Local legislator says there will be hard choices in the upcoming session

2nd February 2015   ·   0 Comments

By Christopher Tidmore
Contributing Writer

Will they hike cigarette taxes or close SUNO?

The Pelican State’s fiscal situation is so bad that the House Speaker Pro Tem Walt Leger III believes there may be a chance to pass a cigarette tax in order to blunt cuts to health care and higher ed. But he acknowledges that any attempt by the legislature to raise revenue faces a gubernatorial veto.

Yet the moderate Democrat from Uptown New Orleans also reasons that Bobby Jindal may be open to another revenue raiser—modifying the sales tax exemption on horizontal drilling, also known as “fracking.” It’s this latter proposal that may have the best chance of becoming law. The reason, the state is not collecting severance taxes on the other end.

“When you’re looking at the deficit that were looking at, you’ve really got to look at exemptions because exemptions are the way to quickly generate the revenue that you need. Certainly some are looking at the horizontal drilling exception.”

Louisiana gives a sales tax exemption for the upfront costs of fracking, reasoning that the state will make money back from oil severance taxes on the backend. Leger explained however, “Sometimes these wells are tapped out before we can collect any severance taxes.” Removing or lessening the sales tax exemptions for hydraulic fracking could help close the deep deficit the state faces this year.

But it’s only a start, the House Speaker Pro Tem warned. “I’ll tell you something that could be and should be looked at this year, a cigarette tax.”

“My feeling on this is very clear,” Leger continued, “We have one of the lowest tobacco and cigarette taxes in America here in Louisiana. We also have the highest incidence of lung cancer and other cancers here in Louisiana, so we ought to tax this product just a little bit more, generate whatever money that we can. If the desire is to stay below Mississippi and Texas. We ought to do that, but we can still generate somewhere around $100 million and remain below those two states. And have the cheapest cigarettes in the south because that’s somehow important to some people, and we can use that money for health care.”

The proposal does have majority support in both parties, but the Republicans who are sympathetic to a higher cigarette tax –most notably Gov. Piyush Jindal—say that any proposal must remain revenue neutral. Cutting one tax when you raise another, in other words.

“Again we go back to the revenue neutral piece,” Leger lamented. One proposal that has garnered interest is to do away with the income tax for those over the age of 64. Cigarette tax at or near the levels of Texas would generate about $190 million. That is equal to the amount the state collects on income tax at 64 and above. Supporters of the concept believe that such a flip could make Louisiana a retirement haven on the scale of Florida.

Moreover, Gov. Jindal might entertain the proposal because he himself proposed something similar in last year’s failed income tax phaseout plan. The question remains though, would the legislature enacted such a tax flip instead of simply raising revenue through a cigarette tax?

“I don’t know,” Leger answered.

“I think I certainly could support that. I think that’s a reasonable swap. [Still,] I think that it’s irresponsible to continue to fight about revenue neutrality unless we’re going to look at revenue neutrality over the course of the entire seven or eight-year term. And so that’s where I think we ought to really be looking. We ought to talk about revenue neutrality in a broader sense. We ought to look at the fact that we’ve grown the tax exempt budget by over $1 billion a year over the last seven years. And that’s part of the reason why we have a hole, so while I respect that the argument about tax neutrality, I also recognize that the governor has a veto pen, and so as a result of that, he drives policy in many, many ways. So I would be open to the concept of flipping those. I think it’s a product that costs state a lot of money in health-care costs and puts a lot of people’s lives at risk. And I think that using that those dollars to supplement the healthcare budget is a more responsible connection for the tax. But certainly relieving the burden on on those over 64 is a reasonable swap if there’s going to be one.”

There’s no denial of how terrible the budgetary situation is. In practical terms the state faces cutting one dollar out of every four it spends on higher education, healthcare, and museums. That means, he admits, some are calling for historically black colleges like SUNO To close—a move Leger opposes.

Outlining how bad the fiscal situation has become, the Speaker Pro Tem explained, “The deficit is getting higher and higher every day. The Revenue Estimating Conference — which is made up of the Speaker of the House, the President of the Senate John Alario, the state economist Jim Richardson, and the Commissioner of Admini­stration Kristy Nichols — recognized additional deficits on Monday, January 26 at the legislature. They dropped down the the estimated cost a barrel of oil from $81.30 set in November to now $69.30 going forward. they also recognized that there’s an additional $200 million or so shortfall projected for next year’s budget cycle, FY16, which we will be working on in this session. And [they] also recognized an additional $103 million shortfall for the current FY15, which will necessitate another $103 million in midyear budget cuts—which we will be addressing in the joint legislative committee on the budget meeting on February 6. So it’s bad.”

The cuts that could ultimately reach $1.4 billion will fall almost exclusively upon higher education, culture and healthcare—The constitutionally undedicated parts of the budget. “They’re all on the chopping block, that’s for sure.” Leger stated. “Mostly, what we’re looking at is $3.2 billion we invest in healthcare and the $1 billion in state general funds that we invest in higher education. From those two major sources as a general funding which is about $4.2 billion we’re talking about close to $700 million in cuts in the next fiscal year.”

And Leger agreed that figure constituted the best scenario. The sum could more than double, eliminating one out of every four dollars spent in these areas. Enough, that not only might cause major museums close, but at least one major university might also face closure. Leger acknowledged that SUNO is in danger. “There are certainly are people that are saying that. The higher education community has great concerns, and legislators across the state believe that that is unacceptable and that something else must be done.”

“The something else that must be done is we need to take a serious look at what this concept of ‘revenue neutrality’ really means.”

This article originally published in the February 2, 2015 print edition of The Louisiana Weekly newspaper.