Panel to review tax incentives

From the State Capitol to the morning radio shows, people are questioning whether state government in Louisiana gives away too much of its money.

More than 400 tax credits and other exemptions are on the books, diverting more than $4 billion that could be used to fund hospitals, colleges and other state services. Some of the exemptions date to the 1930s.

After a contentious session hampered by too little money to pay for the state’s expenses, a commission of legislators is scheduled to begin work soon on examining the state’s tax exclusions, exemptions, suspensions, deductions, credits, refunds, rebates and preferential tax calculation methods.

The commission is supposed to:

• Determine the best formula for measuring an incentive’s economic impact.
• Identify low-performing or antiquated incentives.
• Recommend the temporary or permanent reduction or elimination of exemptions, suspensions, exclusions, deductions, credits, refunds, rebates and preferential tax calculation methods.

The commission must begin work by Sept. 1 and make recommendations to House Speaker Chuck Kleckley, R-Lake Charles, and Senate President John Alario, R-Westwego, by Feb. 1.

However, it is unclear how supportive Gov. Bobby Jindal would be of recommendations to erase or reduce incentives.

The governor declined over a weeklong period to grant an interview on the commission’s work.

Instead, he issued a one-sentence statement.

“We’re opposed to raising taxes, but we’re open to any review of the tax code that would make it fairer, flatter and lower for Louisiana businesses and families,” the governor said.

Jindal recently vetoed legislation that sought to force state agencies to determine what “returns on investment” the state is receiving through tax breaks. The governor said the evaluations would be burdensome.

The governor’s economic development chief, Stephen Moret, said the commission’s work should show that the majority of tax exemptions are not related to economic development incentive programs, and that most of the recent growth in incentives was tied to provisions in existence before Jindal took office.

“Any changes that are made must be budget neutral and not an attempt to just raise revenue,” Moret said. “This review also is an important exercise so that we can separate myth from reality.”

State Sen. Jack Donahue, who sponsored the resolution creating the commission, said he is not discouraged by the Jindal administration’s “budget neutral” directive.

“I really don’t have any comment on that. I haven’t talked to the governor on what his expectation might be,” he said.

At the least, the development of a method to analyze tax credits would be “a pretty big deal,” Donahue said.

State Rep. Joel Robideaux, a Republican from Lafayette who sits on the study commission, said he started preparing by taking the 2011-2012 Louisiana tax exemption budget — which runs 402 pages — with him on vacation.

The exemption budget, prepared by the state Department of Revenue, details the statutory diversion of state revenue on income, sales, natural resources, petroleum products, corporations, alcohol, inheritance and gifts.

For the state fiscal year that ended Saturday, the exemption budget shows exemptions eroded corporate income tax collections by 88.1 percent, sales tax collections by 34.3 percent and individual income tax collections by 32.1 percent.

The Louisiana Department of Economic Development provided a chart showing that the erosion actually is closer to $6.8 billion a year once constitutional and other exemptions are included.

Modern and long-dead governors oversaw exemptions that directed dollars away from the state’s coffers.

Beginning in the 2009 tax year, Louisiana income tax filers were able to deduct 100 percent of their federal excess itemized deductions, a policy change that reduced state revenue by more than $300 million in the 2010-2011 budget year. Gov. Kathleen Blanco signed the tax break into law six months before she left office.

An insurance company premium tax credit in place since 1934 could direct $259 million away from state government in the fiscal year that started Sunday. The incentive gives insurance companies a credit on the taxes they are supposed to pay for writing premiums in the state.

Deductions on private school tuition came under Jindal, at an expected $17.7 million revenue loss in fiscal year 2012-13. Likewise, home-schooling expenses are expected to add up to a $175,000 revenue loss in fiscal year 2012-13.

One of the biggest hits to the state’s pocketbook during the Jindal administration was returning state tax rates to pre-Stelly plan levels.

