Lawmakers prepare to deal with fiscal cliff, possible special session

Halen Doughty
Louisiana State Capitol

With the new year just around the corner, a looming fiscal cliff draws closer and closer. Lawmakers will have to grapple with a massive reduction in state general funds at the end of the fiscal year when one billion dollars in temporary taxes expire. The clean penny of the sales tax sunsets on June 30, and state lawmakers will have to fill the hole or make huge cuts to the state budget.

Governor John Bel Edwards unveiled his plan for dealing with the fiscal cliff. Edwards said his proposals come directly from the recommendations of the tax task force, which sought to find solutions to Louisiana’s ongoing budget problems.

The governor’s plan includes widening the base of the state sales tax and lowering the rate. He insists that the fifth penny of the sales tax must expire as intended. To make up the difference, the governor would like to see the four remaining pennies cleaned of exemptions and the sales tax broadened to include some services.

Other recommendations from the governor include compressing income tax brackets, reducing itemized deductions, and making permanent some deductions and rebates that are set to sunset at the end of the fiscal year. Edwards noted the state tax structure could change with the implementation of a new federal tax plan, and Louisiana is prepared to deal with those changes as they take effect.

Gonzales Representative Johnny Berthelot and Prairieville Representative Tony Bacala sit on the House Appropriations Committee, which means they’ll be among the first to take a crack at filling the budget gap. Berthelot said he’s taking a close look at the governor’s recommendations. He added that compromise will be essential to resolving the state’s fiscal woes.

There’s some things in there I have reservations about. I think that we all need to come to the table with the attitude of working together - and that includes the Republicans, Democrats, and the governor’s staff - to try to come up with a solution not just for today but for the future,” said Berthelot.

Meaningful tax reform was not achieved during the 2017 fiscal session as planned, and there will not be another fiscal session until 2019. So when will lawmakers address the financial crisis? Edwards said a special session could be necessary. If he issues the call, Edwards said the best time for that session would be after Mardi Gras and before the regular session begins in March.

The governor said he would only issue the call for a special session if he can be assured a compromise will be reached. Bacala agreed that a bipartisan agreement will be necessary, as a two-thirds vote of the legislature is required for revenue measures.

Without a special session to resolve the fiscal cliff, $1 billion in cuts will be necessary to achieve a balanced budget as the state constitution requires. Edwards said those cuts will have to come from a small slice of the budget.

It’s a state general fund deficit. Only state general funds can be used to make up the deficit, and the constitution puts a number of things off limits,” said Edwards.

The governor said the only two large pots of money the constitution allows to be cut are healthcare and higher education, two areas that have taken massive hits in recent years. Edwards said some items on the chopping block are optional Medicaid services, funding for public colleges, and the taxpayer funded scholarship program TOPS.

If we don’t fix the cliff, no one is going to want to put their names on the cuts that are necessary,” Edwards said.

Those cuts will be presented in the executive budget proposal the governor will release on January 19. It will give lawmakers an idea of what funding will look like for state agencies without a plan to address the fiscal cliff.

But Bacala is optimistic things will work out in the best interest of the state. He said at the end of the day, lawmakers are going to fix the problem because everyone shares the constitutional obligation to balance the budget. Bacala added that the legislature cut hundreds of millions of dollars from last year’s budget without huge reductions in vital state services.

The kids still got TOPS, hospitals stayed open, important services were not cut, there were no mass layoffs, nobody’s salary got cut,” said Bacala.

Edwards said he looks forward to compromising with the legislature to achieve the comprehensive tax reform Louisiana needs. He added that he’s held over 20 meetings with business leaders around the state to find the best way to simplify Louisiana’s tax code, which he said is one of the most complex in the country.

We can do reform that produces more stability predictability, does it in a fair way, and also makes our tax system simpler,” said Edwards.

Bacala is also ready to resolve Louisiana’s financial issues once and for all. He said they need to stabilize the tax system for the long term so they can move on to handling the business of the state.

The clock is ticking on the legislature and the administration to find those solutions. Lawmakers have until the end of the fiscal year to fix the problem, or fall off the fiscal cliff.

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