Questioning the state-local money train
“It’s like Mardi Gras,” Commissioner of Administration Jay Dardenne explained during a forum hosted last week by the Public Affairs Research Council.
“The king or the queen sits on the fourth floor and the 144 members of the carnival krewe that we call senators and representatives are on the first floor,” Dardenne said, likening the State Capitol to a parade route. “They gather once a year and toss out the goodies and the beads and the trinkets to the assembled masses who come with their hands outstretched looking for something for nothing. That’s the kind of the mindset that has been created over the years and local government has been a big part of that.”
What was Dardenne going on about? Well, instead of using state tax dollars exclusively for state purposes, the legislatures and administrations of yesteryear have been directing a significant amount to local governments, which likewise generate their own money. It’s still happening today. In fact, during the current fiscal year, it amounts to roughly $4 billion, or 44% of the state’s $9 billion general fund, with most of that tally going to K-12 schools.
Whether or not the state should be doing this at such a heightened level represents a series of perennial questions at the State Capitol. Should locals be on the hook for their own needs? Are local revenue streams from the state being politically negotiated? Are local projects really more important than health care and higher education? The issue really flares up in years like these, when budget cuts threaten critical services, taxes are being increased and revenues are being stretched thin.
There has been a dependency built up over the years that can be traced back partly to the 1973 Constitution, which guarantees $90 million in revenue sharing for local governments. Moreover, supplemental pay for policemen and firefighters started out as a small supplement for sheriff deputies and street cops only, but ballooned over the years to include harbor police and basically anyone who has received POST-certified training. That’s all to say critics of state aid to local governments are fighting precedent and history.
Aside from the money local governments get from the state general fund, there’s about $300 million in statutory dedications that go to parish and municipal bodies. Nearly half of all bonded capital outlay projects go to non-state projects, like local governments and nonprofits, but that’s shrinking. The state also ponies up aid for community colleges, roads, health care, economic development and tourism needs, but doesn’t bear the entire local brunt.
So what’s to be done? It’s difficult to fight the system in place. Not only are there constitutional protections, but there are also political protections. If lawmakers really wanted to tackle this issue in a real way, they would be met with opposition from their assessors, parish presidents, school board members, city councilmen and more—essentially every shade of local power broker.
To be fair, all of this creates an unbalanced look into the state-local money train, because it flows both ways in certain respects. For example, the state money most parishes get for transportation needs is greatly outstripped by what they have to pay to maintain the state’s criminal justice system. While judges and district attorneys get their salaries from the state, the cash to staff and operate their offices—and to prosecute state criminal law violators and jail the accused when needed—comes from local coffers. In some instances, local money is likewise being used to underwrite work on state highways.
The so-called inventory tax is a perfect example of how convoluted the money train can get. Businesses pay a property tax on inventories to local governments, but receive a 100% refundable tax credit from the state. If the inventory tax is greater than the income and corporation franchise taxes due, the Department of Revenue actually writes a check for the balance to the business.
“What you replace that with is why the inventory tax gets stuck in discussions,” said House Speaker Taylor Barras, referencing efforts to repeal the inventory tax and the related tax credit.
While the Legislature can easily raise taxes—the House and Senate generated hundreds of millions of dollars through a sales tax change in a three-week special session earlier this year—local governments need the approval of voters to do the same. And local officials struggle with taxes just as much as lawmakers do. Plus, there are constitutional prohibitions against parishes and municipalities taxing things like gas, income and severance.
There isn’t a consensus on any of this yet, but there are rays of hope. Gov. John Bel Edwards is already reforming the capital outlay process for construction projects in small steps and there’s a legislatively-created task force investigating the topic.
“There’s a heavy presence of local government representatives on that and we’re going to get together and see what they’re willing to come to the table with to deal with those issues,” said Robert Travis Scott, president of the Public Affairs Research Council.
The money flowing between state and local governments might be on the back burner right now, but it’ll certainly flare up again some time in the future regardless of how the current budget crisis ends. To be certain, ideas and compromises are needed. But so is money—on both sides.