Government & Politics
 

Sharp decline in state tax revenue during Jindal years bucks national trend

Tax collections in Louisiana have dropped sharply during Gov. Bobby Jindal’s 5½ years in office, a trend that runs counter to most other states, according to an independent research institute’s analysis.

State estimates show that Louisiana tax collections won’t regain their previous peak, which occurred when Jindal took office in 2008, until sometime after 2017.

That may be music to the ears of conservatives like Jindal cheerleader Grover Norquist, the low-tax absolutist. From their perspective, choking off tax revenue is a way to “starve the beast” of big government, leaving more money in the hands of consumers and businesses.

That’s exactly what the Jindal administration has tried to do, according to Stephen Moret, Jindal’s head of economic development.

But lower tax collections also mean less money for investments in public infrastructure, including hospitals, schools and universities — and Jindal’s popularity has suffered from cuts to these programs, polls indicate.

Lower tax collections in times of economic recovery also leave the state with less money to cushion the next downturn or recession.

Two of the state’s most prominent economists — Greg Albrecht, the chief economist for the Legislative Fiscal Office, and Louisiana State University economist Jim Richardson, of the four-member Revenue Estimating Conference that certifies state tax collection figures — attribute the reduced tax collections in part to economic factors outside Jindal’s control. These include a drop in oil prices and also to the tapering of post-hurricane spending. But they note that the governor has supported fresh tax cuts while failing to rein in tax breaks for industry and the well-to-do.

Either way, Louisiana’s sharp divergence from the tax revenue trend in other states raises a question: whether Jindal’s economic policies — which favor lower taxes, less government spending and tax breaks for companies willing to invest in the state — are lifting Louisiana up, as the governor frequently claims.

“We don’t have the revenue we need for the things we need to pay for,” said state Rep. John Bel Edwards, D-Amite, who has announced plans to run for governor in 2015.

Louisiana’s tax collections peaked at $12 billion in 2008, as the global economic crisis worsened. But while revenues in most states rose with the economic recovery and now exceed pre-crash levels, by April 2013 Louisiana tax collections were still 12.5 percent lower than in 2008.

Among the other 49 states, combined tax collections were 7.9 percent higher in April 2013 compared to January 2008, according to an analysis by the Nelson A. Rockefeller Institute of Government, which is part of the State University of New York.

Along with the general rise in revenue expected as the national economy strengthens, “some states have increased tax rates, especially California,” said Lucy Dadayan, a senior policy analyst for the Rockefeller Institute.

How much a state collects is often cited as a measure of its economic vitality. An ample revenue stream gives a state leeway to offer targeted tax cuts that further strengthen business development while funding investment in public infrastructure such as roads and bridges, schools, colleges and public health.

But with Jindal opposing even the smallest tax increase to offset the revenue decline, Louisiana has had to sharply reduce such spending. The budget for higher education, widely regarded as an engine for economic development, has been slashed by 66 percent during Jindal’s years, with tuition increases offsetting only some of the shortfall. State spending for colleges and universities has plummeted from $1.5 billion in 2008 to $525 million in the current fiscal year, or from 17.6 percent of general appropriations in Jindal’s first year to 6.7 percent for the current fiscal year. (See page 6 of the linked document.)

The last major state poll, released in early April, showed strong public dismay with the spending cuts to health care and higher education. Jindal’s popularity has swooned accordingly.

Moret, secretary of Louisiana Economic Development, defends the administration’s policies and says they are bearing fruit.

“We set out on a course in January 2008 to grow the private sector economy, give Louisiana citizens an opportunity to find jobs here at home, and make government live within its means,” Moret wrote in an email to The Lens. “We judge the strength of our policies by the growth of the private-sector economy, not the government economy. By any reasonable measure, Louisiana’s economy has outperformed that of the South and U.S. since January 2008.”

But some measures, besides the drop in tax collections, suggest that the economy is less robust than advertised. Since December, for example, the unemployment rate in Louisiana has been rising, while the national rate has been dropping.

Economists note that Jindal took office a month after the Great Recession officially began. The economic downturn slammed tax collections in all states, but it hit Louisiana a little later for two reasons. One is that energy prices peaked in 2008, extending the bonanza from oil and gas revenues that had been flowing into state coffers. Second, an influx of federal recovery dollars and, to a lesser extent, post-Katrina insurance settlements kept the economy flush and helped swell state coffers as the recession dug in.

