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Tackling Louisiana’s Budget Background Booklet for the “Follow the Money” Convention Workshop
League of Women Voters of Louisiana March 11, 2017
Booklet Contents:
Schedule of Louisiana’s Budget Process ............................................................................................ 2 Roles in the Budget Process - Division of Administration .................................................................... 3 The Legislative Committees................................................................................................................. 4 Advisory Services to the Legislature.................................................................................................5-6 Other Vital Roles.................................................................................................................................. 6 Legislative Task Forces and Commissions.......................................................................................... 7 Principles of Tax Structure and Policy ................................................................................................. 8 The Many Constraints on the Budget Process, ..............................................................................8-13 Together Louisiana’s Report, Industrial Tax Exemption Program (Insert) ......................................... 14 Sound Practices for Structural Balance of the Budget..................................................................15-16 Louisiana Non-Governmental Organizations Advocating Fiscal Policies .......................................... 17 LWVLA Public Positions on Fiscal Policy .....................................................................................18-20 Terms of Finance ............................................................................................................................... 21 Sources.........................................................................................................................................22-23
“In the state budget process, Louisiana’s elected leaders debate, and ultimately decide, how public funds are going to meet the needs of Louisiana’s citizens. The budget proposed by the Governor and adopted by the Legislature is the most important policy document of any legislative session.”
“Louisiana Budget Basics: A Guide to the Louisiana State Budget,” Louisiana Budget Project, 2008.
“The central function of a budget—the decision of how much to spend for what—will always create disputes, and no budget will ever satisfy everyone.”
A Guide to Better State Budgeting Practices, National Conference of State Legislatures, Oct., 2016, pp. 1-2.
League of Women Voters of Louis iana www.lwvofla.org | P.O. Box 5493 | Covington, LA 70434 | 978-705-1598 | voice mail/text messaging
Funded by the League of Women Voters of Louisiana Education Fund, a 501(c)3 fund. Compiled by Thetis Cusimano and Linda M. Walker.
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Schedule of Louisiana’s Budget Process
a
September
The Division of Administration provides departments and agencies with budget request forms for the upcoming fiscal year.
By October 15
Revenue Estimating Conference establishes an official forecast for the next fiscal year to be used by the Budget Office in creating executive budget recommendations.
November Department Budget Requests due back to the Division of Administration.
December
Division of Administration reviews and makes changes to the request amounts and presents preliminary budget recommendations to departments and agencies. Agency appeals process begins. Executive Budget recommendation made to the governor.
By January 1 January
Revenue Estimating Conference revises the official forecast for the next fiscal year to use in preparing the executive budget. Executive Budget is printed. Executive Budget due to the Joint Legislative Committee on the Budget 45 days prior to the start of the regular session. Agency hearings are held.
February
Agency hearings are held. Executive Budget presentation to the Joint Legislative Committee on the Budget. General Appropriation Bill filed no later than fourteen days after submission of the executive budget. House Appropriations Committee hearings begin.
March By 3rd Monday in March
Legislative session begins Revenue Estimating Conferences revises the official forecast which shall be used by the legislature in its iadoption of a state budget for the ensuing fiscal year.
April House Bill 1 to be heard in House Appropriations Committee and on the House Floor.
May
House Bill 1 to be heard in Senate Finance Committee and Senate Floor. Conference committee if necessary.
June Legislature adopts the budget. Legislative session adjourns. Governor signs the bill with vetoes. Fiscal Year ends June 30.
July Appropriation letters are mailed to departments. New fiscal year begins July 1.
“The General Appropriation Bill (House Bill 1) is the legislative instrument used to appropriate the amounts specified in the executive budget excluding capital outlay and ancillary appropriations. Please note that there are other appropriation bills such as the Capital Outlay Appropriation Bill, Supplemental Appropriation Bill, Ancillary Appropriation Bill as well as others.”
[Sources: Louisiana Developmental Disabilities Council, “The Legislative Process,” http://www.laddc.org/ and the Louisiana Revenue Estimating Conference’s website]
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Roles of the Division of Administration
GOVERNOR
The Governor submits an executive, balanced budget for each fiscal year to the state legislature.
OFFICE OF PLANNING AND BUDGET
The Office of Planning and Budget performs long-‐ and short-‐term analysis of the state’s financial condition and executive operating budget development, monitoring and control. It also is involved in policy development, planning, accountability, and other management services including the maintenance of a statewide performance database and integration of performance information into the budget development process. It provides revenue projections to the Revenue Estimating Conference and is responsible for the CAFR and LaTrac.
The CAFR (COMPREHENSIVE ANNUAL FINANCIAL REPORT) is the state’s annual financial statement measuring state finances — its liquid assets minus the annual spending obligations — to determine if the state has a surplus or deficit, and the state's total net worth, primarily the state-‐owned property minus the long term debt. Currently the net worth is just under $6 billion dollars and declining. Bond rating agencies and underwriters use CAFR in setting credit ratings and interests on bond rates.
LaTrac is Louisiana's Transparency and Accountability Portal and on-‐line state spending data base. LaTrac allows citizens access as to how their tax dollars are spent. The U.S. Public Research Group gives Louisiana a grade of A and numerical score of 96 which indicates that the state is leading in transparency regarding state spending.
DEPARTMENT OF REVENUE
The Department of Revenue (LDR) is charged with fairly and efficiently collecting state tax revenues to fund public services, to regulate charitable gaming and the sale of alcoholic beverages and tobacco, and to support state agencies in the collection of overdue debts.
