Gov. Edwards and Louisiana’s GOP deficit deal looming
5th February 2018 · 0 Comments
By Christopher Tidmore
Contributing Writer
A seeming agreement seems to be coming together in the legislature to fix the $1.1 billion “fiscal cliff,” strangely enough due to Trump tax cuts and a controversial plan to charge a co-pay for Medicaid services.
The coming expiration of the temporary one penny in state sales taxes on June 30 has opened a giant potential hole in the budget, leading Gov. John Bel Edwards to propose a cutting $660 million from health programs (triggering much deeper shortfalls due to lost federal matching funds), slashing $233 million of the current $291 million allotment for TOPS, hatching 50 percent from the Go Grants (which provide need-based aid to college students), slicing five percent across-the-board from the Department of Culture, Recreation and Tourism, as well as instituting significant reductions to public colleges, hospitals, community health centers and the closure of five regional offices and removal of 114 field office positions that handle community-based supervision in the Office of Juvenile Justice — with potential devastating impacts on recidivism rates.
Gov. Edwards described his own budget as “honest” but “ugly,” only hoping that the legislature finds enough extra money to make sure it is “dead on arrival.” Since 2018 is a constitutional regular session year (where tax increases cannot considered), any tax changes would have to occur in a special session just after Mardi Gras, in order for the legislature to meet their constitutionally-required balanced budget without massive cuts.
It appears that almost $200 million of the projected hole might be filled thanks to an unexpected side effect of the Trump Tax Cuts. Louisiana is just one of six states which allow federal deductions to be utilized on state tax returns. Ironically, thanks to Congress’ decision to limit state-and-local deductions as part of the package last December, as well as other tax changes used to help lower overall federal rates, Louisiana’s state income taxes receipts could surge. The effect proved similar the legislature limiting deductions on state taxes, but without the politically toxic fight that might have occurred from members still reeling from the repeal of the unpopular Stelly Plan.
Call it Stelly-like, limiting income tax deductions (as John Bel Edwards himself once proposed) without having to engage in a legislative fight—thanks to the GOP Congress and Donald Trump. Still, this fiscal serendipity only plugs a fifth of the hole. To produce another $172 million, Rep. Jack McFarland (R-Jonesboro) and other legislators have proposed a Medicaid co-pay. Already implemented in seventeen states, the measure would require that an insured individual pay for a part of medical costs, typically about $8 dollars per visit.
Federal law does prevent hospitals and physicians from refusing service if the patient refuses to pay, meaning the final sum could be lower. Moreover, significant opposition comes from members of the Legislative Black Caucus, who worry that even the possibility of a co-pay could hinder low-income recipients from receiving necessary medical attention.
They have a point, since part of the savings in the model results from an expectation of fewer doctor visits to reimburse, despite the modest amount of the co-pay. Revenue Estimators also expected that the Governor’s endorsement of a work-requirement for Medicaid recipients would provide fiscal some savings as well, through, Edwards’ plan exempts pregnant women, mothers with young children, people with disabilities, the elderly, and students. Ten other states have petitioned the Trump Administration for wavers to institute work requirements for Medicaid (with exemptions), with Virginia poised to join them this spring, and the President has indicated his Administration’s likely consent to their requests.
Matched with a series of proposed departmental fee hikes and service charges, roughly half of the fiscal cliff would be filled under these proposals. Increased tax revenue would still be needed. The fact remains that the temporary one penny in sales taxes (along with the removal of the other sales tax exemptions just under two years ago) continues to draw loud opposition on both the Right and the Left. Tea Party Republicans have joined with Black Caucus members in an unusual coalition to decry the tax hike’s impact on the poor.
However, a sales tax seems to be the only revenue raising measure capable of garnering the constitutionally mandated two thirds majority in the State House. Prior to the extra revenues outlined above, the Black Caucus pledged their opposition to renewing the full penny, which has propelled the impoverished Pelican State to levying the highest state sales tax rate in the nation.
Cutting that penny in half, or exempting food from it, might go a long way to calming nerves amongst anxious House and Senate progressives. Nevertheless, opposition on the Right remains, though cuts to the TOPS program are an anathema to conservatives.
According to the highest-ranking Tea Partyer in State Government, Treasurer John M. Schroder, “To this date, the majority of the budget conversation has focused on raising revenue. At a time when our economy struggles, and businesses and families are dealing with shortfalls, how can we consider raising taxes and expanding government? The rate of growth by government should never outpace the private sector. This is how you fix the budget problem. Grow the economy. More jobs equals more taxes paid.”
Nevertheless, Schroder, a former state legislator, and his allies in the House have proposed few concrete measures to plug the budget without taxes. Treasurer’s call for greater budgetary “transparency” saves few dollars this year. Other than Schroder’s endorsement of Medicaid co-pays, the only substantive proposal he has put forward is to “collect unrecovered state debt, which the Office of Statewide Accounting Reporting and Policy estimates at roughly $1.1 billion.”
Such a plan, though, would take also years to realize any revenues, if the majority of the money owed could be recovered at all. His other reform, a “pro-growth tax code that is simple, efficient and nationally competitive,” better known as income tax cuts, would likely explode an even larger hole in the budget — in the short term, at least.
This article originally published in the February 5, 2018 print edition of The Louisiana Weekly newspaper.
