Amid soaring oil prices and an influx of federal funding after Hurricane Katrina, Louisiana slashed many of its taxes in the years leading up to the global financial crisis. Bloomberg reports that as that money stops flowing, experts warn the state is no longer collecting enough revenue to support its budget, with a shortfall of $1.1 billion expected at the end of fiscal year 2018.
“They really have this sort of anvil hanging over the state budget,” says Jan Moller, director of the Louisiana Budget Project. “If it drops, it would require the kind of devastating cuts to services that no Republican or Democrat wants to see.”
The state has taken some steps to alleviate the budget problem, tackling a historic state budget shortfall earlier this year by temporarily raising the state sales tax and cutting the number of items exempt from the levy.
The state’s short-term sales tax changes expire in mid-2018. Advocates for tax reform are hopeful that the budget crisis could encourage legislators to make more meaningful and long-lasting changes to the tax code in 2017.
Louisiana has faced budget deficits every year for the past eight years that ranged from about $31 million in fiscal 2014 to $1 billion in fiscal 2016, according to data from the Division of Administration, which oversees the budget. But reform has proven difficult for states due to anti-tax sentiment, lack of political consensus and the attraction of sticking with the status quo.
Joseph Crosby, a tax policy expert for lobbying group MultiState Associates, says Louisiana may have a hard time tackling tax reform because its House and Senate are led by Republicans, while Governor John Bel Edwards is a Democrat.
“There’s disagreement over what reform means. If you look at successful reforms, they have occurred in states that are dominated by one political party,” he says.
Louisiana’s tax system is made more complicated by the fact that its 64 parishes have the ability to collect and administer sales tax. Experts say that’s burdensome on businesses because they have to follow differing rates and exemptions across parishes.
“You don’t want to be known as a state known for a really cumbersome tax administration system,” says Scott Drenkard, director of state projects for the Tax Foundation. “It fits in with biases that Louisiana is backwards. That’s not helpful to the state.”
