Northwestern State University hosted the Committee of 100-Louisiana for a strategy session Tuesday to discuss a framework for solving the state’s abysmal budget shortfalls. The group presented a menu of options to close the current $750 million deficit for 2015 and projected $1.9 billion shortfall for 2016 with ideas that reflect a need for prudent tax reform and probable increases in income, sales and gasoline taxes. The state will have to adopt short- and long-term measures to establish a tax structure that is stable, fair and transparent, but will involve a painful transition era, speakers said.
In opening the forum, attended by local elected officials and business leaders, C100 CEO Michael Olivier said the group is not mandating a single solution, but taking their message around the state to present options and inform the public. C100 worked with The Tax Foundation, a non-partisan research institution, and LSU’s Public Administration Institute to identify areas that could be improved.
“We’ve got a mess and we need to fix it,” Olivier said. “As a statewide organization, we are focused on these issues. Louisiana does not rank high in tax policy. We need a revenue stream that has more stability. We’re creating too much uncertainty. Businesses hate uncertainty.”
The Committee of 100 Louisiana is a private non-profit whose members include the state’s top chief executive officers of leading private and public companies and presidents of Louisiana’s institutions of higher learning. The group is an advocate for economic development and engages business leaders in influencing public policy issues.
Speaking from a legislative perspective, Rep. Julie Stokes, a CPA from Jefferson Parish who represents District 79 in the House, explained how the state’s deficit snowballed going back to 2005, prior to Hurricane Katrina, the state’s last “normal year,” and discussed a draft of measures proposed by Gov. Jon Bel Edwards.
Stokes said Louisiana’s problems are not just the result of too much spending. When the repeal of the Stelly Plan coincided with the U.S. economic recession, Louisiana dropped lower than other states in tax revenue and has never recovered the gap. Louisiana’s highly complex tax codes, some of which are regressive and outdated, make matters worse. Options to raise revenue include reexamining federal waivers for Medicaid, renegotiating contracts with privatized hospitals and increasing measures to prevent fraud. Stokes suggested that state dollars paid by BP and the state’s Rainy Day Fund could help offset the deep drop in oil revenue and discussed Edwards’ proposed penny sales tax that some argue could hurt consumers.
Those options don’t solve the short-term issues that legislators will have to address in March and consumers could see the 1 cent tax increase as early as March 1, an attempt to generate revenue before the 2015 fiscal year ends. However, tax increases won’t solve the long-term problem. Going forward, tax structure reforms can provide significant revenue.
“A well established tax reform plan provides a plan for short-term adjustments and a foundation for long-term economic growth,” said Dr. Jim Richardson, an economist and director of the Public Administration Institute at Louisiana State University. “As we deal with short-term issues, make sure we do no harm to long-term fiscal reform. We have to survive this short-term in order to make long-term adjustments.”
Good economic principals are not always popular with politicians, Richardson said, and there are no simple answers. Most of the state’s problems can’t be fixed immediately and some solutions won’t be realized for years. Tax reform is a multi-year process requiring information, analytics and judgment.
Olivier said C100 plans to present the group’s long- and short-term measures to the Legislature in March. The group supports higher education in the interest of workforce development and doesn’t believe that deeper cuts to higher ed are the answer.
“An urgent crisis brings opportunity,” Olivier said. “It’s important to use this crisis to streamline, to be fair and transparent and to modernize and be competitive. We want the legislature to know we are standing with them.”