“We Hate to Say ‘We Told You So’…”

But they told us so.

Earlier this year, only a few months after Governor Jindal took office, Louisianans debated the necessity of renewing the so-called Stelly Tax Plan, which had been a contentious issue for years. The Times-Picayune explains the plan:

The Stelly Plan is nearly a household word, which is quite a distinction for a complex tax code. It is named after its author, former Lake Charles Rep. Vic Stelly, who was a Republican when he passed the legislation in 2002 but later became an independent. The Stelly bills were adopted during Republican Gov. Mike Foster’s administration, and a constitutional amendment was approved by voters in a statewide referendum in November 2002.

The law lowered some taxes and raised others beginning in 2003.

And Matt G. of the Louisiana Tax Blog notes:

Paying for the Stelly sales tax cuts with a hike in another tax was the responsible thing to do– and hiking the income tax in a way that eliminated special tax breaks made the tax system fairer in a number of ways. The burden should be on advocates of Stelly-plan repeal to explain why bringing back these long-dead tax breaks is actually good policy.

This also seems right on: nothing is certain in Louisiana revenue forecasting. The state’s dependence on oil revenues means that the difference between revenue boom and revenue bust (sic) can be a small one. Lawmakers should be mindful of this as they decide the fate of the Stelly reforms.

In late 2007 and early 2008, when opposition to this plan was most vocal, Louisiana had a $1 billion surplus, and because of the skyrocketing price of oil, revenues were also up, which led many to believe that we were obliged to repeal the Stelly plan.

The Times-Picayune observed back in May of 2007 that, although some lawmakers argued the surplus justified a repeal, others were less than convinced. Former State Representative Taylor Townsend (D-Natchitoches) told the Pic:

Also circumspect is Rep. Taylor Townsend, D-Natchitoches, chairman of Ways and Means. His main concern is that the Legislature will go too far in approving Stelly changes and other tax breaks that will add up to a giant and unaffordable revenue hit for the state in future years.

“Sure, I want the best tax relief I can get and I want a lot of it, but ultimately we have to do what is in the best interests of the state,” Townsend said during a hearing last week.

At the time, Governor Blanco didn’t cave into the burgeoning movement for repeal, but advocates for the repeal believed they had found their solution when Governor Jindal was elected. However, at first, Jindal opposed the repeal. From the Associated Press:

The Senate’s tax committee on Monday approved a big income-tax break, despite objections from Gov. Bobby Jindal’s administration that the state can’t afford the $302 million loss of revenue.

Unfortunately, his opposition was short-lived, as conservatives pressured Jindal to rethink his position, with some even questioning whether or not Jindal was a real conservative. Others, like LSUS Professor Jeffrey Sadow, argued that Jindal’s initial wavering on the issue represented a “big hit to his reputation.” But either way, once Jindal signed the repeal into law, his administration proudly announced the repeal, as if it had been their plan all along:

The passage of SB 87, which repeals the burdensome Stelly Tax, marks our sixth tax cut since taking office in January and marks the biggest single income tax repeal in the history of our state. This puts money back where it belongs – in the pockets of hard-working families in our state.

As reported in the Baton Rouge Advocate, this legislation will “initially cut state income taxes by $359 million per year.” This is great news for the hard working families of our state.

Taxpayer money is not an open checkbook for government to spend at will, and I am a firm believer that people can spend their money better than government. I will continue to work to instill fiscal discipline and responsible use of your money.

Seven months after the repeal was signed into law, Louisiana suddenly finds itself in terrible financial shape. The surplus is gone, immediately spent on a string of infrastructure projects, and due to the falling prices of gasoline, revenues are down.

Today, The New York Times, in an article entitled “For Louisiana, Bon Temps Proved All Too Brief,”  describes how hubris about the anticipated sustainability resulted in mistakes, including the repeal of the Stelly Plan, that are now only exacerbating our current budget problems:

His (Jindal’s) fate is tied as much as anybody’s to Louisiana’s overdependence on oil. Severance taxes, mostly from oil and gas, made up just over 8 percent of state tax revenue in 2007, according to Census Bureau data, much less than Alaska’s 64 percent, but higher than Texas’ 6.9 percent. The total take, including royalties and leases from oil, gas and other resources, accounts for just under 17 percent of the Louisiana budget.

But while the leading good-government group here, citing that addiction, warned last May against the Legislature’s plan for a $360 million income tax cut, Mr. Jindal called the tax break “terrific news” and happily signed it into law as legislators cheered.

Matt D. of the Louisiana Tax Blog and Representative Taylor Townsend weren’t the only ones concerned about the future implications of repealing the Stelly Plan. As it turns out, the non-partisan Public Affairs Research Council of Baton Rouge was also sounding the alarm:

“Anybody paying attention knew we were laying the groundwork for fiscal problems, as we cut taxes and raised spending,” said James C. Brandt, president of the Public Affairs Research Council in Baton Rouge, an independent group in Baton Rouge. “We hate to say, ‘we told you so.’ But unfortunately, we seem to be going right down that boom-and-bust cycle again.”

To be sure, the $359 million shortfall we’ll experience as a result of the Stelly repeal represents only a portion of the $2 billion deficit projected for next year, but it’s still significant. And it forces the Governor to make numerous cuts we’d otherwise not need.

Health care and higher education will probably suffer cuts, the latter perilous in a state that regularly bemoans chronic white-collar outmigration, a trend that touched the governor’s own family when his brother moved out of Louisiana. Mr. Jindal recently pointed out that his state was the only one in the South to regularly lose more people than it gained. Now, in the universities that are supposed to be magnets and incubators, faculty positions will go unfilled; academic programs will probably be cut.

There could be some $109 million in education spending cuts alone, and an additional $160 million in health care cuts, much from Medicaid — unfavorable circumstances for the rollout of Mr. Jindal’s ambitious new plan to partly privatize Medicaid in the state.

In fairness, Jindal understands that, although education and health care cuts are unfortunate, the Louisiana Constitution offers him few alternatives; education and health care expenditures are not protected.

Still, the numbers don’t lie. The Stelly shortfall is $359 million, and proposed cuts in health care and education total $269 million.

We are constantly the victims of our own short-sightedness. Louisiana is a poor state, a state that hovers, as Mr. Jindal liked to say on the campaign trail, on the bottoms of the good lists and the tops of the bad lists, and this doesn’t seem likely to change any time soon.

The consequences are real in a state long ago overtaken by regional neighbors more tightly focused on educational institutions. “It reduces the state’s competitiveness in attracting new business,” Mr. Lombardi said. “This is a real economic development issue for the state.”

Mr. Brandt, of the public affairs council, said cutting education would only increase migration from the state. Louisiana, he said. has “gotten by with these resources others don’t have.”

“We’ve not made the decisions we need to,” he said, “to get us out of the high-poverty, low-education cycle.”

It should also be noted that the same legislature who repealed the Stelly plan, even though the Governor was initially opposed to it, also voted to reward itself with pay raises, which the Governor initially supported and balked at vetoing.

With respect to Mr. Brandt, we haven’t only refused to make the right decisions; we’ve refused to acknowledge the problems.