Where Do We Go From Here?
Industry heavyweights share their hopes for Louisiana’s next governor.
For at least the past two decades, Louisiana’s governors have consistently earned their stripes from the business community — winning legislative approval to lower business taxes and discourage lawsuits against business. They have also torpedoed similar proposals adopted in less conservative states that would make manufacturing businesses revamp their operations to give Louisiana cleaner air and water.
With the strong support of business leaders, governors and legislators have also made schools more accountable to the public and given parents more choice in where they send their children, particularly in New Orleans. Higher test scores and high school graduation rates indicate that the changes are working.
But business’ winning ways in Baton Rouge ended this year, and that will likely have profound implications for the next governor and state Legislature when they take office on Jan. 11. The four gubernatorial candidates are currently: U.S. Sen. David Vitter, Lt. Gov. Jay Dardenne, Public Service Commissioner Scott Angelle and state Rep. John Bel Edwards, the only Democrat. Vitter is leading in the polls and easily has the biggest amount of campaign cash. The primary election is Oct. 24.
Tough year for business
In 2015, the Legislature and Gov. Bobby Jindal saw no other alternative to making business pay more to help close a $1.6 billion budget deficit, in what analysts said was the state’s biggest budget crisis in 25 years.
After the final accounting, businesses will pay about $550 million more in taxes during fiscal year 2016, which began on July 1. Business leaders and their lobbyists in Baton Rouge weren’t happy, of course, but they knew it could have been worse. The biggest tax hikes will be on the books only for 2016 or for three years.In short, Jindal and legislators didn’t solve the state’s budget problem. Economists estimate that the next governor will inherit a deficit of at least $1 billion. Just as problematic,
Jindal and legislative leaders repeatedly resorted to a series of gimmicks and short-term fixes that mean the next governor and Legislature will have less room to maneuver. Meanwhile, oil prices have dropped to about $45 per barrel, far below the forecasted figure of $61.70 per barrel for the 2016 budget. That’s good news for consumers but not for the state Treasury. The general rule of thumb is that the state collects about $12 million less than expected for every $1 drop in the average annual price of oil. Each of the four gubernatorial candidates has won notice for promising to hold a special session soon after taking office. But that session – which cannot be held until at least a week after the Jan. 11 inauguration – may only be an exercise in stopping the bleeding.
Advice for a New Governor
Adversity, though, also can create opportunity, the state’s business leaders said in interviews with Biz. Instead of taking the piecemeal approach favored by Jindal and legislative leaders, they said, the next governor should seek far-reaching changes in determining who pays taxes – and how much – and how the state spends its $24 billion budget.
“You can’t tax your way out of the problem, and you can’t spend your way out of it, either,” said Chris John, a former state representative and member of Congress from Lafayette who is now president of Louisiana Mid-Continent Oil and Gas Association, which represents the majors. “We need to map out a long-term fiscal strategy. You need all stakeholders at the table. It has to be a cross-section of people. And it will take a governor who is committed to deep, long-term reform.”
“We have to look at all the sources of revenue we have and where does the money flow to,” agreed Todd Murphy, who is president of the Jefferson Chamber of Commerce.
Dan Borné, who is president of the Louisiana Chemical Association, said making deep changes in the state’s budget and taxing rules can’t take place in a January special session. “It can’t be done quickly,” he said. “It has to be done with thought, vision and leadership. In the end, everything will have to be on the table.”
“Everything” includes potentially repealing the state’s inventory tax, lowering the generous homestead exemption, eliminating business tax breaks in exchange for lowing statutory tax rates and eliminating the automatic transfer of hundreds of millions of dollars of state money each year to local entities or governments, in what are known in budget-speak as statutory dedications.
“There are so many unique dedications that benefit parochial interests in the state,” said Stephen Waguespack, who is president of the Louisiana Association of Business and Industry, the state’s most powerful business lobby. In all, he estimates that “unlocking” the hundreds of statutory dedications could give the Legislature and governor another $2 billion for the state’s priorities. Each of the recipients of the money would obviously fight to block any change.