LOUISIANA DEPARTMENT OF ECONOMIC DEVELOPMENT
The Louisiana Department of Economic Development (LED) is responsible for strengthening the state's business environment and creating a more vibrant Louisiana economy. The goal is to create jobs and economic opportunities. The role of the LED in Louisiana’s budgeting process is primarily with its authority to approve the applications for Industrial Tax Exemptions. The LOUISIANA BOARD OF COMMERCE AND INDUSTRY is managed through the LED.
LOUISIANA BOARD OF COMMERCE AND INDUSTRY
Governed by board members representing major economic groups and gubernatorial appointees, LED’s Board of Commerce & Industry meets bimonthly and approves applications for tax incentive programs, including Enterprise Zone, Industrial Tax Exemption, Quality Jobs and Restoration Tax Abatement.
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Roles of the Legislative Committees
HOUSE WAYS AND MEANS COMMITTEE Taxes and the raising of revenue; bonds; revenue collection; assessors; comprehensive state capital budget prior to consideration by the Committee on Appropriations
HOUSE APPROPRIATIONS COMMITTEE
General appropriation bill; expenditure of funds; comprehensive state capital budget after consideration by the House Ways and Means Committee
SENATE REVENUE AND FISCAL AFFAIRS COMMITTEE
Revenue collection; bonds; taxes and raising of revenues; bond portion of comprehensive state capital budget
SENATE FINANCE COMMITTEE
Appropriation of state funds; cash portion of the comprehensive state capital budget; expenditures; general appropriations bill
JOINT LEGISLATIVE BUDGET COMMITTEE
Reviews and approves the annual operating budgets of all the state retirement systems. Reconciles the House and the Senate general appropriations and capital budget bills prior to submission to the Governor
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Roles of the Advisory Services to the Legislature
LEGISLATIVE FISCAL OFFICE
The Legislative Fiscal Office is an independent agency created by statute to provide factual and unbiased information to both the House of Representatives and the State Senate. The Office provides assistance to individual legislators, committees of the Legislature and the entire Legislature. The LFO attaches a fiscal note to bills upon final passage. “Focus on the Fisc” is an interim publication providing factual information on many of the fiscal issues facing the state.
SENATE FISCAL SERVICES
Senate Fiscal Services handles subject matter related to budgeting and finance. The five full-‐time employees of the division, under the direction of the Chief Budget Analyst, currently serve as staff for the Senate Finance Committee and the Revenue Estimating Conference.
Other responsibilities include providing professional and secretarial support for and/or monitoring of the Joint Legislative Committee on the Budget, the Louisiana Bond Commission, the Interim Emergency Board, and various other standing and ad hoc committees who formulate policy recommendations with significant fiscal implications for the state.
HOUSE FISCAL DIVISION
The mission of the House Fiscal Division is to enhance the legislative process by serving as a consistent, professional, and nonpartisan resource to all House members through accurate and objective research, analysis, bill drafting, and quality committee staffing in order to foster informed decisions on fiscal matters.
LEGISLATIVE AUDITOR
The only constitutional state official not elected directly by the public, the Legislative Auditor fosters accountability and transparency in Louisiana government by providing the Legislature and others with audit services, fiscal advice, and other useful information. He specifically advises the Legislature on retirement matters, as one of his roles, including issuing a public annual actuarial report on each of the retirement systems and an annual general report to the Legislature. He also provides analyses of pending bills that affect state finances, including employee pensions. His office is intended to be as objective and non-‐political as possible, as he can be removed only by a 2/3’s vote of the legislature, the appointing body.
LEGISLATIVE AUDIT ADVISORY COUNCIL
The Legislative Audit Advisory Council is a joint committee of the Louisiana Legislature. The Council is composed of five senators and five representatives. The Council is charged with oversight of the legislative auditor and, most importantly, resolving audit findings contained in audits issued by the legislative auditor and private accounting firms performing governmental audits in lieu of the legislative auditor. The Actuarial Services staff serves as the actuarial advisor to the Louisiana Legislature and audits the Comprehensive Annual Financial Reports from the Department of Administration. The Center for Local Government Excellence, as part of the Legislative Auditor’s Office, provides workshops, training and tools to local governments.
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LOUISIANA TAX INSTITUTE
Created during the 2016 regular session of the legislature as part of THE TASK FORCE ON STRUCTURAL CHANGES IN BUDGET AND TAX POLICY, the Institute was formed to promote and encourage the clarification and simplification of the tax laws of Louisiana and its political subdivisions. The Institute operates under the Department of Revenue and will submit reports to the legislature in an advisory capacity on all tax related bills.
Other Vital Roles
REVENUE ESTIMATING CONFERENCE (REC)
The conference is a constitutional body consisting of the Governor or his designee; the President of the Senate or his designee; the Speaker of the House or his designee and a faculty member of a Louisiana university or college with expertise in forecasting revenue. The conference prepares initial and revised estimates of money to be received by the state general fund and dedicated funds for the current and next fiscal years available for appropriation. The conference determines which money in the estimate is recurring or non-‐recurring. The REC meets several times a year and publishes the impacts to recurring revenues from legislative actions.
See Louisiana Board of Commerce and Industry, page 3.
