May 29, 2017 06:57 AM

Senate Finance's HB1 hearings reveal how much Bobby Jindal changed Louisiana's budget priorities

Photo by Robin May

Bobby Jindal has left the building, but his fiscal priorities continue to shape the budget debate in the Capitol.

Two weeks of hearings on HB1 by the Senate Finance Committee provided a level of detail in the budget debate that was not available earlier in the session due to the way the House Appropriations Committee handled the state budget bill. The hearings revealed that Jindal's budget priorities are now Republican orthodoxy (at least in the House). The hearings also revealed the extent to which Gov. John Bel Edwards has been unable to challenge those assumptions 17 months and five legislative sessions into his term.

There is some irony here as the leading players in the 2017 budget fight — Edwards, House GOP Caucus leader Rep. Lance Harris and House Appropriations Committee chair Rep. Cameron Henry — were once allies in the fight against Jindal's budget practices, particularly the use of one-time money to finance state operations. Edwards led the House Democratic Caucus. Harris was a leader of the Fiscal Hawks, along with Henry whom Jindal had removed from the House Appropriations Committee when he opposed the then-governor's plan to privatize the Office of Group Benefits.

What the budget fights of the Edwards term have revealed is that Harris, Henry and the majority of House Republicans objected to Jindal's methods but shared his priorities. Edwards, on the other hand, objected to Jindal's methods and priorities but has been unable to produce a budget strategy that would enable the state to shift its priorities. In order to do that, Edwards would need revenue, and House Republicans share Jindal's aversion to tax increases this session (as well as the former governor's love of tax exemptions).

The House Appropriations Committee hid the impact of their approach to the budget by focusing on the formula they used to create it — 97.5 percent of the Revenue Estimating Committee's revenue forecast for the fiscal year starting July 1 — rather than the impact of what committee chair Rep. Cameron Henry and GOP Caucus leader Lance Harris called "a standstill budget."
House GOP leader Lance Harris
Photo by Sarah Gamard

Henry and Harris probably had an idea of the kind of cuts that HB1 would force on programs, but they didn't know the details because, as two weeks of testimony before Sen. Eric Lafleur's Senate Finance Committee revealed, House Appropriations did not ask department heads about them.

A parade of department heads from Attorney General Jeff Landry to Louisiana Department of Health Secretary Rebekah Gee to Department of Children and Family Services Secretary Marketa Garner Walters testified that they were not given the opportunity to provide House Appropriations input on the cuts before HB1 was approved by the committee on May 1, then debated on the floor of the House three days later.

The Republican majority approach to HB1 in the House was Jindal-like in its focus on the numbers and not the impact of those numbers on services and people.

The carnage would be staggering.

LDH Secretary Gee told Senate Finance that because of the areas of the department's budget that were kept off limits from cuts in HB1 — funding for waivers for families of children with disabilities and the state's public-private partnerships operating the former LSU hospitals — the $234 million cut imposed on LDH would translate into a $920 million loss of revenue and health care services. The multiplier is the fact that most of LDH's funding comes through the federal government ($12 billion out of the department's $14 billion budget is federally funded) and that those dollars are drawn down using state dollars.

Between the services the federal government mandates the state to provide and the areas of state funding the House protected from cuts, Gee told the committee that the only way she could achieve the savings directed by the House would be to eliminate Medicaid behavioral health services. She also testified that the state's graduate medical education programs that trains doctors and other health professionals would be threatened by other cuts she would be required to make.

Other LDH-run programs that would be cut would include pediatric day care programs for children with disabilities, school-based health programs and the state's nursing home partnership program.

DCFS's Walters told Senate Finance that her department could not even afford the cuts that Edwards' own budget had imposed much less the draconian cuts imposed on her department by HB1.

HB1 focused on eliminating 128 vacant positions at DCFS. Walters told the committee that she doesn't have positions that are vacant year round but that her department is constantly grappling with high turnover because of the large case loads and small salaries paid to case workers.

"We pay beginning case workers just over $27,000 a year to go into people's homes where they are not welcome — because they are usually there to possibly remove a child from that home — and they have the heaviest case loads in the country," Walters told the committee. "And, if they lose a child, the burden is just too great."

She said the bulk of her department's auto fleet is worn out — "every vehicle we have was in the shop for repairs of some sort this year," she testified — and that she feared that at some point a tragedy related to the aging fleet would occur.