Michael Hecht, president and chief executive officer of Greater New Orleans, Inc., is proposing a possible change to the homestead exemption that would require homeowners to pay property taxes on the first $10,000 of value before the $75,000 exemption kicks in. “At least everybody would be paying something,” said Hecht, who added that he doesn’t know the full impact of the concept, known as First Dollar. It does seem likely that the plan would hit the working poor hardest in a state where, according to the left-leaning Institute on Taxation and Economic Policy, the lowest 20 percent of families in 2015 paid 10 percent of their income in state and local taxes while the top 1 percent paid only 4.2 percent.
The Candidates Respond
The Angelle, Dardenne and Edwards campaigns all told Biz that their candidates don’t support ending the inventory tax unless policy-makers find a way to offset the revenue loss – perhaps $400 million in 2016 – that local governments would suffer since the tax money goes to them. “It will require legislators, the new administration and local governments sitting down to find a solution,” said Waguespack. “Any time you’re making big change, it’s difficult.” Vitter does want to replace the inventory tax “and replace it with new revenue streams or direct state payments to local government,” according to his campaign.
The four gubernatorial campaigns expressed support for a version of tax reform that ends tax breaks and lowers tax rates.
“Tax giveaways that cost too much and produce too little return on investment should be eliminated or reduced,” the Edwards campaign said in an email. “Individual and corporate tax rates should be reduced with related exemptions being eliminated to cover the cost.” Angelle, meanwhile, would establish an Exemption Review Conference to study the efficacy of the current tax breaks and rebates. Vitter took the strongest stand in favor of ending tax breaks, saying the move “will free up the revenue needed to reduce tax rates once the budget is balanced.”
Besides the big budget deficit, Jindal is also bequeathing a huge backlog of infrastructure needs to the next governor — $12.3 billion worth, according to the state Department of Transportation and Development. The backlog matters to anyone regularly stuck in traffic in Louisiana as well as to businesses that need to get goods to market.
Tackling it is the issue for the Association of General Contractors, which has 650 companies statewide.
“Texas will be spending $1 billion a month on infrastructure,” said Ken Naquin, the chief executive officer of the contractors’ association. “We might not reach $600 million for the whole year. Louisiana is sitting on $100 billion in industrial expansion, and we don’t have the infrastructure to handle that. Texas will.”
Naquin wants the next governor to support raising the state sales tax by 1 cent for the next 10 years, with the $700 million collected each year dedicated to upgrading bridges, roads and highways. That proposal fell short of getting the necessary two-thirds vote in the Legislature in 2015, given Jindal’s opposition. An alternative proposal to raise the state’s 20-cent per gallon gas tax by 10 cents also died. None of the three candidates committed to supporting higher taxes for improving infrastructure.
Speaking of infrastructure, the top priority for the Port of New Orleans is building a flyover from the Pontchartrain Expressway near the Tchoupitoulas Street exit to the Felicity Street port entrance, said Gary LaGrange, the port’s president and chief executive officer. He said the $700 million flyover is desperately needed to separate trucks from regular traffic, but he hasn’t yet identified the source of funding.
Film Industry Footing
On another issue particularly important to New Orleans, officials with the film industry said they have yet to see a loss in productions planned for Louisiana, a fear they had expressed immediately after Jindal and the Legislature in 2015 saved the state about $70 million in 2016 by limiting the amount of tax credits that can be issued for films and TV shows to $180 million per year for the next three years.
“We clearly think that the $180 million cap should be increased,” said David Tatman, a lobbyist for the Louisiana Film and Entertainment Association, adding that the group wants to be sure to have a seat at the table when policy-makers make additional changes.