PUBLIC RETIREMENT SYSTEMS ACTUARIAL COMMITTEE
Each year PRSAC approves and submits to the Senate and House retirement committees a single valuation for each retirement system that includes the employer contribution rate (now known formally as the Actuarially Determined Contribution or ADC) and the actuarial assumed rate of return (the discount rate.) This, in turn, will determine the actual pension cost to each employer within the government. Committee members are State Treasurer, Commissioner of Administration, Legislative Auditor, an actuary from the state retirement systems, an actuary from the statewide retirement systems, President of Senate, Speaker of the House, or the designee of each these PRSAC members.
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Legislative Task Forces
AD VALOREM TASK FORCE
Established by a Senate resolution in 2016 to study government funding from ad valorem taxes on inventory, vessels in Outer Continental Shelf Lands Act Waters, and the state-‐associated tax credits, and to identify state and local government funding sources for local and state government.
SALES TAX STREAMLINING AND MODERNIZATION TASK FORCE
Established by legislative act in 2016 to study Louisiana's state and local sales and local use tax systems and to develop recommendations for legislative consideration regarding revision of procedures, law or the Louisiana Constitution concerning sales and use taxes.
TASK FORCE ON STRUCTURAL CHANGES IN BUDGET AND TAX POLICY
The Task Force on Structural Changes in Budget and Tax Policy issued a major report to the legislature in January, 2017 with recommendations pertaining to the budget, sales tax, individual income taxes, corporate income tax, and property tax. It was presented as an integrated package with the message that all the recommendations be enacted to simplify the tax system with lower rates, fewer exemptions, and a broader revenue base. The task force was supported by the Department of Revenue and consisted of representation from a broad range of expertise.
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Principles of Tax Policy May Vary According to Assumptions, Two Examples: From The Tax Foundation: “Good tax policy promotes economic growth by focusing on raising revenue in the least distortive manner possible.”
! Simplicity: Easy for taxpayers’ compliance and for government’s administration and enforcement ! Transparency: Clearly and plainly define what and when taxpayers must pay, without disguises in
complex structures. Careful consideration, input and open hearings for changes to the tax code. ! Neutrality: Neither encourage nor discourage personal or business decisions; neither favor or
punish specific industries, activities, and products. Minimize tax preferences to broaden the tax base to raise needed revenue with lower rates.
! Stability: Taxpayers deserve consistency and predictability in the tax code. Governments should avoid enacting temporary tax laws, including tax holidays, amnesties, and retroactive changes.
Objective: “ensure that the state builds a tax system for a diversified economy and positions itself as a destination for investment, entrepreneurs, and talented individuals in the years ahead. If the most robust of these reform recommendations were implemented, Louisiana’s ranking in the State Business Tax Climate Index would move to 10th best in the nation.”
From The Task Force on Structural Changes in Budget and Tax Policy: “Generate sufficient revenues to fund legitimate and necessary government expenses,” “Put a fiscal structure in place through examining each tax globally in relation to all the others, rather than a piecemeal approach,” “Attend to people’s differing value systems on whether annual revenue growth is positive or negative”
! Fairness – treat taxpayers of different income levels and other characteristics and businesses and individuals fairly
! Simplicity – not too complex to administer and for taxpayers to follow ! Healthy balance and variety in revenue sources for long-‐term growth and stability ! Economic competitiveness with other states and relative comparisons to other states as
fundamentally relevant factors in decision making ! Stable over the short and long term ! Broad-‐based taxes with low rates and that do not play favorites for or against a particular
constituency ! Minimal exceptions and for clearly established reasons that serve the state’s needs
The Many Constraints on Louisiana’s Budget Process
Federal Constitution, Laws, Regulations; State Constitution, Laws, Regulations Time:
• Part-‐time legislators have little time to absorb budget analysis and evaluation data. • Louisiana’s budget calendar is shorter by about three months compared with most states. • Louisiana uses a more labor-‐ and data-‐intensive performance-‐based type of budget. • Louisiana has many procedural requirements across many elected and advisory bodies.
Revenue Manipulation:
• Every year revenues must equal expenditures for budget approval in all but one state. • Generally states cannot pay for ongoing expenditures using borrowed funds. • Short-‐term borrowing in the same year against next year’s revenue is for temporary relief. • Long-‐term borrowing by states through bonds is rare, other than for capital funds. • To balance Louisiana’s budget the past 7 years, the governor and legislature
o Rolled a deficit forward from 2015 to the 2016 budget. o Used non-‐recurring funds (one-‐time money). o Sold state assets. o Diverted federal funds to other uses.
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o Reduced state matching funds that reduced federal aid to some state agencies. o Delayed payments to the state’s service providers. o Used “triggers” based on specific criteria, such as economic conditions, for taxes to take
effect or stop a tax phase-‐in. o Gave four tax-‐free periods. o Didn’t include the real costs of Medicaid, TOPS, K-‐12 education each year. o Phased in additional costs or cuts that may no longer fit the future circumstances. o Used substantial amounts from the Budget Stabilization Fund (“rainy day” fund). o Gave more tax exemptions, tax deductions, and tax credits.
• Although balanced on paper, the state has not been and is not financially stable.
Disproportionate Reliance on Federal Funding • On average about 25% of the states’ general funds come from declining federal revenues. • Reduced federal revenues forces either increased state funding or reduced spending. • Louisiana ranks second highest nationally in percentage of federal funding of its budget — more
than 40%, largely because of Louisiana’s high poverty rate.
