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The House Appropriations Committee began holding budget hearings this week, and Chair Jack McFarland will be looking for cuts.
That’s not because Louisiana is facing a revenue crunch. In fact, the state government is running a surplus of close to $900 million, if you add up the extra cash from last fiscal year and the current one.
But state economists are projecting shortfalls in future years, federal spending cuts are creating higher costs for the state, and lawmakers are itching to slash the state income tax rate even further during next year’s fiscal session. Senate President Cameron Henry says his goal is to get the current flat rate of 3% down to 2.5% next year, which would cost about $500 million.
Gov. Jeff Landry has proposed a largely “standstill” $47 billion budget, thanks in part to hundreds of millions of dollars in savings he credited to his administration’s efficiency efforts. But McFarland and other key lawmakers hope to figure out a way to spend a little less than the governor has asked for to prepare for the future.
“The last thing we want to do is to create or increase recurring expenditures,” McFarland says.
This year’s most contentious spending debate is likely to center around Landry’s proposed $44 million increase for the LA GATOR voucher program. Senate Finance Chair Glen Womack says he was less worried about the initial expense than about how costs could grow over time.
“What’s it going to look like in five years, 10 years for our state?” Womack says. “How’s it going to be funded?”
Landry also is asking for an additional $82 million for the Department of Corrections. McFarland is fielding requests to spend more on early childhood education and community-based waivers that support in-home health care, and he also expects to pay off some judgments against the state this year.
Unless they reverse course, this will be the first year that lawmakers will not be able to use vehicle sales tax dollars for general fund spending, notes Rep. Jerome Zeringue, who replaced now-New Orleans City Council member Jason Hughes as Appropriations vice chair. He expects legislators to stand by that decision, but it’s one more factor to keep in mind.
Sen. Heather Cloud, who is vice chair of Finance, is planning legislation that would codify the $3 bump to the per diems sheriffs get for housing state prisoners, which lawmakers have provided in recent years. Funding to provide the $3 boost again this year is in the governor’s budget proposal, McFarland says, so that’s one thing he wouldn’t need to find additional money for.
“There would be legislative appetite to be able to offer them a little bit more if they’re offering more educational services,” Cloud adds. “Outside of God himself, the best way to reduce recidivism is to equip and educate these people with workforce and skills training.”
One familiar item they won’t be looking to pay for this year is the teacher stipend that costs about $200 million. Instead, they’re hoping a constitutional amendment passes in May that would lock in the stipend amount permanently.
The tax overhaul that lawmakers approved in Gov. Landry’s 2024 tax special session will save the typical middle-class family almost $500, while the average working individual will save about $261, Landry told reporters on Wednesday.
“When people file taxes this year, they are going to get a bigger refund,” he says.
Since this year’s session is nonfiscal, “we can’t really do any additional tax reform,” Landry says. “We’re focused on the budget, trying to make sure we keep a tight ship.”
Lawmakers can lower taxes in a nonfiscal session, but they can’t raise revenue.
Legislative leaders generally would like to invest about the same amount in infrastructure as they have during the past couple years, if not a little more. The state’s current bonding capacity is about $574 million, says new House Ways and Means Chair Tony Bacala, noting that it’s typically safe to go a little above that number since some projects always get delayed.
Now that he has replaced Julie Emerson, who is now Landry’s chief of staff, as leader of the House tax committee, it will be his job to shepherd the capital outlay bill through the process. He expects to get the administration’s capital outlay budget, which lays the foundation for House Bill 2, about a week into session.
As always, Ways and Means will take up bills that could reduce state funding, which Bacala will approach with caution.
“Every time you reduce the revenue, you’re moving further away from the ability to reduce income tax,” he says. “We have to pay close attention to the bills that come before us to make sure that we’re moving in the right direction to get rid of income taxes at some point in the future.”
Senate Revenue and Fiscal Affairs Chair Franklin Foil says he hopes there will be at least “a couple hundred million” in surplus dollars for infrastructure. He also raised the possibility of tapping the rainy day fund again, though he notes that no decisions have been made.
While he doesn’t expect to debate tax policy much this session, there could be some procedural tweaks. Foil plans to bring a Department of Revenue bill that would make it easier to notify people electronically versus by mail, and he is working on a bill that would change the amount of time a business would have to appeal a past due tax from 60 to 90 days.
At least a few lawmakers would like to give parish governments the ability to raise the homestead exemption through a constitutional amendment. Senate Revenue and Fiscal Affairs Committee Vice Chair Sam Jenkins says he has not reviewed any specific proposals, but cautions that the committee generally resists the idea of messing with the homestead exemption.
Jenkins stresses that it will be important for lawmakers to keep an eye on planned and potential federal budget cuts, given the importance of those dollars to the state budget.
The regular session convenes at noon on March 9 and is scheduled to end on June 1.
