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Louisiana's Bills Come Due for Years of Excessive Borrowing, Spending and Tax Breaks

The Louisiana Legislature has come up with a way to fill all but $70 million of a projected $950 million budget deficit. They are going to let Gov. John Bel Edwards (D) handle the rest.

Lawmakers approved a deal March 16 to shave the state’s predicted budget shortfall from $750 million to a relatively small $70 million. But everyone understands the pain doesn’t stop there.

Gov. Edwards’ budget staff can’t see any realistic scenario in which midyear cuts to education and healthcare spending can be avoided, even though he and the legislature have voted to raise $1.5 billion worth of taxes in the next 15 months.

“Unfortunately, there were some members of the legislature who blocked our progress and refused to offer any alternatives to my plan,” Edwards said in a statement. “Refusing to vote for solutions of any kind is not ‘tackling the deficit.'”

Even though on paper they trimmed the budget deficit to $30 million, Edwards and the legislature are using a lifeline to get through the rest of the fiscal year that ends June 30.

Edwards plans to use $128 million from the state’s rainy day fund and $220 million from the BP oil spill settlement to pay bills.

But the BP money is only “expected” right now. The overall settlement still has to be approved by the judge overseeing the case.

This is bipartisan: Democrats and Republicans agree more cuts are going to have to be made.

The legislature has given Edwards the final authority to say where more cuts will be made over the next three months.

And then there is the next fiscal year. His budget chief, Jay Dardenne, said a new list of spending reductions could be expected by April 8.

The AP reported Dardenne told the House Appropriations Committee on March 21 that government agencies could expect “painful” cuts of up to 30 percent of their state appropriation in the fiscal year that begins July 1.

“They’re going to be dramatic. They’re going to have an adverse impact on a lot of the delivery of services around the state,” Dardenne said.

Edwards and the legislature have already cut the budget by $160 million in 2016. Those reductions followed two other rounds of spending cuts while former Gov. Bobby Jindal was in office.

How did this happen? Louisiana Legislative Auditor Daryl Purpera told the legislature the state borrowed its way into the deficit.

Purpera released a report in February showing that Louisiana borrowed so much money over the past six years to help address general fund shortfalls that the state will pay nearly a quarter of a billion dollars in additional interest over the next two decades.

The interest payments on borrowing will push the state closer to its debt limit, and restrict the state’s borrowing capacity for capital outlay projects through 2024.

The report also found that the state will have to pay an extra $71 million in interest related to $210 million in bond premiums the State Bond Commission used to make debt payments for fiscal years 2011 and 2016 and to help reduce the general fund deficits. The state also will have to pay back the $210 million.

Also, the state could have saved $160 million in interest payments by using $335 million in non-recurring revenue to directly fund capital outlay projects. Instead, the commission approved the use of the $335 million to void bonds when enough was set aside to service the debt, which reduced the state’s required debt payments in fiscal years 2015 and 2016, as well as the general fund deficits.

Between fiscal years 2011 and 2016, the commission approved new capital outlay projects faster than it can sell bonds to pay for them, which has resulted in a $3.7 billion backlog and reduced the capacity for new projects until the fiscal year 2024.

The state also could face a downgrade in its credit rating because of its use of onetime monies, including bond premiums and defeasances that used non-recurring revenues. Such a downgrade would increase the state’s borrowing costs and decrease the amount the state could afford to borrow each year.

As bad as it was, excessive borrowing could be only a symptom of the real problem. The legislature learned in February they were giving away more tax money through exemptions than the state was collecting.

Sen. Jean-Paul Morrell (D), the chair of the Senate Committee on Revenue and Fiscal Affairs, said the panel will hold its first meeting March 21 to see if Louisiana gets anything in return from the hundreds of tax exemptions, exclusions, rebates and refunds that are handed out every year.

The Louisiana Department of Revenue lists more than 400 different tax exemptions, exclusions, rebates, and refunds tied to various state taxes. Morrell said the tax breaks cost the state nearly $8.2 billion.

Louisiana has ten times as many exemptions as it has taxes. Louisiana assesses 40 different taxes, which are expected to collect close to $7.5 billion. But when the state gives away close to $8.2 billion a year in tax breaks, Louisiana is behind the eight-ball before the legislature spends a dime.

Putting the brakes on Louisiana’s fiscal train wreck is not going to be easy. Of the 464 exemptions on the state’s books, only 52 have sunset provisions. The other 412 are carved into legislative-tax code stone. Nobody benefiting from those exemptions is going to let them be erased without a fight.

“We want to give the public every opportunity to explain the benefit of their particular tax break and to offer suggestions for any needed changes in the tax exemption,” Morrell said.

Louisiana taxpayers must be thinking it was about time for the hearings to begin.

They’re correct. Purpera said Louisiana has absolutely no comprehensive review process to keep track of its tax exemptions in place.

“While state law requires information on certain exemptions to be reported by the agencies involved and legislators to review that information, the provisions do not cover all tax exemptions or provide specific criteria for how to review exemptions, and are not always followed,” Purpera’s report said.

On top of that, the Louisiana Legislature is still figuring out how many bills have to be paid.

Purpera also reported in February that Louisiana has 370 dedications on the books into which officials are obliged either statutorily or constitutionally to direct specific sources of state revenue.

How much will all of that cost? Nobody knows.

In the fiscal year 2014 – the latest year for which the most complete information is available – Purpera said dedications made up 16 percent of the state’s total expenditures, or $4.3 billion.

Purpera said the Joint Legislative Committee on the Budget is required to review all dedications every two years, but it faces some challenges.

The report cites “constituent influence, a lack of criteria to determine the return on investment of each dedication, and a lack of transparency and accountability for how dedicated funds are spent as some of the challenges the Legislature must contend with.”

Tax exemptions and “dedications” that have to be paid are systemic problems. They need to be addressed.

But right now, Gov. Edwards knows his top priority is cutting $70 million from the current fiscal year’s budget. After that, he has to worry about getting through another fiscal year, starting July 1, facing a new deficit of at least $750 million.