The regular session of the Louisiana Legislature is underway, and all manner of individuals - and businesses - are scrambling to make sure they don’t get pounded by the inevitable tax hammer.
Taxes seem to be an inevitable result of this particular Legislature due to the looming ‘fiscal cliff’ - when the one- cent sales tax goes away, opening up a $1.3 billion deficit.
How did Louisiana get here?
At some point in the late 1980s, leading in the 1990s, the state’s leading administrators thought that it would be a good idea to tie the state’s GDP and budget outlook to the price of oil.
Despite coming on the heels of an oil bust in the mid-1980s, it was hailed as a good idea due to the rising price of oil per barrel.
In Louisiana, the oil industry employs hundreds of thousands, so the expansion of the industry has - historically - been a good thing for the state. Those employed made good wages, and spent their hard-earned dollars on various other industries including housing, food, vehicles, etc.
Unfortunately, the number of individuals who work in Louisiana’s oil industry continues to shrink.
Well, in large part due to the price of oil being in such flux recently. The oil cartel OPEC, along with other participating countries, recently enacted a reduction in production to try and increase the price up.
Oil companies can only hope that the move works, but unfortunately there are other factors at work here. In a presentation by the Louisiana Oil and Gas Association at the most recent Livingston Parish Economic Development meeting, director of marketing and member development Ben Broussard dropped a few pieces of information that seem to have an effect on just about every industry which is labor-based: improved technology is allowing oil rigs to consolidate.
New drilling techniques are allowing companies, which may have needed two or three rigs to gather oil from a particular reservoir, to spread out from the initial drilling horizontally - removing the need for rigs two and three.
There are other issues, as well - Gov. John Bel Edwards, an attorney, has emboldened his peers to engage in “legacy law suits” against oil companies who operated rigs that don’t meet current stated regulations, but were lawful when they were constructed.
How does this effect the deficit? Well, fiscal appropriations were enacted into consitutional law for years after Louisiana’s GDP was tied to oil, which saw price increases for almost two decades after the tie to the budget.
LABI President Stephen Waguespack told the Livingston Parish Chamber that the current constituion appropriates over 90 percent of funds out of the gate; the state has roughly 6 percent wiggle room.
Some of the items that do not receive constitutional appropriations may sound familiar to you - higher education, public healthcare ... those budget points which received cuts in order to stabilize the state’s funds in 2016.
Now, with the one cent sales tax fallout, cuts just aren’t going to be enough. So where is Edwards looking? Tax increases - some sort of gas tax, and a gross receipts tax on businesses making more than $1.5 million per year being the biggest targets for the administration.
The gas tax is aimed at closing a huge DOTD deficit (almost $14 billion in regular maintenance, another $16 billion in mega projects) by adding anywhere from $500 million to $900 million - depending on the tax amount - to their coffers per year.
No discussion, as of yet, about the use of part of House Budget 2 (Capital Outlay) for political favors - usually a few billion dollars.
The gross receipts tax targets large businesses, which Edwards claims don’t pay their ‘fair share.’ Unfortunately, many small businesses can easily hit $1.5 million in revenue, but may have expenses of $1.49 million - the receipts tax will hit the bottom line, with no consideration of profitability.
That becomes a huge problem for many of Louisiana’s leading industries with small profit margins, including retail; restaurants; and grocery stores. How will they cope? Raising prices? Layoffs? Both?
It is futile to up the tax ante on a citizenship which ranks 44th nationally in median income.
No, it’s time for a constitutional convention. Louisiana’s budgetary issues will continue to be systemic until the underlying issues are addressed - too much money is appropriated, based on an irregular revenue stream, and that has to change.
Legislators fear a convention, afraid that lobbyists and special interest groups will simply shift the current appropriations, with no change in the future.
That may happen, but fear of an outcome that has not yet occurred will simply leave the state cutting the few budgetary items its allowed to adjust, and kicking the can down the road to be handled the next year ... or perhaps never.