with so little accountability. Surely, closing loopholes and adjusting tax breaks to require an appropriate economic return to the state would not be classified as raising taxes. But since these items raise revenue, they rate a Scarlet T under the strict Americans for Tax Reform criteria since they technically result in feeding the beast.

But does the Scarlet T always result in good policy choices?

In Louisiana, Republicans should be able to rein in generous tax incentives without having to worry about the Scarlet T. On a federal level, Republicans should be able to attack America’s huge deficit with a package that includes modest revenue items in addition to large spending cuts. Why are Republican leaders unwilling to embrace a package that consists of 90% spending cuts and 10% revenue increases for the important goal of deficit reduction? The Scarlet T!

The Americans for Tax Reform website states that the group was founded by Grover Norquist in 1985 at the request of President Reagan. But didn’t President Reagan back several revenue increases during his term in office including the Tax Equity and Fiscal Responsibility Act to close loopholes from the Economic Recovery Tax Act? Certainly, President Reagan is not listed in the ATR Hall of Shame. The point is that there are appropriate times and appropriate ways to increase revenue.

Grover Norquist and Americans for Tax Reform have done an excellent job calling attention to and helping to limit tax increases. I heartily commend their important efforts in exposing tax increases masquerading as tax reform. But the group should recognize that there are also unwise and unfair corporate windfalls disguised as tax incentives and that reforming these is not necessarily raising taxes and deserving of the Scarlet T.

This week, the Jindal administration is scheduled to release its Executive Budget that will likely contain devastating cuts to higher education and health care, the two main areas of the budget that are not constitutionally protected. Hopefully, we can find responsible ways to mitigate further damage to our important institutions without being deterred by the Scarlet T.

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Lives Should Trump Politics

Since I announced that I was filing a bill this coming legislative session to ban cell phone use on the Lake Pontchartrain Causeway (hands-free allowed), my conservative credentials have been challenged by more than a few irate citizens who have called to denounce my support of the government interference in private lives.

I am no fan of big government and still consider myself conservative, but there is a place that government regulation does actually belong, and that is in protecting lives and public safety.

Overboards, or cars tumbling into the water of the 24 mile bridge has increased 1500% in the last five years, a staggering figure that most would agree is quite statistically significant. The primary causes for the increase cited by officials of the Lake Pontchartrain Causeway were distracted drivers using cell phones and larger vehicles.

The problem of distracted drivers came as no surprise to me. I think we all have personal anecdotal evidence of witnessing erratic driving, be it in a parking lot or on the highway, in which the driver was, of course, talking on a cell phone.

Actually, I believe that cell phone use should be banned statewide (hands-free allowed), but in my years in the legislature I probably voted for such a bill nearly a dozen times in the House of Representatives and it always seems to get beaten back by the telecommunication industry and misguided libertarians. This is hard to believe as studies have shown that distracted drivers are more dangerous than drunk drivers.

I believe that the vast majority of citizens realize that cell phone use is making our roadways more hazardous and support a cell phone ban. But they are the silent majority who are often drowned out by special interests and vocal citizens who believe that distracted driving is a fundamental constitutional right.

Hands free systems are becoming more user friendly and now included in most vehicles. The systems take some time to set up, but many prefer not to bother with the small set up hassle and continue to drive distracted. Drivers need to realize that their primary duty behind the wheel is not to multi-task, but to operate the vehicle safely, for the benefit of themselves, their passengers and fellow motorists and don’t forget pedestrians.

Several years ago, I supported mandatory helmet use for motorcycles, which passed the legislature and heard many of the same arguments about government interfering in private lives. As with cell phone use, both the statistics and logic converged to conclude that wearing helmets is much safer.

With cell phone use, there is even a more compelling case for regulation, because distracted drivers are endangering other lives and not just their own.

When it comes to public safety, I think that lives should always trump politics and hopefully this summer, Louisiana legislature can make travel on the world’s longest bridge a bit safer.

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Time for Truth: Is America Still a Democracy?

“Never be afraid to speak your mind, you have one for a reason.” – Anonymous

It’s Time to Finally Tell It Like It Is

As a term limited Louisiana lawmaker serving his last year in office, I have decided that it just might be safe to “tell it like it is” and not varnish the truth with political correctness. Although I’ve always tried to be frank with my political communications, I’ve also been very cautious because a politician’s greatest fear is the seemingly innocuous statement that later bites them on the posterior.

Let me start by saying that I’ve enjoyed my service in the legislature and was honored by the citizens of District 89 for allowing me to serve them for these years. I’m certainly going to miss serving them at the State Capitol as well as interacting with my fellow legislators.