Insufficient Revenues for the Functions and Services of State Government • States spend, on average, more than half of their expenditures for K-‐12 education, college
education, and health care. Louisiana is spending more than two-‐thirds for these three areas. Little remains for new infrastructure or maintenance of existing infrastructure, state debt, corrections, courts, state police, assistance to low-‐income families, care for mentally ill and developmentally disabled, environmental protection, tourism, and parks & recreation.
Abuse of The Constitution as State Statute (Abridged or rearranged and reformatted from the Public Research Council of Louisiana (PAR) “Guide to the 2016 Constitutional Amendments, An Independent, Non-Partisan Review) A Constitution’s Purpose, Content, and Aspects Louisiana’s Constitution The state’s fundamental law
Louisiana has a long history of frequent constitutional changes. The 1974 Constitution has been amended 186 times in the past 42 years. Louisiana has the most frequently amended constitution in the United States. (LWLA’s addition)
Intended to have permanence, and, therefore, not to hold statutory law that provides the details of government operation and is subject to frequent change by the Legislature.
The concept of the constitution as a relatively permanent statement of basic law fades.
Typically, constitutional amendments are proposed to authorize new programs, ensure that reforms are not easily undone by future legislation or seek protections for special interests. Proposed amendments require a 2/3’s vote of both the House and the Senate, and cannot be vetoed by the governor. As more detail is placed in the Constitution, more amendments may be required when conditions change or problems arise with earlier provisions.
Provides the essential elements of government organization, the basic principles of governmental powers and the enumeration of citizen rights.
Special interests often demand constitutional protection for favored programs to avoid future legislative interference, resulting in numerous revenue dedications, trust fund provisions and more amendments to make changes.
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Through the House Committee on Civil Law and Procedure, the Legislature tries to make certain that each proposed amendment does, in fact, need to be posed to voters. The Legislature also has tried to make it easier for voters to determine what a given amendment would do if approved by requiring that the ballot language be written in a “clear, concise and unbiased” manner and that it be phrased in the form of a question.
One important consideration for the voters should always be whether the proposed language belongs in the Constitution [Is it fundamental or statutory law? Will it require more constitutional changes in the future?] [Is the language clear and concise? Can the voters make an informed decision based on the proposed amendment’s merits?]
Large Number of Non-Discretionary (“Dedicated”) Expenditures in the Budget
What’s In the Non-Discretionary Portion: • 62% Constitutional Mandates – Salaries of statewide elected officials, cost of elections &
ballot printing, non-‐public school textbooks & Minimum Foundation Program, parish transportation and TIME Project funding, Interim Emergency Board, Revenue sharing, Debt service (net state tax supported debt), Severance tax dedications to parishes, Parish Royalty Fund dedication to parishes, Highway Fund #2 dedications to the Mississippi River Bridge Authority and Causeway Commission, Supplemental pay
• 12% Federal Mandates – Medicaid services, Safe Drinking Water & Clean Air Acts
• 10% Other Unavoidable Obligations – Group benefits for retirees, state buildings maintenance, Legislative Auditor fees, Adult probation & parole field services, Family preservation and children services, Eastern La. Mental Health System Forensic Facility, incarceration of adult inmates
• 8% Operation of Government – Salaries, District Attorneys’ Assistant District Attorneys, Local housing of state adult offenders, Peace officer standards & training, Parole Board, Medical care of prisoners, Legislative expenses, Judicial expenses
• 6% Judicial Mandates – Representation for mental health patients, medical care for some state prisoners, various litigations re community-‐based waiver options, Elderly and
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disabled adult waiver litigations, instruction in special school districts #1 and #2, legal settlements
• 2% Debt Service – Debt Management Program, Debt service of state-‐owned buildings, Rent in state-‐owned buildings, Corrections debt service, Higher education debt service and maintenance
• Other non-‐discretionary revenues set aside in special funds to spend only on specific purposes, totaling $2.5 billion in the 2017 budget: o Those directly supporting general fund programs, such as Medicaid, Department of
Health and Hospital provider fees, the Lottery Proceeds Fund, The Sales Tax/Telecommunication for the Deaf
o Fee-‐based diversions, where fees the taxpayers pay for a particular purpose, such as revenues collected from a wheel tax for roads are moved, instead, into the general fund
o Budget mechanisms, such as the Stabilization Fund (“Rainy Day” Fund”), and the Budget Security and Redemption Fund to pay bond debt
o Funds used to force a longer-‐term focus, such as the Coastal Protection and Restoration Fund and public employee retirement trust funds. Louisiana has added almost a new fund per year since the 1974 Constitution, a total of almost 50.
More about the Budget Stabilization Fund and Its Use
• The Budget Stabilization Fund, intended to provide lawmakers with a cushion in times of financial hardship, can be tapped when revenue forecasts fall below certain levels.
• The amount that can be siphoned from the fund is capped; lawmakers cannot take a total from the fund greater than the projected deficit or more than one-‐third of the total fund balance.
• Employing this budget maneuver requires the support of two-‐thirds of each house of the Legislature.
• The current Budget Stabilization Fund has an imposed cap. When this cap is reached, revenue is no longer deposited into the fund. Upon reaching an amount equal to 4% of total state revenue (excluding disaster relief money from the federal government) in the previous fiscal year, the fund is considered full and dollars are redirected back into the general fund for discretionary spending. [Taken directly from PAR 2016 Constitutional Amendments]
Structure and Effectiveness of Tax and Expenditure Limitations (TELs)
More than half of the states use tax and expenditure limitations (TELs) to restrict the growth of revenue and/or expenditures by their state governments and downsize government. Most were imposed in the late 1970s and early 1990s.