That means Louisiana’s 2008 tax collections were artificially high, economists say. “It was a peak for unusual reasons,” said Albrecht, of the Legislative Fiscal Office.

Since 2008, energy prices have dropped and the post-hurricane recovery spending has waned, eroding tax revenue.

Also contributing to the loss of revenue: the state Legislature cut personal income and business taxes, first under Governor Kathleen Blanco and then under Jindal — measures that mostly favor wealthier taxpayers and businesses. Among these measures was repeal of the Stelly Plan, which had made the state less dependent on sales tax, an income stream considered regressive because it hits low-income residents harder than the rich.

“The Governor and Legislature did not cause this drop in revenues except for doing away with Stelly and other taxes, but they passed the tax cuts way before they knew about the recession, etc.,” Richardson, the LSU economist, wrote in an email to The Lens.

Albrecht estimated that the combined tax cuts cost the state treasury $650 million per year, with the Legislature approving about half of the reduction in tax revenue while Blanco was governor and the other half under Jindal.

Meanwhile, tax breaks, such as the inventory tax credit, the horizontal drilling exemption and the motion picture industry tax credit, have grown dramatically under Jindal, Albrecht said. Under these programs, state government allows companies to apply tax credits to lower their tax burden. Or the state simply writes checks to companies willing to invest in Louisiana.

“When you cut taxes, you get less tax revenue,” Dave Norris, director of Louisiana Tech’s Enterprise Center, said in an email. “At the state level, lower tax revenue means we must cut spending accordingly to balance the budget. That’s what has happened in Louisiana since 2009.

“Those lower tax receipts — which conservatives applaud — have left us unable to continue investing at the levels necessary in healthcare, education, and infrastructure. That’s the other side of the story. Paying less in taxes is good. Neglecting essential public investment in healthcare, education, and infrastructure is not.”

It’s unclear when Louisiana’s tax revenue stream will return to the 2008 level. The Revenue Estimating Conference’s five-year projection shows tax collections rising from $9.8 billion in 2013 to $10.9 billion in 2017, still $1.1 billion below the 2008 peak.

The Rockefeller Institute analyzed tax collections for each of the states from their peak level through the state’s fiscal year 2012. The results showed that Louisiana’s tax collections dropped 21 percent from their 2008 peak, more than any other state except Arizona, which underwent a similar drop.

State tax revenues have risen slightly since June 30, 2012. Tax collections increased by 7.8 percent during the first three quarters of fiscal year 2013 (July 1, 2012, to March 31, 2013) compared to the first three quarters of fiscal year 2012, Dadayan said.

She pointed to a strong 13.6 percent increase in Louisiana’s personal income tax collections, even as sales tax revenue decreased over that period by 0.7 percent. But the uptick may be temporary. Dadayan said income tax collections increased because “many taxpayers accelerated income into 2012 in anticipation of increases in federal tax rates.”

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  • jeffsadow

    Discussing only the SGF money for higher education is somewhat disingenuous and ignores context. There are actually four sources of funding for higher education — SGF, dedications (including funds sweeps of “one-time” money), self-generated (largely tuition) and federal (largely grants). Taking all of this into consideration, the fact is that since the
    year before the hurricane disasters of 2005, through FY 2013 per student
    spending in the state had increased nearly 20 percent in that span, more than
    the rate of inflation. In fact, even with the reduction in the FY 2014 budget
    of over $200 million, higher education still is getting $350 million more than
    in FY 2005 to educate about 4 percent more students, even as the mix of revenue
    sources has drastically shifted from then.
    Also of note is that it’s hard to claim underfunding of higher education when as of the latest (2011) statistics, LA is 18th per capita in funding among the states. Higher education is not being starved by any means, but instead is overbuilt and strings out too few dollars to too many people. Until that is addressed, it makes little sense to pump more money into an inefficient system, and belies the argument that somehow “necessary services” are not being funded.

  • Tyler Bridges

    Jeff:

    Is is possible that increased spending for higher education under Governor Blanco skews the numbers you cite? I noted that you cited numbers from FY 2005 when she was governor rather than FY 2009, which was Jindal’s first budget. BTW, Jindal spokesman Michael DiResto made the point in an email to me yesterday that spending for higher ed construction and repair has been $700 million during the governor’s tenure.