The Working Poor
Besides tax and spending issues, the Louisiana chapter of the National Federation of Independent Business wants the next governor to play defense on a number of issues sought by progressives to lift up the working poor. These measures would mandate a higher minimum wage, paid sick leave for employees and that companies could not ask job applicants if they had ever been convicted of a crime.
“We should trust small-business owners to make the right decisions for their businesses, their families and their communities,” said Dawn Starns, the group’s state director. All four candidates oppose having the state raise the minimum wage. Angelle, Vitter and Dardenne also reject mandating paid sick leave and prohibiting companies from asking job applicants about a possible conviction while Edwards did not rule out either.
Michael Hecht gives the outgoing governor high marks for making the state more attractive for investment. “Economic development has been Gov. Jindal’s greatest legacy,” Hecht said. “Louisiana is now routinely competing against Texas and winning.”
Since Jindal took office in January 2008, the state has continued its recovery from Hurricanes Katrina and Rita. Per-capita income in Louisiana has grown by $6,417 – or 18 percent – over the past seven years and is at its higher rate ever, according to the governor’s office. Louisiana’s private sector has grown by 99,000 since January 2008, giving the state the seventh highest private sector job growth rate in the country, the governor’s office added. The three credit rating agencies have raised Louisiana’s rating a total of eight times during his tenure.
These are all among Jindal’s key talking points now that he is campaigning for president full-time. Here’s what he doesn’t tell his out-of-state audiences: Louisiana’s unemployment rate has risen from 3.8 percent when he took office, a point below the national rate then, to 6.4 percent in June, about a point above the national rate now. The state is facing deficits as far as the eye can see after Jindal and the state legislature cut income taxes for higher-end earners by a total of about $700 million per year, and a drop in business activity from the national recession hit tax collections. The $1 billion surplus that Jindal inherited from Gov. Kathleen Blanco is now the projected $1 billion deficit he is passing on to the next governor. What’s more: LSU, UNO, Delgado and the state’s other public colleges and universities are on shaking footing. On a per-student basis, the cuts by Jindal and the Legislature to the colleges and universities have been the deepest of any state over the past eight years, according to the Center on Budget & Policy Priorities.
As governor, Jindal maintained a strict no-tax pledge given to Americans for Tax Reform, a Washington, D.C.-based lobby group headed by anti-tax zealot Grover Norquist. His group, however, gave Jindal a pass on the $729 million in new taxes and fees raised in 2015 thanks to SAVE, a convoluted tax scheme that lowers taxes only on paper but not in practice.
“Everyone would agree that Jindal’s national agenda got in the way of what we were trying to do locally,” said Murphy, from the Jefferson Chamber of Commerce. None of the four gubernatorial candidates has signed Norquist’s pledge.
One final issue tops the agenda of LABI and a new group called the Louisiana Lawsuit Fairness Committee: making further changes in state law to limit lawsuits filed against business. The effort comes two years after lawsuits filed by Southeast Louisiana Flood Protection Authority – East – as well as Jefferson and Plaquemines parishes – against dozens of oil companies, accusing them of contributing to coastal land loss. The Legislature and Jindal passed a law to kill the flood authority’s lawsuit.
The new group’s board members include Boysie Bollinger, a heavyweight political player mostly in Republican circles, and Loulan Pitre, a former state representative who is an attorney in New Orleans. “Louisiana, despite all the progress we’ve made to build a pro-business, pro-jobs image, still struggles as one of the worst states when it comes to lawsuit fairness,” Pitre said in an email. “Our end goal is to fight for and pass judicial fairness legislation that will level the playing field with the states we compete with for new business and jobs.”
Donald Price, a Baton Rouge trial lawyer who is past president of the Louisiana Association for Justice, said he doesn’t understand the logic behind the effort. “What we hear over and over again from LABI and the governor’s office is how good and friendly the state’s business climate is,” Price said. “It’s only when they talk about the civil justice system that they cry we’re not that friendly. We have a conservative population and conservative judges. They don’t just give away money.”