• Louisiana has one TEL, a constitutional amendment passed in 1993, that limits expenditures to the 1992 appropriations plus annual growth in state per capita personal income.
• Tax and expenditure limitations may include exceptions or exemptions within them, as well as reduced rates, and deferrals (permission to pay later).
• Tax and expenditure limitations in general tend to become permanent if no sunset deadline is set and little or no review as to their continued effectiveness.
• Opinions vary as to which measurements are more accurate to base the limits on: inflation rate, population growth index, and or personal income growth measures, etc.
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• Tax Sunsets
• The legislature sets an expiration deadline for a state tax to end, and may also vote to extend the deadline for that tax before its expiration. Many taxes are extended without review of their effectiveness.
• The larger the size or number of taxes ended, the larger the impact on the state’s revenues, and the even larger revenue loss over the next years as costs rise.
• Sunsets are appropriate for tax incentives that are designed to be temporary, but inappropriate when the tax cut is designed as permanent. The intent of a sunset may be to hide the effects of an on-‐going cut in taxes — it is an indirect way to limit spending. Permanent sunsets create budget instability over multiple years, give the legislature less flexibility to address budget needs and make any budget gap(s) worse.
• Louisiana’s additional 1-‐cent sales tax was designed as a temporary tax, with a quick sunset.
Supermajority Legislature Vote to Pass a Tax Increase
• Since a 1966 constitutional amendment, Louisiana requires a supermajority vote (2/3’s of the legislators) to pass any tax increase.
Louisiana’s Bond Rating
• A lower rating means the state will pay more to borrow money long-‐term for transportation, and other large expenditures.
• Louisiana’s rating by Moody’s Investment Services was lowered by Moody’s Investment Services, Fitch, and Standards and Poor in the past year.
• Ratings, such as Moody’s and Standard and Poor’s for state borrowing for long-‐term general obligation bonds are determined by the state’s economy, financial policies, financial management practices, recent legislation, rate of poverty, size of its reserve, reliance on borrowing, overestimating of revenue expectations, whether its accumulated deficit is being deferred, budget constraints, use of tax triggers, use of one-‐time funds, economic diversity and cycle of up’s and down’s in the energy industry.
Tax Expenditures (Tax Credits, Tax Incentives, Tax Exemptions, Tax Breaks, Tax Holidays)
• Each of these is the fiscal equivalent of a state expenditure for the same purpose. • Each is intended to benefit some group of taxpayers or to encourage and fulfill a public
policy goal in the long-‐term.
• Some Louisiana examples: to foster new businesses, expand existing ones, to exempt a portion of retirement income from personal income taxes, or deduct business subsidies for child care to benefit particular ages or families.
• The cost of each tax expenditure is generally not shown in the budget and reporting of the effectiveness and efficiency, if any, may be limited and infrequent.
• The 2014 Louisiana Legislative Auditor’s report to the legislature showed the total cost in lost revenue of about $5.4 billion from tax credits over 2006-‐2011, and about $731 million from rebates over 2008-‐2012. Six of the 85 tax credits also had rebate components, so that even more revenue was lost.
• The Motion Picture Tax Credit (MPTC) program is monitored by a 3rd party consultant by the Louisiana Department of Economic Development annually. Although the consultant’s analysis showed positive economic impact, the state government had a net loss of $169.8 million in 2010, and a state loss again in 2013.
• In 2015 more state revenue was spent on tax expenditures than the total of all taxes collected. Louisiana’s Industrial Tax Exemption alone is the largest program of industrial
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subsides in the nation — all approved by an appointed state commission, not the legislature.
• These “breaks” have become expected and part of the current tax structure.
• Only since Act 191 in 2013 has the legislature required annual reporting by all state agencies that administer tax credits and rebates. The reports must include their success in meeting the purpose, any positive return on the state’s investment and any resulting unintended harm or benefits.
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Sound Practices for Structural Balance of Budgets Across the States
Adopt a formal policy requiring structural balance of the budget for financial stability.
Adopt in-depth government policies for the use for all operating funds:
o Ensure recurring revenues equal or exceed recurring expenditures. o Identify in the budget presentation how recurring revenues are in line with or exceed recurring
expenditures. o Identify in the budget recurring (such as property taxes) and non-‐recurring revenues (such as a
lawsuit settlement) and recurring and non-‐recurring expenditures, and the reserves. o Consider unusually high or potentially rapidly changing revenues, such as a particular large
vendor, as non-‐recurring to avoid overestimating revenues. o Include annual maintenance costs of capital assets in the budget. o Set the minimum level of the reserve funds. Maintaining the minimum level or above is a partial
indication of maintaining a structurally balanced budget. o Use the reserve only as part of a remediation plan to reach a structural balance and make
replenishing reserves part of the plan. o Set a clear timeline to reach the goal. o Protect the tax base through good and bad times.
Adopt a formal policy or principle of enough flexibility in the budget to allow Louisiana’s government to pursue its priorities:
• Fee based programs should pay their true costs and pay a small percentage of revenue for overhead to the General Fund.
• The fees collected should be spent on related programs, with a connection between the fee and the expenditure or service provided.
• Require a tax expenditure budget that shows the costs as lost tax revenue of every tax expenditure that is intended to benefit some group of taxpayers or encourage a public policy goal.