“Democracy is the worst form of government, except for all the others.” – Winston Churchill

I’ve given a bit of thought about what is wrong with American politics. As we know, polls show a general distrust in elected leaders, increasing disillusionment of the American public in government and a continuing decline in electoral participation.

My observation is that the people who serve in government are not quite as “bad” as people think they are, but that government, including the people serving, is not nearly as “good” as it could be.

Let’s talk about the current state of America’s political system.

TODAY – Special interests have never been more powerful and actual voters more irrelevant. This is particularly the case on a federal level, and also in many states and localities.

A recent Supreme Court decision has effectively gutted campaign finance restrictions on a federal level and have allowed deep-pocketed super PACs to plunder elections, or more politely, disproportionately affect the outcome of elections. The amount of money that super PACs can serve up on a moment’s notice dwarfs anything that the average candidate can contribute themselves or raise on their own from friends, family and business associates. Consequently, candidates and later officeholders pay careful attention to these special interests and super PACS.

As I said earlier, the politicians themselves are not necessarily “bad” people, particularly when they start out. But politics can be quite addicting, with all the attention given to elected officials as well as their proximity to power. Consequently, the primary aim of most politicians is to get elected, climb the ladder and stay elected. Politicians certainly care about the constituents they govern, but generally when push comes to shove, politics will trump policy.

Unfortunately, the voters are actually the pawns of the system, who have to suffer through the endless barrage of slick and not so slick candidate media during elections. Political advertising is primarily designed to brainwash rather than to educate. Just like product marketers trying to find the sweet spot with consumers, political advertising specialists search for the best way to win the voter’s heart and, of course, their vote. Voters are flooded with flattering depictions linking the candidate to positive images and messages, which are often overly simplistic, with the goal of nailing that voter on a subliminal level. The opponent is usually tarred and feathered with negative images and harsh accusations, that are rarely entirely accurate, to persuade voters to dislike, distrust and, of course, vote against the opponent.

As a general rule, the candidate who spends the most money on such brainwashing techniques is coincidentally the one that wins. That is why the special interests and super PACs, which primarily fund the political battles, are so darn powerful.

The real problem is that when small groups have so much influence in running the country, you actually have an oligarchy as opposed to a democracy. In other words, a small group is actually running the country and not the majority of its citizens like it’s supposed to be. The special interests exert a disproportionate influence on the governing process.

Laws are crafted more around certain interests instead of providing the most benefit to the electorate as a whole. Elected leaders tend to avoid an open discussion of the issues or any attempt at consensus building, for fear of offending a special interest or having some candid statement blow up in their face. Given such a highly charged political atmosphere, governing itself is more about posturing then problem-solving, showmanship as opposed to actual solutions and one line slogans as opposed to intelligent and complete political discourse. It’s not the best system, particularly today, to solve pressing problems.

You may be thinking that this guy is coming on pretty strong and and that he sounds like your usual anti-establishment, sky is falling commentator. Can he provide actual examples? Well, I’m going to give you better than an example, an actual real time political system case study that I am part of, which is how Louisiana will tackle its biggest budget crisis in many years. At risk is the state’s higher education and healthcare system. Watch with me as this crisis unfolds and see if I am right or not.

Like I said earlier, I’m going to call it like I see it. I welcome your comments and questions.

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Legislation Planned to Ban Non Hands-free Cell Phone Use on Causeway Bridge

In the last 20 years, overboard fatalities on the Causeway Bridge have risen from one every five years to currently three per year, a roughly 1500% increase. Nearly all of the fatalities have occurred in the southbound lane, which was the initial span of the causeway built in 1957 and which is 5 inches lower than the northbound span, which was built in 1969. The cost of raising the railing as well as installing safety bays, is in excess of $100 million.

In discussions with the causeway general manager, Carlton Dufrechou, the main reasons for the increase in accidents are the larger vehicles and drivers distracted by electronic devices. We obviously can’t prohibit larger vehicles on the causeway, but we can do something about distracted drivers, by prohibiting cell phone use.

This is why I am planning to file a bill in the 2015 Louisiana Legislative Session, which will ban cell phone use which is not part of a hands-free system on the Lake Pontchartrain Causeway. Although texting is currently prohibited, the legislature has been unable to pass a bill banning total cell phone use, which is not hands free, on a statewide basis. Hopefully, the telecommunications industry will not oppose a local bill addressing these unique circumstances.

For an article regarding this potential legislation click here.

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