Analysis: Tax Breaks May Worsen Louisiana Budget Uncertainty

BATON ROUGE (AP) — Gov. John Bel Edwards and Louisiana’s lawmakers spent most of the last four-year term digging out of nearly a decade of financial instability that forced deep cuts across state services, particularly higher education. Now, they appear headed back to that budget uncertainty.

The coronavirus pandemic is wreaking havoc on the global economy, boosting unemployment and damaging tax collections in Louisiana, just like across the nation. An international decline in oil prices has hit the income Louisiana earns from the industry.

If that wasn’t enough unpredictability for state finances, the majority-Republican Legislature added more by passing tax breaks aimed at helping businesses recover from the virus outbreak — with an unclear picture of how much the bills will cost.

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And lawmakers and the Democratic governor plugged most of Louisiana’s budget gaps with hundreds of millions of dollars in short-term federal aid, creating questions about how they’ll balance the budget in later years when those dollars disappear.

In the special session that ended Tuesday, lawmakers extended and expanded business tax credit, exemption and incentive programs.

Sen. Bret Allain, the Franklin Republican who chairs the Senate tax committee, successfully scaled back some of the proposals to lessen their estimated cost. But he still worried. He said for every tax break passed, “that’s something that doesn’t get funded in the budget.”

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Several Democratic and Republican lawmakers who had to balance the budget through the decade of financial uncertainty across the terms of former Gov. Bobby Jindal and Edwards repeatedly cautioned about the tax breaks.

They warned that some business programs lawmakers were expanding had been reduced because they didn’t show a return on investment for the state. They noted tax break bills that zipped through previous legislative terms had ballooned well beyond estimates given when lawmakers passed them, creating sizable drains on the treasury.

“These things aren’t free, and they can come back to haunt you,” said Sen. Jay Morris, a Monroe Republican. “And if they do come back to haunt us, I for one am not going to put this on the backs of the individual average citizens when people start wanting to raise taxes to pay for the services that most all of us want.”

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The new tax breaks were estimated to cost about $25 million in the budget year that just started Wednesday, and at least $230 million over five years. Lawmakers accounted for the estimated lost tax revenue in this year’s budget.

But the full financial impact isn’t entirely clear — and, to win passage, lawmakers delayed the largest costs of some tax breaks until later years.

“We’re just getting on our feet, and what we’re doing right now is like deja vu,” objected Sen. Karen Carter Peterson, a New Orleans Democrat.

The Legislature’s Republican leaders said the measures will help businesses struggling with closures and restrictions amid the coronavirus outbreak. They suggested Louisiana will gain tax revenue from business expansions and economic stimulation, an argument used to pass previous tax breaks that became a drain on state tax collections. They said they will be continuing to review the tax incentive programs’ performance.

“Tax breaks, we believe, are used to (help) business, which will bring our economy back, which provides jobs, which provides revenues for the government to operate,” said Senate President Page Cortez, a Lafayette Republican.

Senate GOP leader Sharon Hewitt, of Slidell, said: “Without a little bit of help, these businesses are going to shut down.”

Beyond the tax breaks, lawmakers balanced the budget — using recommendations from the Edwards administration — with more than $900 million in patchwork financing that won’t be available a year later, according to the nonpartisan Legislative Fiscal Office.

Cortez predicted more federal aid is likely. House Appropriations Chairman Jerome “Zee” Zeringue noted Louisiana’s tax collections are forecast to be $674 million higher next year, offsetting much of the patchwork assistance.

But that forecast assumes a significant economic rebound from the coronavirus — and doesn’t account for the tax breaks, which will require forecast revisions.

Edwards hasn’t said which tax breaks he’ll sign into law.

“You can appreciate the fact that people in the Legislature want to give some help to specific businesses and so forth, but at the same time they have to understand that those are tax expenditures,” he said. “It’s spending by a different method, and we’re required to have a balanced budget.”


By AP reporter Melinda Deslatte

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