• Require mandatory oversight of every tax expenditure (tax credits, tax exemptions, and tax incentives) before renewing its sunset date.
• Publicize the public purpose and benefit of every tax expenditure. • Ensure similar classes as those receiving a tax expenditure meet similar requirements to claim
them. • If a tax is allowed to sunset, consider rules requiring replacing any loss of revenues caused by
mandatory spending increases or tax cuts be financed by other changes in taxes or spending. • Determine the effect on the next several years’ budgets before allowing a tax to sunset and make
the effect public. • Put the capital budget in a single budget and develop clear guidelines for capital budgeting on
capital projects.
Focus on Long-Term Planning and Budgeting
• Advantages: maintain good fiscal standing, limit effects of economic cycles, stay on top of maintenance costs of assets, avoid short-‐term fixes.
• Consolidate funds in the state general fund.
• Protect the tax base in good times by considering rebating taxes, not cutting them and using temporary tax increases in bad times to avoid “boom or bust,” but don’t mandate rebates or tax increases.
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• Seek sound actuarial advice to consider changes to the assumptions or contribution rates of public retirement systems.
• Consider imposing program costs upon the program’s beneficiaries cautiously. Would that discourage use of a service, such as admissions? Would fee-‐charging agencies begin to consider the fees as their own and decide how they’re spent? It is essential to provide legislative oversight for the use of the revenue from fees and charges.
• Consider raising the cap on expenditures from the Budget Stabilization Fund (“Rainy Day Fund”) to smooth the impact of the business cycle of up’s and down’s.
Multi-Year Revenue Forecasts and Multi-Year Expenditures
• Louisiana is one of the states recognized for practicing binding consensus long-‐term term revenue estimating (5 years’ worth), [see Revenue Estimating Conference, p. 6] but it does not project its spending. Budget constraints and any new initiatives or programs or changes should be part of the spending projection for the next 5 years.
• Ensure using the real costs of the current levels of services for the long-‐term forecasts, as well as driving revenue forecasts by measurements that include school enrollments, prison populations, social services agency caseloads, long-‐term public obligations, such as public employee pension and health insurance plans, capital needs, gross domestic product, employment, personal income, prices of goods and services, bonded debt, and other economic data.
• Provide a clear, transparent description of how the current services estimates are made.
• Prepare current service estimates at both the broad summary and detailed program levels.
• Include current services estimates in the regular budget document to compare with the governor’s proposed spending.
• The more detailed the current services estimates that get down to the level of individual programs or line items the more useful to show the full impact of proposed funding changes.
• Quarterly revisions of the revenue estimates are sufficient.
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Louisiana Non-Governmental Organizations
COMMITTEE OF 100 FOR ECONOMIC DEVELOPMENT, INC.
A business-‐based non-‐profit with a mission to promote state job growth, this committee in 2015 commissioned the Tax Foundation, to review Louisiana’s tax system and recommend solutions. "Louisiana Fiscal Reform: A Framework for the Future" is a comprehensive study which created the basis for the current Task Force on Structural Changes in Budget and Tax Policy. The Committee supports a holistic approach to tax reform and does not support piecemeal measures.
LOUISIANA BUDGET PROJECT
The Louisiana Budget Project (LBP) monitors and reports on public policy and how it affects Louisiana’s low-‐ to moderate-‐income families. LBP believes that the lives of Louisianans can be improved through profound change in public policy, brought about by:
• creating a deeper understanding of the state budget and budget-‐related issues
• looking at the big picture of how the budget impacts citizens • encouraging citizens to be vocal about budget issues that are important to them
• providing insight and leadership to drive the policy debate
TOGETHER LOUISIANA
Statewide ecumenical group that recently compiled a study on the cost of industrial exemptions to the state. Together Louisiana participates in lobbying.
PUBLIC AFFAIRS RESEARCH COUNCIL OF LOUISIANA (PAR)
A non-‐profit, independent research group considered an unbiased source of information on state and local government, including the tax structure . PAR does not lobby.
LOUISIANA STATE UNIVERSITY AND TULANE UNIVERSITY
Dr. Jim Richardson, LSU; and Drs. Steven Sheffrin and Dr. James Alm, Tulane University, published "Louisiana Tax Study, 2015."
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LWVLA Public Policy Positions Relating to State Finance
LWVLA FISCAL POLICY
The LWVLA supports measures to improve the state tax system: • Sound administrative tax policies, conforming to criteria of tax certainty and stability,
minimum cost of compliance and collections, and enforceability • Equitable taxation based on the principles of ability to pay and/or benefits received,
with future revenues based on ability to pay. The LWVLA opposes:
• Any state imposed limitations on local governments' tax rates for property, sales, or other
• State imposed exemption of manufacturing establishments from local property taxes. The LWVLA affirms its support of elimination of the homestead exemption from property taxes and supports, as replacement, some form of circuit breaker, with relief to be granted primarily on the basis of income. The LWVLA supports a diversified revenue system which
• Principally relies on a combination of broad-‐based taxes and user fees • Is equitable, progressive, stable, responsive and simple • Overall is based on the following criteria:
• Equity: Imposes similar amounts of tax on taxpayers in like circumstances
• Progressivity: Is based on ability to pay so that those with greater ability pay a greater percentage of their income.
• Stability: Provides a stable source of revenue
• Responsiveness: Is able to capture and reflect long-‐term economic growth
• Simplicity: Is easy and efficient to administer and is understandable to the taxpayer.