"And of course you'll say, 'Why didn't someone tell us,'" Walters said. "Today, I'm telling you."

Given the elimination of positions ordered in HB1, Walters told the committee that she would be forced to terminate the state's Supplemental Nutrition Assistance Program (SNAP) formerly known as the food stamp program.

"We shouldn't even be having this conversation," Walters told the committee. "But if I am forced to choose between protecting children from harm or ensuring that they are properly fed, I'm going to have to choose protecting them."

Walters warned that closing SNAP would have dire consequences in Louisiana where 51 parishes were included in three disaster declarations in 2016. "We provided food assistance to 423,491 households in three disaster events in 2016," Walters testified. "If we are forced to close SNAP we will not be able to provide that assistance when the next disaster hits."

Walters explained to the committee that DSNAP (Disaster Supplemental Nutritional Assistance Program) can only be run in states that have SNAP programs. If DCFS closes SNAP, state residents will not be able to get DSNAP benefits when the next disaster strikes. "States must have the SNAP program in place in order to be eligible to receive DSNAP relief," Walters said.

Department of Corrections Secretary Jimmy Leblanc said his department fights high turnover due to low pay, particularly for prison guards. "We start our security people at $11 per hour," Leblanc testified. Because of high turnover, which he attributes to low pay and high stress, Leblanc testified that DoC overtime pay runs high. He pointed out that the state is spending more on overtime.

"We spent $11 million on overtime this year while it would have cost us $7.5 million to fill the vacancies we have," Leblanc told the committee.

Leblanc told senators that the $9 million cut imposed on his department in HB1 would force him to use his authority to furlough prisoners — that is, give them early release.

"We would look to release 4,691 prisoners over the next 12 months," Leblanc said, "starting with 1,340 initially then about 200 per month thereafter."

Leblanc said these would be non-violent offenders within six months of completing their sentences. He said the department would not have the resources to provide the kind of education, training and treatment that lead to successful re-entry by inmates into society. Leblanc is a proponent of the Justice Reinvestment Task Force reforms, which focus on providing inmates the tools they need to make successful returns to life outside of jails.

Leblanc, like Gee and Walters, said he was not given the opportunity to testify before House Appropriations on the impact of the cuts ordered in HB1.
Sen. Eric Lafleur
Photo by Robin May

On Saturday, Sen. Lafleur told The Independent that his committee will not complete its work on HB1 until Wednesday of this week. That work will include a reworking of the bill that will likely include basing its projections on a higher percentage of the REC revenue forecast.

They're going to need the money because even as Senate Finance was learning about the impact of HB1, new tax exemption bills were advancing through the House.

HB264 by Rep. Stuart Bishop would exclude certain types of construction contracts from new sales and use taxes if the projects were started within 90 days of the new levy taking effect. According to the fiscal note accompanying the bill, the Department of Revenue says state and local governments could lose tens of millions of dollars under the bill, which has passed the House and now awaits consideration by the Senate Committee on Revenue and Fiscal Affairs.

HB364 by Rep. Barry Ivey of Baton Rouge would lengthen the state's horizontal drilling severance tax exemption to five years and cost the state an estimated $500 million over the next five years. The bill won approval from the House Ways & Means Committee and is scheduled for House debate on Tuesday.

Tax exemptions for business and industry became the hallmark of the Jindal years and have fundamentally altered the state's revenue base.

The Department of Revenue's annual Tax Exemption Budget publications describe tax exemptions this way:
Tax exemptions are tax dollars that are not collected and result in a loss of state tax revenues available for appropriation. In this sense, the fiscal effect of tax exemptions is the same as a direct fund expenditure.

In Gov. Kathleen Blanco's final year in office, according to the 2007-2008 Tax Exemption Budget, the state exempted 57.4 percent of corporate income taxes owed the state. The state collected $721 million in corporate income taxes while it exempted $972 million (page 6 of the document).

The 2015-2016 Tax Exemption Budget (the one covering Jindal's last year in office) shows that the state exempted 86 percent of corporate income taxes. That fiscal year, the state collected $373 million in corporate income taxes while exempting $2.29 billion in those taxes (page 5 of the document).

The 2016-2017 Tax Exemption Budget reports that the state exempted 90.6 percent of corporate income taxes in the current fiscal year. The state collected $145 million in corporate income taxes while it exempted $1.4 billion in taxes (page 9 of the document).

