Gov. Jeff Landry’s recent tax overhaul will erase Louisiana’s budget deficit that was expected to be just shy of $600 million and threatened funding for health care services and higher education.
Louisiana’s Revenue Estimating Conference panel adopted new financial projections Thursday morning that show the state’s funding for most government services in the next fiscal year won’t experience a dramatic drop off as initially expected.
The rosier financial estimates can be attributed mostly to a higher state sales tax rate that will offset individual income and corporate tax cuts taking effect Jan. 1.
House Speaker Phillip DeVillier said, “We are seeing the steps we have taken pay off, and given time and proper measures passing, we will continue to see the state’s steady progress.”
“The actions we took during the special session will prevent cuts to higher education and health care,” Senate President Cameron Henry, R-Metairie, said.
The state’s current budget was built on a $12.1 billion general fund, which is the main source of state dollars for K-12 schools, public higher education, prisons and health care. The new forecast has the same fund balance for next fiscal year, starting July 1.
Landry’s tax plan, passed by the Louisiana Legislature in November, cuts individual income and corporate taxes by $1.2 billion in the next fiscal year, according to the latest revenue projections. But that reduction is offset by a boost of $1.3 billion in sales tax collections, largely thanks to an increase in the general sales tax rate from 4.45% to 5%.
The projected deficit previously expected next year was largely driven by the state’s original plan to reduce the sales tax rate permanently to 4%. Landry decided to raise the rate and cut individual income and corporate taxes instead.
The governor and legislators also diverted $280 million that was supposed to go exclusively toward transportation projects and will use it to cover general expenses, including health care and higher education, for the next two years. That extra money helped shore up the state’s general funding against a shortfall.
The budget and tax changes also mean that health care services as well as public colleges and universities should no longer be on the chopping block for drastic reductions.
Louisiana will see a significant reduction in the amount of money it keeps in reserve, however.
Landry and lawmakers completely eliminated the corporate franchise tax, which was projected to put over $500 million in a state savings account annually over the next five years. That money has not been replaced with another revenue source and amounts to a reduction in overall state tax revenue.
Jan Moller worries that the tax package will eventually lead to financial shortfalls in the out years. If lawmakers shift money from a vehicle sales tax back to transportation projects in two years as planned, it would leave the state with a budget gap.
“It’s good that they don’t have a fiscal cliff to deal with next year, but there is a reliance on temporary changes” to cover the shortfall, said Moller, executive director of Invest in Louisiana, a left-leaning think tank.
Landry’s tax package also makes Louisiana government more dependent on sales taxes, which Moller said place a greater burden on people with less money.
The Louisiana Illuminator is an independent, nonprofit, nonpartisan news organization and part of States Newsroom, the nation’s largest state-focused nonprofit news organization.
