Louisiana is facing a budget deficit of approximately half a billion dollars next year, and lawmakers are considering how to make up the difference.
If they decide not to extend the temporary teacher grants and other education funding – an idea unpopular with teacher groups – the gap to fill will be smaller and likely to be $340 million, state budget director Ternisa Hutchinson told lawmakers last week at a meeting of the Joint Legislative Committee on the budget.
Other possible options include expanding a trade tax or shifting the vehicle tax into the general state fund. Revenue from the latter tax currently goes into a fund for infrastructure improvements.
Much of the deficit is due to the elimination of a temporary .45-cent sales tax that lawmakers passed in 2018 amid a budget crisis. House Speaker Phillip DeVillier (R-Eunice) said the House is unlikely to renew the tax.
Lawmakers are considering other options but have not yet made a decision, DeVillier said.
“It’s too early to say what we’re going to do to address the deficit,” he said. “I would expect us to continue to focus on conservative budget planning.”
Senate President Cameron Henry did not respond to a request for comment.
Additionally, DeVillier expects lawmakers to consider broader changes to the state’s tax system next year, some of which could address the budget cliff, he said.
Teachers’ salaries, trade tax
If the state extends the temporary teacher subsidies – approved this year and last year – and adds raises for select teachers and money for tutoring, the projected deficit will be about $587 million, Hutchinson told lawmakers. Those imbalances will become even greater over the next two fiscal years.
However, Cynthia Posey, parliamentary director of the Louisiana Federation of Teachers, warned that eliminating the scholarship could make it more difficult to recruit and retain teachers.
“We are sending the wrong message to our teachers, who have been in the classrooms with our students every day and who should be credited with the (educational) progress,” she said.
In a statement, State Inspector Cade Brumley expressed hope that lawmakers would keep the scholarship.
“Our legislators support education. I’m confident we can find a way to continue these investments in teacher salaries,” he said. “I look forward to working together on ideas to reduce budget needs without impacting teachers or our student-centered tutoring efforts.”
Another option is to renew a 2 percent business tax that expires next year. That tax would raise about $220 million, said Finance Minister Richard Nelson.
Impact on traffic
The state could also save about $320 million by transferring the vehicle sales tax from a special transportation fund for infrastructure improvements to the state’s general fund, Hutchinson said.
Such a move would undermine a 2021 law that earmarks those tax dollars for infrastructure improvements.
Former state Rep. Tanner Magee (R-Houma), who helped pass that bill, said the funds should remain separate.
“If there is not enough money to build roads and bridges, then in my opinion it is not worth the effort,” he said.
Transportation Secretary Joe Donahue did not respond to a request for comment on the impact of the change on his department.
Jan Moller, executive director of Invest in Louisiana, a progressive political group in Baton Rouge, said a major reason the state has lacked money for infrastructure improvements in the past is the fact that it has not raised its gasoline tax since 1990.
Diverting motor vehicle sales tax revenue to the state’s general fund “would certainly help solve the budget cliff problem, but that should be accompanied by a discussion about the gasoline tax in Louisiana, because we really have a problem of a huge infrastructure backlog,” Moller said.
When asked about concerns that the state could lose funds for infrastructure, DeVillier said lawmakers had resorted to a savings account this year to cover the cost of improvements.
Before lawmakers decide how best to use tax revenue to improve infrastructure, DeVillier said they should address any organizational issues at the Department of Transportation and Development. The state recently commissioned an external evaluation of that agency, he noted.
Tax system on the table
Aside from specific budget proposals, Nelson has proposed completely overhauling Louisiana’s tax structure by unifying and lowering the income tax. He said the state could make up for the revenue losses by eliminating certain sales tax exemptions, but has not yet specified which exemptions those would be.
In a statement, Governor Jeff Landry advocated tax reform, calling Louisiana’s tax system “broken” and uncompetitive.
“Secretary Nelson has worked with stakeholders and lawmakers to craft a comprehensive tax reform package that will allow Louisiana families to keep more of their paychecks, reduce the deficit and restore Louisiana’s position as the economic powerhouse of the South,” he said. “These changes require bold action, and I am confident that lawmakers and Secretary Nelson will rise to the challenge.”
Landry’s office declined to comment on whether the governor supports a redistribution of the motor vehicle sales tax or a renewal of the business tax or how he views teacher compensation.
Moller said Nelson’s plan would result in income tax losses that the state would still have to replace.
Closing the budget gaps will require tax increases, not spending cuts, he said.
“Our revenues are not enough to meet the needs of the state,” Moller said, citing the child welfare system, higher education and early childhood education as three areas that need attention.
