Budget windfall? If so, who benefits: teacher pay or retirement security
1st October 2018 · 0 Comments
By Christopher Tidmore
Contributing Writer
The La. State Treasury will likely see an unexpected $300 million surplus this fiscal year. Amidst recriminations that the recently passed, seven-year temporary sales tax of .45 percent did not need to be enacted, already another debate has broken out. How should Louisiana spend this newest windfall?
To save retirement funds? The Pelican State’s public pension system faces massive deficits in the next two decades. Some fiscal experts have even uttered the threat “bankruptcy” to underscore the need. A plan passed by the legislature before the turn of the century to contribute hundreds of millions of dollars per year to fully fund the retirement system never has been fully implemented, allowing the unfunded debts to grow worse as each year passes.
Or Educators? La. Public School Teacher pay, which was raised to the Southern Average during the Blanco Administration, has lost ground thanks to inflation and competition from other states. To meet the need, John Bel Edwards has promised educators a substantial pay raise.
The Governor’s credibility, though, has taken a hit with the very legislators who would have to find the money to fulfill his promise. Edwards’ critics have gleefully noted that the likelihood of a ‘Fiscal Cliff’— which triggered the sales tax renewal fight in the most recent Special Session — may have spawned a tax hike which was unnecessary at best, and deceptive at worst.
One of Edwards’ loudest opponents, House Appropriations Committee Chair Cameron Henry, (R-Old Jefferson) told Watchdog.org that if it the surplus “is sales tax-driven,” then Democratic Gov. Edwards’ administration most likely “had a pretty good idea” about it and withheld those projections while lobbying for a half-cent extension of an expiring one cent sales tax to bridge what was billed as a $648 million fiscal 2019 revenue shortfall. (The .45 extension of the 1 cent retiring sales tax should generate a projected $463 million in supplemental revenues each year for the next seven years.)
However, Henry said if the surplus was generated by unanticipated increases in corporate and income taxes, “we have to take a different tone” as that would be good news for the state’s economic outlook.
Changes in the federal tax code, specifically the $10,000 limit on the deductibility state and local taxes on one’s IRS federal return, may have had a more generous impact on the state budget than anyone anticipated. Since Louisiana law allows its citizens to take their federal deductions on their state income taxes (one of only a handful of states which does), the Trump Tax bill limitations on state deductions almost uniquely helped fill the Louisiana Treasury.
At the last Special Session, it was expected that this federal tax law change could generate an additional $300 million per year for the State Budget. If the figures were unexpectedly higher than anyone could envision, then the Edwards Administration received the political serendipity of an unexpected windfall.
On the other hand, if the size of the deficit were miscalculated, forcing two-third of the La. House and Senate to vote for regressive tax increase 18 months before an election, the Governor may find any fiscal requests that he makes the next year looked on skeptically — and that may stop his expected teacher pay hike.
Currently, Louisiana law dictates that at least 10 percent of the surplus money must be dedicated to pay down state employee retirement debt and 25 percent of it must go to replenish the “rainy day fund”—a emergency account tapped during times of deficit. (In 2017, for example, lawmakers extracted $99 million for the fund to help plug a $300 million mid-year revenue shortfall which still remains not repaid.)
Nevertheless, those two expenses claim at least $105 million of the surplus, leaving just under $200 million. A teacher pay increase, to close the gap with the ‘southern average’, would cost somewhere just north of $170 million per annum.
Chairman Henry has called for the surplus be used for paying down state employee pension debts, citing the looming fiscal crisis in the State Retirement Trust Funds. The Governor has already called $2 million to go to infrastructure improvements at Southern University’s Engineering Department (a state match for an Entergy Corp. grant). Thereafter, should the surplus revenue be classified as recurring after this fiscal year, it could be enough for a substantial pay raise in future years.
Henry has said that solvency for the retirement funds remains a higher priority than university projects or road improvements. “Personally, I would like to see us paying down as much debt as possible,” he told the website Hayride.
Any teacher pay raise must come through the Appropriations Committee, and Henry has remained noncommittal on the idea. For the Chairman to divert funds away from infrastructure towards retirement debts this year — and potentially from teacher pay raises in the years to come — may be predicted in large part on the nature of the surplus’ origin.
And the high-stakes credibility battle may force retiring state employees to face off against teachers and universities in need of more money.
This article originally published in the October 1, 2018 print edition of The Louisiana Weekly newspaper.
