The close of La. Special Session ruled by deception, and confusion, says local Senator

14th March 2016   ·   0 Comments

By Christopher Tidmore
Contributing Writer

According to Democratic State Senator J.P. Morrell, a lot of rural Republicans were duped into voting for the final tax deal closing the 2016 special session.

The State House of Representatives sent over their bill to plug the majority of the billion-dollar deficit with just 15 minutes left in the special session, after the Senate had waited hours for the conference committee report. Besides the cigarette and alcohol taxes that had already passed earlier, the final tax bill raised one penny in sales tax on nearly all purchases and also removed every sales tax exemption on the other existing four pennies—save those on food, utilities and prescription drugs.

That, Morrell argued, was the rub. The House Republican Leadership had convinced their rural GOP backbenchers that agricultural equipment was also exempt from the “cleaning” or the removing of exemptions from the existing four cents in sales tax. Otherwise, the implication was that many rural Republicans might have been more inclined to back Democratic plans to increase corporate taxes.

In the end, Republicans from agricultural areas ended up voting to put sales tax upon farm equipment purchases, not knowing they were doing so.

As Morrell explained, “That last 15 minutes was the entire clean additional penny of sales tax, as well as the ‘cleaning’ of several other existing four-cent sales tax exemptions. That was part of the problem. The problem was the [GOP] House leadership.

“As you know, these bills originate in the House, and the House sends them to conference. We spent hours waiting on them to give us conference committee reports to finalize the deal. They sent the deal back with 15 minutes left, and part of the challenge we have the day after, and the days going forward, is that many of the things that Senators voted on, they didn’t realize what they voted on until after we had adjourned—or the days following. And now we are hearing, you have Senators from agricultural areas that did not realize that they had voted to tax agricultural machinery in those bills.”

Due to the short time to vote, he continued, “There were a lot of Byzantine compromises. For example, we cleaned up all four pennies for a three month period, and then after that period, two pennies go back to ‘being dirty,’ and two remain clean of the four pennies we have in the existing sales tax. Then, on the new clean penny—the new penny that just got artificially created—the manufacturing exemptions are removed for a period of a year and three months.”

“That is where a lot of GOP Senators and a lot of Republican House members got kind of bamboozled because they agreed to tax manufacturing equipment, [taxing] machinery if you didn’t tax agricultural equipment—which is one of the staples of the state. That was the agreement they thought they had.”

“Then, they find out after 6 PM [and the session’s end] that House Leadership left the agricultural machinery in, which is a huge, huge problem — because there are a lot of votes on those bills that would not have happened had they known that the agricultural machinery was in. So, you have that 15 minutes in that last minute drop of the bills because you know that you have a lot of important Republican senators and House members from rural areas that feel like they got duped.”

The essence of the problem, Morrell outlined, “wasn’t the disagreement between the GOP House leadership and the Governor. It was a disagreement between the House leadership and themselves.”

“The Democrats in the House would not vote for an additional sales tax, and the Republicans in the House would not do income tax reform. So, they were at an impasse and their impasse spilled over into everything because essentially, the Senate said that ‘We’re willing to entertain any idea you have to get out of this budget shortfall.’ But, as you know because of the nature of revenue measures, we get them after the House makes a decision. So basically, we were there saying, ‘We’re willing to way in; we’re willing to negotiate a settlement.’ But the two sides reached an impasse where the Republicans want the Democrats to vote for more sales tax, the Democrats said, ‘We’ve already raised a penny in sales tax, lets raise taxes somewhere else.’ And, that was the impasse.”

The ideological disagreement led to confusion at the end, Morrell contended. “[The Legislative session] always is a tad bit obtuse, but this year was much worse than previous years. Typically, we do not have to vote on — and make final decisions — on $1.5 billion…We historically had budgets that were at the last minute, but when you have tax votes of this magnitude, you basically had the entire Senate and House vote on massive tax votes without reading the fine print.”

Moreover, the time limits established for the 1-cent state sales tax hike and for the removal of most tax breaks on the state’s existing 4-cent sales tax (the process known as “cleaning”) could only be enacted by changing the rules on what is recurring revenue, endangering the state’s bond rating.

Morrell had originally sought a five-year expiration for the one-penny sales tax hike. That is the minimum time that Wall Street rating services like Moody’s will count taxes as recurring towards the bond rating. The Senate amendment was rejected by the House. Now, the New Orleans Senator observed, Wall Street models are “going to be showing us going up a peak and going down a cliff.”

Yet, the resulting higher interest rates on borrowing aside, House GOP members, to appease their anti-tax base, chose to make the threshold of expiration for most of the sales taxes 27 months. Louisiana Law requires that a revenue source be in place for three years to qualify as recurring revenue. In order to keep these in place for 27 rather than 36 months, the House decided to change the rules.

The problem is that the Senate has yet to agree to undermine what was previously considered one of the state’s best reforms to prevent the use of one-time revenues, and the resulting deficits they create. “[U]nder the House’s previous interpretation of reoccurring revenue, this still isn’t reoccurring revenue. They still have to agree with the Senate. It would go back and revise their interpretation of reoccurring revenue. As I pointed out to them, their own rules say that reoccurring revenue is three years. They didn’t want to do three years so now they’re redefining reoccurring revenue as two years.”

In the end, roughly a $30 million deficit remained.

Morrell noted that translates into another $30 million in additional cuts to higher education and health care. Put another way, by the end of this year, the state budget will have reduced those much beleaguered areas between $60 and $70 million.

It could be worse next year, with a $600 and $800 million deficit. The Taylor Opportunity Program for Students [TOPS] could be in danger. “I think that [TOPS] is still up in the air,” he warned.

“[T]he reality is we’re looking to a six to eight hundred million deficit, and part of when you’re start looking at the budget is what is non-essential, when you prioritize like, do you know, do we take people off of respirators and the variety of Sophie’s choices, that the state has to make, TOPS falls into those categories.”

House Democrats have ruled out supporting another penny in sales taxes. Some Republicans have suggested such a hike would plug the $600 to $800 million deficit almost completely. It’s not just the impact on the poor, Morrell argued, as to why his side rejected the idea. “They challenge that you’re going to have going forward is with one penny of sales tax, Louisiana has the highest sales tax in the country. If you add an additional penny, we are noncompetitive. Tourism in Louisiana will evaporate. There would be no tourism.”

There were other options that would have earned Democratic votes to make the two-thirds constitutional threshold to raise taxes. “There were plenty of proposals on the floor that were not sales taxes. The problem is, businesses did not want to consider them.”

Those bills died in the House, the State Senator said. “They never got to the Senate.”

This article originally published in the March 14, 2016 print edition of The Louisiana Weekly newspaper.