$200 Million in the Hole, Louisiana Lawmakers Refuse Tax Reform

Gov. John Bel Edwards opened the second special legislative session of 2016 three weeks ago by warning lawmakers they needed to raise $600 million more in taxes and enact meaningful tax reform.

By Tyler Bridges

Gov. John Bel Edwards opened the second special legislative session of 2016 three weeks ago by warning lawmakers they needed to raise $600 million more in taxes and enact meaningful tax reform.

"The days of kicking the can down the road are over," Edwards told the 144 lawmakers gathered in the Louisiana House. "The day of reckoning is at hand."

But anti-tax Republicans in the House swatted aside his message. Because of their opposition, lawmakers raised only $263 million during the special session that ended late Thursday night -- less than half of what the governor sought.

They also kicked a lot of cans down the road.

Lawmakers set aside no money for what economists are projecting as a $200 million budget deficit in the fiscal year that ends Thursday, a shortfall caused by a drop in corporate tax collections due either to the economy being in recession, to an excessive number of corporate tax giveaways, or both. Either way, state officials must eliminate any deficit in the upcoming fiscal year, which begins July 1.

Lawmakers -- at the behest of House Republicans -- also punted to next year a total overhaul of the tax system by rejecting interim tax reform measures backed by independent economists who sit on a special task force studying the state's tax and spending policies. The legislators' argument was that the changes should be made holistically.

"We need comprehensive reform but not piecemeal measures," state Rep. Lance Harris, of Alexandria, who heads the Republican House Caucus, said in comments echoed by other conservative Republicans.

They'll have to do something next year. There's a looming fiscal cliff, owing to temporary taxes imposed by lawmakers in 2015 and earlier this year that will fall off in 2018. The fiscal cliff totals $1.1 billion, according to the state Division of Administration.

The question is whether anti-tax lawmakers, such as Harris, will embrace the tax changes the task force will recommend in September -- a proposed revamp that likely would eliminate tax loopholes, lower tax rates and raise enough money to end the chronic budget shortfalls that Louisiana has endured each year since early in former Gov. Bobby Jindal's first term.

Speaking to reporters just past midnight early Friday, Edwards said carrying out those changes will require more political courage than legislators have demonstrated so far.

"I will tell you that the actions, the decisions we will have to make in the future will be more difficult when we undertake comprehensive, structural, long-term tax reform in April," he said. "Those decisions will be more difficult than any the Legislature has had to deal with tonight."

The end of the second special session has sent home legislators who spent the past 19 weeks in Baton Rouge, the longest stretch in the history of the Louisiana Legislature, according to the Manship School News Service.

Edwards will follow lawmakers to their hometowns over the next two weeks to pitch his narrative of what happened over those 19 weeks, in part to avoid being tarred by Republicans as a tax-and-spend liberal. Accompanying him will be Jay Dardenne, the governor's top budget officer, who was among the three Republicans defeated by Edwards during last year's governor's race. Dardenne's role will buttress Edwards' argument that he has been seeking a bipartisan solution.

The governor gave a preview of his storyline during his post-midnight news conference, noting that when he took office in January, he inherited a $900 million shortfall that had to be plugged immediately, as well as a billion-dollar shortfall for the upcoming fiscal year that he also had to fill.

"Today, some of us can look back on these two special sessions ... knowing that we did everything we could, everything within our power to work in good faith, compromise, to find common ground and avoid catastrophic cuts," Edwards said. "To a very large part, we were successful. That is because a clear majority of legislators worked with us in that same fashion.

"But certainly not everyone in the Legislature can say that. There is a relatively small group, mostly in the House, who did everything in their power to block just about every attempt that we made to find common ground and raise the revenue necessary to fund critically important priorities."

Edwards will be seeking to offer an alternative storyline to that offered by Gambit political editor Clancy DuBos immediately after the special session ended. In his traditional post-session column, "Da Winnas and Da Loozas," DuBos put Edwards in the latter category because he fell far short of getting the revenue he wanted. DuBos called House Republicans big winners. "They told him he would not get everything he wanted -- and they kept their promise," he wrote.

Anti-Edwards Republicans will be pushing the same theme.

On Friday, less than 12 hours after the governor met with reporters, the state Republican Party sent out an email headlined: "VICTORY AT THE STATE CAPITOL: REPUBLICANS WIN -- EDWARDS INCOME TAX FINALLY DEFEATED."

The email was referring to the governor's failed last-ditch effort to raise $88 million more by ending the provision that allows taxpayers to deduct their previous year's state and local tax payments on the current year's state tax return.

Republicans in the House called it a tax increase on middle-income taxpayers, although studies show that taxpayers who earn over $100,000 would shoulder 75 percent of the cost.

In general, Republican legislators who opposed the governor's measures said they heard a clear message from the hell-no-don't-raise-my-taxes crowd.

But those people weren't the only squeaky wheels. Mothers who rely on state assistance to help with their severely disabled children at home came repeatedly to the State Capitol to lobby against cuts in their state aid. And they also didn't lose any money.

Not faring as well at the Capitol were parents and students who receive the Taylor Opportunity Program for Students scholarships, who never showed up to make their case. Because of the overall funding shortfall, parents will now have to pick up 30 percent of the cost of tuition for students receiving the scholarships. That means the average student will have to pay $1,500 in tuition to make up the difference, said Richard Lipsey, the Board of Regents chairman.

Expect Edwards and Republicans who oppose him to battle over who is responsible for the 30 percent loss of TOPS funding.

One of the key questions facing Edwards in the coming days and weeks will be how to respond to what he calls the "no" caucus in the state House -- lawmakers who rejected the tax measures but also didn't offer a viable plan to cut spending. These lawmakers, as Edwards likes to put it, neither led nor followed nor got out of the way.

Several legislators said privately that Edwards needs to make an example of at least one prominent opponent.

One veteran legislator remembered how Gov. Kathleen Blanco and Speaker Joe Salter punished state Rep. Troy Hebert in 2004 by sacking him as a committee chairman after he voted against a key tax measure sought by Blanco.

"It's like what you have to do sometimes with a mule that won't go into the barn," the legislator said. "You have to whack him in the head to get his attention."

Edwards doesn't have the ability to dump a committee chair because the Republican-led House broke with tradition in January by not crowning the governor's choice as its speaker. But he has other cards he could play.

One possible target could be a $1 million request by House Speaker Taylor Barras, R-New Iberia, to renovate a hangar and parking lot at the Acadiana Regional Airport in New Iberia.

The governor also could whack an $11 million request in state construction money from another high-profile nemesis, state Rep. Neil Abramson, D-New Orleans, who chairs the House tax committee that killed several of the governor's revenue-raising measures. The $11 million would go for an Audubon Zoo exhibit to be held in 2020.

Timmy Teepell, who served as Jindal's chief political strategist, warned that Edwards had better tread carefully in how he metes out punishment by killing construction spending projects.

"He would be making Taylor Barras a martyr for standing up against tax increases, which will make him even stronger as speaker," Teepell said in an interview. "He needs to be the governor for all of Louisiana. Relegating an entire segment of the Legislature into an enemy's camp is short-sighted and bad for the state. These are people he's going to need to work with his entire first term. He has to work with the hand he's dealt. His ideology is a couple of notches to the left of the state. He needs to be careful about picking ideological fights."

(c)2016 The Advocate, Baton Rouge, La.

Caroline Cournoyer is GOVERNING's senior web editor.