The LWVLA supports
• A progressive income tax with a graduated rate schedule • A broad-‐based sales tax with exemptions for food and medicines to reduce the impact
on low-‐income person • The use of the property tax for partially financing education and local government and
services • Uniform, efficient and professional tax assessment procedures. • User fees that are structured and levied with sensitivity to low-‐income persons.
The LWVLA supports achieving policy goals through direct expenditures rather than deductions, exemptions and credits. If deductions, exemptions and credits are used, they should:
• Decrease the tax burden on lower income persons and further overall progressivity • Be periodically reviewed to justify continuation • Be the most efficient means of achieving their intended purpose.
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LWVLA POSITION ON LOUISIANA CONSTITUTION
The LWVLA supports a state constitution that
a. Should be fundamental law, free of statutory material b. Should be written in clear and simple language c. Should provide for the checks and balances among the three branches of government d. Should be reasonably easy to amend e. Should provide for majority rule as basic to our democratic form of government, along
with protection of individual rights of citizens f. Should allow for intergovernmental cooperation.
LWVUS POSITION ON PRIVATIZATION
The League of Women Voters of the United States believes that when governmental entities consider the transfer of governmental services, assets and/or functions to the private sector, the community impact and goals of such transfers must be identified and considered. Further, the LWV believes that transparency, accountability, and preservation of the common good must be ensured.
a. The League believes that some government provided services could be delivered more efficiently by private entities; however, privatization is not appropriate in all circumstances. Privatization is not appropriate when the provision of services by the government is necessary to preserve the common good, to protect national or local security or to meet the needs of the most vulnerable members of society. While the League recognizes that the definition of core government services will vary by level of government and community values, services fundamental to the governance of a democratic society should not be privatized in their entirety. These services include the electoral process, justice system, military, public safety, public health, education, transportation, environmental protection and programs that protect and provide basic human needs.
b. The decision to privatize a public service should be made after an informed, transparent planning process and thorough analysis of the implications of privatizing service delivery. While specific criteria will vary by service and local conditions, the League believes the following considerations apply to most decisions to transfer public services, assets and functions to the private sector:
1) On-‐going and timely communication with stakeholders and the public; 2) Statement of the circumstances as they exist and what is to be gained; 3) Definition of the quality, level and cost of service expected; 4) Assessment of the private market; whether there are providers to assure competitive pricing
and delivery; (in some cases there may not be multiple providers if a service is so specialized. i.e. high tech, airports.)
5) Cost-‐benefit analyses evaluating short and long term costs of privatization, including the ongoing costs of contract administration and oversight;
6) An understanding of the impact on customers, the broader community, environment and public employees.
LWVLA POSITION ON STATE PENSION SYSTEM PUBLIC EMPLOYEE PENSIONS
The LWVLA:
a. Supports raising the retirement age for full pension benefits in the state retirement systems for the hiring of new non-‐hazardous duty public employees in keeping with the same age requirements as Social Security
b. Has no consensus on retirement age requirements for hazardous-‐duty employees
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c. Recognizes that without some periodic increases (COLAs or PBIs), the buying power of pensions is eroded
d. Supports balancing fairness to the current government employers, public employees, and taxpayers with fairness to the future government employers, employees and taxpayers as the legislators consider proposed changes in benefit plan features, funding, or structure for new hires of state public employees and as the Public Retirement Systems’ Actuarial Committee (PRSAC’s) estimates the discount rate and sets the public employers’ annual contribution rate
e. Acknowledges that this standard, which is supported in much of the professional literature, requires public discipline to make the necessary actuarially determined contributions, keep politics out of this obligation, and use a discount rate in calculations that is neither overly optimistic or overly pessimistic
f. Supports wide public notification, engagement and transparent discussion of any proposed major changes in benefit features or structure for pension benefits for new state employees.
LWVLA POSITION ON LOCAL TAXES
The LWVLA
a. Believes the distribution of state revenues to local government is an appropriate source of local revenue
b. Opposes statutory limits on local government's ability to raise taxes and spend revenue
c. Believes local services mandated by the State should have state appropriations linked to the mandate.
LWVLA POSITION ON POLICY, PROGRAMS, AND PERFORMANCE
The LWVLA believes that Louisiana State government policy, programs, and performance must meet these criteria:
a. Adequate financing and effective enforcement b. Competent personnel c. Coordination among agencies and levels of Government d. Fiscal accountability e. Home rule in determining local matters f. Well-‐defined channels for citizens' input and review g. The League will take action to ensure these criteria in areas of program when such
action is deemed advisable by the board.
