The Revenue Study Commission, initiated by state Republican state Sen. Jack Donahue of Mandeville, will attempt to answer that question beginning this week. State Rep. Joel Robideaux is one of eight legislators who this week will begin looking at whether the $4 billion the state gives away each year in credits, exemptions and tax breaks is too much. It's a much-needed analysis, especially in light of the state's ongoing financial problems that have led to drastic cuts to Medicaid, higher education and other programs and services.
Also on the Revenue Study Commission, according to The Advocate, are state Sen. Jack Donahue of Mandeville, who sponsored the resolution that created the group; Senate President John Alario, R-Westwego; state Sens. Neil Riser, R-Columbia, and Dan Claitor, R-Baton Rouge; Senate President Pro-Temp Sharon Broome, D-Baton Rouge; House Speaker Chuck Kleckley, R-Lake Charles; and state Reps. Jim Fannin, D-Jonesboro.
One area they'll be looking at is the incentives to lure business to the state. The Louisiana Legislative Auditor's analysis of the Louisiana Department of Revenue's Corporate Income and Franchise Tax and Individual Income Tax credits finds such credits extended as an incentive to lure corporations and industries into the state result in a major reduction in overall revenue collection by the state. Moreover, because state law does not require agencies that administer such credits and exemptions to track and report their return on investment, it's difficult to determine the economic benefit to the state accrued by such credits.
In its executive summary of the 10-page report, which was released in March, the Louisiana Legislative Auditor's office provides an overview of the programs and their impact on revenue:
As of February 2011, the state has a total of 464 tax credits and other exemptions that were enacted by individual statutes.
The amount of CIFT credits claimed during tax years 2005 through 2010 resulted in a tax liability reduction of approximately $3 billion out of a total tax liability of $5.4 billion, an average revenue loss of approximately 55% due to CIFT credits. The amount of IIT credits claimed during tax years 2005 through 2010 resulted in a tax liability reduction of approximately $1.8 billion out of a total tax liability of $16.5 billion, an average revenue loss of approximately 11% due to IIT credits. This money may have been eligible for collection as tax revenue by LDR if these tax credits did not exist.
While determining the average amount of state revenue lost due to CIFT credits and IIT credits, we found that state law does not require agencies that administer tax credits and other exemptions to track and report their return on investment. As a result, it is difficult to determine the overall impact of CIFT and IIT tax credits on Louisiana. In addition, we identified four CIFT credits where only a few entities claimed a significant portion (greater than 50%) of the tax credit.
Robert Travis Scott, president of the Public Affairs Research Council of Louisiana, wrote a four-page letter to Donahue Thursday, expressing his hope that the commission identify low-performing or antiquated programs and reevaluate them. "The commission's work might also give us a clearer picture of the actual cost of these programs," Scott writes.
Scott says while many of the programs legislators will analyze are keeping the state competitive for business growth and may have a positive impact on the economy and job creation, there is a "serious lack of available information on some of these programs" and evidence that they don't receive adequate follow-up and implementation after they are passed into law. In particular, he cites the recent controversy over the alternative fuels tax credit. He says it was not until April of this year that the Department of Revenue created rules to implement the program even though the 2009 specifically called for rules to be made.
We all know how that debacle played out.
Read Scott's letter here and the Legislative Auditor's report here.