The half-penny reason not to spend the La. surplus

By Christopher Tidmore
Contributing Writer

This coming fiscal year, the Treasury of Louisiana will experience an embarrassment of riches, but it’s only temporary. Rather than save the money for a fiscal cliff just three short years away, Gov. John Bel Edwards and the members of the legislature have both resolved to spend the windfall. They just cannot agree upon how.

Thanks to higher gas prices and an unexpectedly greater rate of economic activity during the COVID-19 lockdown, the state is forecast to have a boost of $2.1 billion in “one-time money”– funding that will not be replenished – over the next 18 months. More directly, the legislature will also have $1.7 billion more in recurring revenue to spend than initially expected, yet even that money may be short-lived.

Edwards and the vast majority of legislators each wish to prioritize bridge and road construction, particularly in Baton Rouge, and pay off state debt, but they cannot agree on the specifics of the plan currently. “Everyone in the room has a different idea on how to spend the money,” Senate President Page Cortez, R-Lafayette, admitted at a budget hearing on January 25.

Little mentioned that day was the fact that, in 2025, the state sales tax of 0.45 percent will expire. Neither members of the Black Caucus nor the GOP majority maintain much desire to extend the regressive tax. As sales tax revenue is primarily used to pay for K-12 schools, higher education and health care services, a future deficit is likely. Without banking the surplus, Louisiana lacks a means to fill the financial hole this automatic tax cut will cause, which could amount to over $700 million in 2025.

Nevertheless, that is a problem for three years away. Times now seem flush. Ben Vincent, chief economist at the Legislative Fiscal Office, told the Revenue Estimating Conference that revenues in 2021 came in eight percent higher than a prior projection of $12.3 billion, resulting in $970 million in excess. For the general fund, revenues were $565 million above the previous projection of $9.9 billion, or about 5.5 percent above. “The largest contributors are sales, personal income, and corporate tax,” Vincent said at Tuesday’s meeting. “Roughly $300 million in personal income, $258 (million) in general sales (tax) alone. Combined corporate income and franchise – $255 million. And motor vehicle sales tax adding on another $36 million.

That windfall has led the governor to push for a $500 million down payment for a new $2 billion Mississippi River Bridge in Baton Rouge, to alleviate the extreme traffic problems on the I-10 stretch through the city, when the new budget will go into effect July 1, the start of Louisiana’s budget year. His critics worry that work on the bridge might not start for years, and the money could be raided by a future legislature in the interim. Further, the governor has proposed $109 million for “deferred maintenance” of state buildings. Most of the funds would be directed to construction projects on Louisiana’s college campuses, though the money could be used for other state buildings as well. Edwards has suggested spending $60 million on outstanding legal judgments against the state; however, President Cortez has objected in the past, arguing that the Legislature should not set a precedent of paying large judgments against the state.

Gov. Edwards and legislative leaders agree on the need to preemptively pay off state debt, in part to lower spending ahead of the approaching financial cliff. A large sum of the state surplus, $400 million, has already been earmarked toward paying down a debt to the federal government for levee upgrades in the New Orleans region after Hurricane Katrina. In that vein, Edwards has suggested that $450 million of other hurricane-related debt owed to the Federal Emergency Management Agency be settled. According to Commissioner of Administration Jay Dardenne, some of those debts have been outstanding since 2005. Cortez, on the other hand, prioritizes other debts owed by the Treasury. He has worried that past FEMA debt could be later forgiven or reduced by Congress.

As for recurring spending, Edwards seeks to boost Louisiana teacher pay in K-12 schools by a minimum of $1,500, as well as increasing staff pay by $750 annually. The cost to the state would amount to an extra $148 million annually for years to come, and more than a few legislators wonder where the monies will come from after the .45 sales tax expires. The same is true in a proposed $31 million to boost the wages of health care and emergency workers from $13 to $18.50 per hour.

Other legislative priorities including Hurricane Ida recovery in the coastal parishes and the myriad of local infrastructure projects championed by legislators likely will not come to light until the final budget is published several months from now.

This article originally published in the January 31, 2022 print edition of The Louisiana Weekly newspaper.