Voters in 2002 approved a tax swap, named for then-state Rep. Vic Stelly, No Party-Lake Charles, that repealed the state sales tax on grocery and utilities in exchange for revamping state income tax brackets to offset the loss of tax revenue.

Blanco started tinkering with the Stelly plan by allowing tax filers to deduct their federal excess itemized deductions.

A year later, Jindal signed legislation into law unraveling the compression and giving higher-earning households a big tax break. Economists warned that the change, which was signed in 2008 when the state had more money, eventually would drain state revenue by nearly $300 million a year.

LSU interim President and Chancellor William Jenkins recently said on a Baton Rouge morning radio show that the state’s budget would be richer by $1 billion if the Stelly plan still was in place. “The pages of history will show (this) was a serious mistake, abandoning the Stelly plan,” Jenkins said.

Stelly said it cannot be a coincidence that state revenue took a downhill dip immediately after changes to his plan were made. He said the Stelly plan changes, combined with the recession and an abundance of tax breaks, reversed the state’s fortunes.

“I don’t know what the light at the end of the tunnel is. I don’t see it getting better unless they make dramatic changes with those tax credits,” Stelly said.

State Rep. Jim Fannin, D-Jonesboro, who sponsors the state’s budget bill, said the film production tax credit program needs to be reviewed because it does not appear to be cost effective.

“It needs to be good for both parties. It needs to be good for the state and it needs to be good for industry,” he said.

The program offers a tax credit on film production with an additional tax credit available for payroll spent on Louisiana residents.

The program is credited with drawing productions headlined by A-list stars to the state. In a recent interview, actor Tom Cruise talked about taking his wife and daughter for a walk around the LSU lakes while filming in Baton Rouge. A popular teenage vampire series was shot near the State Capitol within view of the Governor’s Mansion. Road signs directing crews to filming locations now are commonplace in Louisiana.

State Secretary of Economic Development Stephen Moret said “The Twilight Saga: Breaking Dawn, Parts I and II” generated $189.3 million in payroll, purchases and other economic activity in Louisiana, while earning $33.2 million in tax credits. “Abraham Lincoln: Vampire Hunter” resulted in $61.5 million in direct expenditures and earned $19.3 million in tax credits.

Another issue, though, is how much tax revenue the state receives in exchange for granting the credits.

An economic analysis by BaxStarr Consulting Group showed that motion picture production generated $27 million in state tax revenue in 2010 while certifying $196.8 million in tax credits. Mathematically, that is roughly $1 of state tax income for every $7 in credits.

Moret said the film production tax credit program is intended to grow a thriving film production industry in Louisiana.

“Clearly it has been very successful in that regard,” he said.

In addition to the big incentives, the state gives a tax break to some doctors and dentists with practices in small towns. Low-income parents can reduce their state tax liability by deducting a percentage of their child care expenses. Rooms at homeless shelters, purchases by state and local governments, and buses bought by independent operators to transport public schoolchildren are exempt from state sales tax.

Some tax breaks have a minimal impact on state government.

For example, an individual income tax credit available to employers who hire graduates of a court-ordered drug rehabilitation program only is expected to reduce state revenue by $21,000 in the fiscal year that started Sunday.

On other exemptions, the state has no idea what the impact is because there is no data-reporting requirement.

The state Department of Revenue could not determine how much money the state loses by giving a state corporate income and franchise tax exemption to entities that counsel businesses in low-income communities. The same holds true for an income tax credit for people and businesses who contribute money to research.

Fannin said he hopes the commission mines data that will be useful to legislators as they try to determine whether some tax credits have outlived their usefulness or are failing to pay for themselves.

“I would hope that we just make a lot of information available,” Fannin said.

To make a dent, though, officials would have to pursue the most lucrative incentives, said Greg Albrecht, chief economist with the Legislative Fiscal Office.

“You’d have to pull off big ones. You could pull off 50 and they wouldn’t add up to much,” he said.