GNO, Inc.’s Legislative Session Views: First, Do No Harm

NEW ORLEANS – Greater New Orleans, Inc.’s Michael Hecht wrote the following Op-Ed that originally appeared in the New Orleans Advocate on Tuesday, April 14, and was additionally distributed via GNO, Inc.’s e-newsletter:


         First, do no harm.

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         As we enter one of the most fraught legislative sessions in recent memory, this should be our guiding principle.

         By “do no harm,” we mean three things relative to the $1.6B budget deficit, the dominant issue of the session. First, in addressing the public deficit of today, we should not pull the rug out from underneath the private sector growth that is laying the foundation for tomorrow. Second, whatever the budget solution in 2015, it should not complicate or preclude desperately needed structural reforms in 2016 – we shouldn’t tie the hands of the next governor and legislature. Finally, we should do no further harm to higher education, which is fundamental to economic development.

         The reason for the structural deficit is that we have lost nearly $5B of revenue over the past five years, while overall spending has been flat. There are many proximate causes for this loss: wind-down of Hurricane Katrina recovery funding; partial repeal of Stelly; the Great Recession; and, the 2008 drop in oil price.

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         But at the same time, the private sector in Louisiana has experienced an historic renaissance. At the state level, over $60B of projects have been announced, resulting in more than 91,000 jobs. At the regional level, Greater New Orleans is #1 in the South for economic development over the past decade. And the economy is not only growing, it is diversifying into new industries like software development, where we top the nation in growth.

         So first, in addressing the budget deficit we need to be careful about attacking the drivers of this economic growth. While all incentives should be evaluated, this should be done in a way that preserves Louisiana’s improved business climate, and will not create job-killing uncertainty in the business community. We should recognize that smart incentives, like Digital Media, are creating new, innovative industries, with high-paying jobs across Louisiana.

         We also must recognize that our budgetary Gordian Knot cannot be responsibly cut with a single swing of the fiscal axe. Doing away with the Inventory Tax Rebate will create an unorthodox and uncompetitive new tax. And simply removing the Inventory Tax, wholesale, would cripple basic services in many parishes, and ironically lead to even higher taxes on businesses and individuals as millages are rolled up, per legal requirement.

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         Further, we have to remember that rebuilding an economy after decades of low growth does not happen overnight: when a job announcement is made, those jobs will be created over ten years or more, not immediately. But they will come: Louisiana recently topped the 2 million job mark for the first time in history.

         Then, there is the second way we must do no harm: when plugging the budget hole for 2015, we shouldn’t create even bigger problems for 2016 and beyond. The next governor and legislature will have the great responsibility – and opportunity – for major fiscal reform. At the highest level, they will have to address the fact that our current budget, ossified by years of dedications, only allows 10% of funding to be easily accessed – mostly healthcare and higher education.

         This, of course, brings us to the final issue. Higher education develops human capital, which is the key input for growing financial capital. The choice that has been set up between higher education and economic development is false – the two are deeply codependent. While the real answer lies in long-term fixes including financial autonomy and TOPS reform, in 2015 we should avoid further devastating cuts to our schools.

         A multitude of other needed fiscal reforms exist: simplifying taxes; modernizing our pensions; even addressing our expensive and ineffective penal system. It is a long list, and attacking these problems will be politically and practically difficult. So we shouldn’t do anything this session to make needed reforms harder. For example, we shouldn’t bond out the tobacco tax, creating new debt for tomorrow in order to plug the budget deficit today.

         The truth is, there are few easy options for filling the 2015 budget hole. But ideas like looking at our $1.2 billion of statutory exemptions make sense. A dollar on tobacco products could raise $300M (and our cigarettes are currently the second cheapest in the US). Considering a few pennies on gasoline, which could help with the budget for 2015, and then be dedicated to rebuilding our roads, is reasonable. And we need to start collecting outstanding internet sales tax (not a new tax), which could get us up to $100M today, and lead to over $500M once federal law changes.

          “First, do no harm” is a concept that comes from medical care. As we seek to cure Louisiana of its financial ills, let’s keep this maxim in mind by preserving private sector growth, and ensuring we don’t complicate the prospects for future reform.




Michael Hecht
President & CEO
Greater New Orleans, Inc.


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