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TERMS FOR STATE FINANCE
AD VALOREM– tax on the value of property as a percentage of its value on both real estate property and personal property, such as a motor vehicle tax, or an import tax. CIFT – Corporate Income and Franchise Tax COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) –Annual financial statement for a state or local governing authority to comply with requirements of Government Accounting Standards Board (GASB). CREDIT RATING – Grade given by a credit rating agency based on the general financial health of the state’s government and economy. EXCISE TAXES - Taxes paid when purchases are made on a specific good, activity, or usage, and often included in its price (gasoline, betting, or trucks on highways. EXPENDITURES – Spending on government salaries, infrastructure, education, public pensions, public assistance, corrections, Medicaid, and transportation FEDERAL FUNDS – Funds received directly from the federal government GENERAL FUND – Predominant fund for financing a state’s operations; also referred to as the STATE OPERATING BUDGET INDUSTRIAL TAX EXEMPTION – Program directed by the Louisiana Board of Commerce and Industry which redirects property taxes from local governmental entities to subsidize corporations without the approval of the local entities. LaTrac – Louisiana state government’s Transparency & Accountability Portal and online state spending database. OTHER STATE-BASED FUNDS – Funds restricted by law for particular governmental functions or activities PIT – Personal Income Tax RAINY DAY FUND (RDF) – Savings account created when the revenues collected exceed the designated expenditures; the state’s is called the BUDGET STABILIZATION FUND. REVENUES – Tax collections, licensing fees, federal aid, and returns on investments STATE CAPITAL BUDGET – Includes new construction, acquisition of land, major equipment purchases and repairs or modifications STATE DEBT – Money borrowed to make up for a deficit when revenues do not cover spending STATE FUNDS – General and other state-based funds TAX BASE – What is taxable and any exemptions, deductions, credits, or rebates that reduce the tax base TAXPAYER BURDEN – The amount each taxpayer would have to send to their state’s treasury in order for the state to be debt-free TAX LIABILITY – Determines rates to be levied and any tax credits which reduce tax liability TOTAL SPENDING – Calculated by adding together the totals for state and federal funds used for expenditures
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SOURCES
Louisiana State Government: House Bill No. 1120, 2016 Regular Session, R.S. 47:1525, Louisiana Tax Institute, Department of Revenue. “Key Audit Issues and Act 461 Report,” Annual Report to the Legislature, Louisiana Legislative Auditor, January 2016. “The Legislative Process,” Louisiana Developmental Disabilities Council, website. Louisiana Executive Branch, http://Louisiana.gov/Government/ExecutiveBranch Governor Department of Revenue Department of Economic Development Louisiana Board of Commerce and Industry Office of Planning and Budget Louisiana Legislature, http://www.legis.la.gov House Committee on Ways and Means House Committee on Appropriations Joint Legislative Committee on the Budget Senate Finance Committee Senate Revenue and Fiscal Affairs Committee Louisiana Legislature, http://www.legis.la.gov Louisiana Revenue Estimating Conference, http://house.louisiana.gov/housefiscal/DOCS_TAXREVEstimatingConferenceData.pdf Public Retirement Systems Actuarial Committee (PRSAC) website. Task Force Reports: “Louisiana’s Opportunity: Comprehensive Solutions for a Sustainable Tax and Spending Structure,” Final Report, Task Force on Structural Changes in Budget and Tax Policy, January 27, 2017. “The Inventory Tax Credit and Local Ad Valorem Taxes,” Final Version, Ad Valorem Task Force Proposal. National State Government Professional Organization Reports “A Guide to Better State Budgeting Practices,” National Conference of State Legislatures, October, 2016. “Budget Processes in the States,” National Association of State Budget Officers (NASBO), Spring, 2015. “Recommended Budget Practices: A Framework for Improved State and Local Governmental Budgeting,” National Advisory Council on Local and State Budgeting, Government Finance Officers Association (GFOA), 1999. “State Tax and Expenditure Limits,” Bert Waisanen, National Conference of State Legislatures, 2010.
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“The Fiscal Survey of States: An Update of the State Conditions,” National Association of State Budget Officers, Spring, 2016. Non-Profit Organization Reports: “A Fiscal Policy Agenda for Stronger State Economies,” Erica Williams, Center on Budget and Policy Priorities, April 13, 2016. “Achieving a Structurally Balanced Budget,” Government Finance Officers Association.html, Feb., 2012.
“Better State Budget Planning Can Help Build Healthier Economies,” Elizabeth McNichol, Iris J. Lav, and Michael Leachman, Center on Budget and Policy Policy, October 15, 2015. “Budget Basics, Did You Know,” Louisiana Association of Business and Industry.html, “Center on Budget and Policy Priorities: Long on Opinion, Short on Research,” American Legislative Exchange Council (ALEC), February 20, 2013. “Louisiana Fiscal Reform: A Framework for the Future”, 2015, Committee of 100 for Economic Development’s commissioned study by The Tax Foundation, http://c100.org. “Louisiana Tax Study”, 2015, Public Affairs Research Council of Louisiana (PAR) http://parlouisiana.org “Policy Basics: The ABCs of State Budgets,” Center on Budget and Policy Priorities, February 7, 2013. “Principles of Sound Tax Policy,” Tax Foundation.html “TANF at 20: Failing Louisiana’s Poor,” Grace Reinke, Louisiana Budget Project, August, 2016. “Taxes Primer,” Peter G. Peterson Foundation, September 28 2013 “The Ship Is Not Turning”, 2017, Together Louisiana, http://togetherla.com “Thursday’s Take Five, The State Budget,” Camille Conaway, Louisiana Association of Business and Industry.html, December 17, 2016. “Who Pays Report: A Distributional Analysis of the Tax System in All 50 States,” Institute on Taxation and Economic Policy, June, 2015. National Websites: http://Ballotpedia.org, Louisiana state budget and finances Interview: Representative John Schroder, House of Representatives for Louisiana; Author of Task Force bill creating the Task Force on Structural Changes in Budget and Tax Policy by Linda Walker, Program Chair and Director, League of Women Voters of Louisiana. Email To Elise Read, Streamlining and Modernization Commission analyst.
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NOTES