The absolute decline in corporate income tax revenue as well as the sharp increase in the percentage of revenue exempted helped produce the fiscal crisis that Jindal presided over during his tenure and which continues in the first half of the Edwards term.

Preventing any increase in corporate income taxes or even addressing the exemptions has now become established Republican orthodoxy in Louisiana backed by the power of the state's largest business lobby, the Louisiana Association of Business and Industry. That LABI backs this tenet of Jindalism should not come as a real surprise as the organization is now led by former Jindal administration official Steve Waguespack.

LSU President King Alexander, when testifying before Senate Finance, told the senators that state support for higher education over the past 10 years has fallen from 80 percent of total funding to 20 percent of total funding. The difference has been made up by tuition and fee increases borne by students and their families, as well as some TOPS funding.

Where did the state support dollars go? The case can be made that it was eaten up by corporate income tax exemptions and by corporate incentive programs — tax breaks and incentives that LABI and its allies are determined to keep, regardless of the impact on state programs.

It became too much to bear for Rep. Kenny Havard, a Republican from Jackson, who authored HB648 as a means to get Louisiana businesses to pay a larger share of the cost of financing state government. Havard's Louisiana Business Tax would have eliminated the corporate franchise and income taxes and replace those with a hybrid tax that was projected to raise an additional $230 million in business taxes. It was rejected by the House Ways & Means Committee on May 9 with the committee room filled with various business lobbyists.

After the defeat of his bill, Havard exploded, according to The Advocate.

"If we don't have the courage to make change now," Havard said, "for God's sake because we might upset some of the people sitting behind us? Let's just keep doing what we've been doing for the past 20 years. Isn't that the definition of insanity? Keep doing the same thing over and over and expecting different results? We're not going to get different results."

Susan Nelson is a lobbyist for the Louisiana Partnership for Children and Families, a Baton Rouge-based non-profit. Nelson testified before the Senate Finance Committee on Saturday, urging senators to restore funding that would eliminate cuts to programs in LDH and DCFS.

In an interview after her testimony, Nelson told The Independent that the state is gutting effective programs while gambling on business propositions that have not paid off for the state in terms of jobs and revenue.

"I think the core of this issue is that we spend this money on incentives and tax breaks in the hope that they will create jobs," Nelson said outside the committee room. "But, we've been giving these tax cuts for more than 10 years now, and we still have the same rate of unemployment. We've lured some companies here but not to the extent that we've been giving out these tax breaks."

"Everyone says, 'Oh, we need better education, we need all those things' yet we spend the money on the other side of the equation," Nelson added. "We know that when we invest in children and their health and wellbeing it's going to give lifelong payouts to us. We know that when we help some kids bridge the gap from foster care to some form of higher education that it's going to keep them out of the judicial system, and yet we cut that program."

Nelson compared the state's love of tax breaks to a family with a gambling habit.

"We're gambling over here when we know that we could spend the money in ways that would save us money later," Nelson declared. "If any parents did that with their family — where they took the rent money and went to the casino because they might be able to make enough money to do more than just pay the rent — we'd say, 'No, just pay the rent!' We're always taking the gamble."

Nelson, like Havard, lamented the lack of political courage in the Capitol that is preventing legislators from taking the steps to right the state's fiscal ship.

Speaker Taylor Barras, a Republican from New Iberia, last week conceded that a special session would be needed at some point between the current session and the 2018 regular session to address the state's finances. Edwards has let it be known that he's working on a call for one now, although it is not clear when it would be held.

The problem Edwards faces is that in budget terms he has continued to operate within the framework Jindal created and which he fought against while a member of the House. His tax proposals have been either regressive (sales taxes) or incomplete (the commercial activity tax). Henry, Edwards' former House ally and now his foe, told The Independent that the governor "didn't submit a plan so much as make a suggestion on taxes. I mean, the revenue from the CAT tax went from $1 billion to $280 million before it even got to us."

A rushed special session won't likely improve Edwards' chances of success on tax reform, although even Barras says it is likely that an extension of sales taxes passed in 2016 can win House approval. Even then, what that will do is allow the state to continue to limp along, robbing Peter one year to pay Paul the next.

Edwards needs to reframe the fiscal conversation if he's going to have any chance of getting tax reform and, most likely, saving his governorship. That conversation can't be limited to the halls of the Capitol. It's going to take an investment of time and energy to explain the issues and the proposed solution. He hasn't done that yet as the state has careened from natural disaster to fiscal crisis in his 17 months in office.

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