  • http://www.twitter.com/AhContraire AhContraire

    Taxes are the not the only problem. It’s the CULTURE of New Orleans.
    For example, let’s take a look at MONEY from 2 big places:

    METAIRIE’S LAKESIDE SHOPPING CENTER versus ALL of NOLA TOURISM
    Don’t be surprised that Lakeside Shopping Center’s Food Court brings in far far more sales tax than all of Bourbon St.

    Lakeside Shopping Center has $13 BILLION in retail sales per year on 10 million visitors.
    http://bit.ly/YpSUR3

    What can the French Gutter, Barf n Barker St (Bourbon St.) and the French Trinket Market say?

    That is, New Orleans with Mardi Gras, Jazz Fest, Saints, French Quarter Fest and so on is far less than Lakeside Shopping Center (that has no festivals, NFL or NBA pro teams) has
    only a economic impact of $5 to 6 billion on 9 million visitors.
    http://bit.ly/19X4qys

    Lakeside Shopping Center brings in $13 billion/yr on 10 million visitors with no out-of-state advertising versus NOLA tourism at $5-6B on 9M?

    And by the way, Lakeside Shopping Center doesn’t have 24/7 alcohol and doesn’t need an entire police station to keep the peace. And most of the New Orleans tourism economic numbers are big time hyped and almost impossible verify. And Jefferson Parish’s Lakeside Shopping Center doesn’t even have the national media hyping New Orleans either.

    - – - – - – - – - – - – - – - – - – - – - – - – -
    2 afraid 2 follow me on Twitter?
    U can still bookmark me at http://twitter.com/AhContraire

  • Mark Moseley

    AhContraire: The link you cite for Lakeside’s gross says: “This center attracts an estimated 10 million shoppers per year with estimated area retail sales totalling over $13 billion.”

    “Area retail sales” probably includes the GNO region, not just one shopping center.

    The average Lakeside shopper is not spending an average of $1300 per visit.

  • http://www.twitter.com/AhContraire AhContraire

    Sorry, the links are reversed.
    And the $13 billion is the estimated “AREA” retail sales as stated by the link which I think is relevant as it is comparing tourism area impact.

    How they got that $13billion number I don’t know.

  • http://www.twitter.com/AhContraire AhContraire

    Yeah, let’s drop that $13 billion number for now (as I don’t know how they got that) and just look at visitors as that, IMO, is very relevant.

    10 million at a SINGLE shopping mall versus all of New Orleans at 9 million?
    I think that is something to look at.

    Plus, here are some other shopping mall numbers on visitors per year.

    America’s Most-Visited Shopping Malls
    http://www.travelandleisure.com/articles/americas-most-visited-shopping-malls/8

  • http://www.twitter.com/AhContraire AhContraire

    Below are some comparison numbers as a 2nd SOURCE.

    Notice the New Orleans numbers and how it compares to say Las Vegas.
    And I mention these other cities visitor numbers as I want other to visualize what it would be like when Tourism Officials want to INCREASE NOLA visitors to say 50% more visitors per year in the tiny foot print of the French Quarter

    Las Vegas may be most tourism-dependent city in U.S. – Las Vegas Sun News
    Orlando had the most annual visitors with 48.9 million (calculated in 2007) compared with Las Vegas’ 39.1 million (calculated in 2008). Atlantic City, meanwhile, had the nation’s most annual visitors per capita.

    The city ranked second behind Atlantic City in leisure and hospitality gross domestic product as a percentage of total gross domestic product at 19.5 percent ($18.9 billion of $97.1 billion in 2008). Atlantic City was first at 23.3 percent, and after Las Vegas came

    Orlando (10.2 percent), Honolulu (6.5) and New Orleans (5.7).

    “Orlando’s 48.9 million annual visitors translate into 23.8 visitors per capita,” Aguero said in his report. “That said, leisure and hospitality accounts for only 10.2 percent of economic activity and leisure and hospitality employment accounts for 18.9 percent of Orlando’s workforce.
    http://www.lasvegassun.com/news/2010/jan/22/las-vegas-may-be-most-tourism-dependent-city-us/