July 14, 2012
In state government, no man has more right to say “told you so” than Vic Stelly, but there’s one particular way that can be taken out of any day’s headlines: more chaos in the state budget.
Speaking to the Press Club of Baton Rouge, the former state representative from Lake Charles talked about the steep budget cuts to higher education that have occurred under Gov. Bobby Jindal. Stelly recently resigned from the state Board of Regents, the top college board, as a small protest against the cuts.
However, there is a broader lesson from Stelly, who was author of a landmark 2002 tax reform plan that cut state sales taxes on groceries, home utilities and prescription drugs. The Stelly Plan balanced the books by raising income taxes through a change in brackets and deductions.
Over the years, governors and legislators — ever sensitive to the views of higher-income voters — reduced income taxes by repealing the Stelly provisions. The sales tax cuts were constitutionally protected.
As Stelly told the Press Club, other factors have been hurting state revenues in recent years, including the national recession and tax breaks for businesses.
However, the nonpartisan Louisiana Budget Project estimated the loss to the state general fund of more than $2 billion from the repeal of the Stelly provisions.
Not surprisingly, that has resulted in years of budget problems.
The interesting point of history, though, is one of the prime reasons for the Stelly Plan in the first place. Stelly recalled that for 16 years the Legislature and the administration of the day on a regular basis had to generate a two-thirds vote to renew “temporary” sales taxes. Technically, Stelly said, it was suspensions of sales tax exemptions, but the effect was to raise revenues.
Those votes became an opportunity for legislators to trade their votes for local projects or other special appropriations for their districts. One year, Stelly said, he was told the cost of the votes in the House was $50 million from the state.
“To get a two-thirds vote in the Legislature for motherhood is a chore,” Stelly said. “Every year the governor had to buy votes.”
Stelly’s plan had the virtue of significant tax cuts — every household, rich or poor, benefited from the sales tax cuts, after all. But it also balanced the revenue loss on the income tax side. Stelly said high-income itemizers paid only a little more in income tax, but did not have the big breaks they previously received.
The Stelly Plan thus ended the charade of renewing the “temporary” sales tax every year. The income tax provisions then would be a source of revenue that increased over time.
But that relative stability of state revenues has “gone downhill” ever since the Stelly Plan’s income tax provisions have been eroded, Stelly noted.
Jindal’s budget director at first opposed the repeal of the Stelly brackets in 2008 but once that legislation got out of Senate committee, the governor — with an eye on advancement in the GOP — supported the measure.
“He knew we couldn’t afford it, but he just let it roll politically,” Stelly said. A former Republican, now a non-party voter, Stelly did not hide his lack of regard for such a “self-serving” policy.
Stelly’s remarks suggest why the Jindal administration has been such a disappointment, and not only because of the fiscal folly of repealing the Stelly income tax provisions.
At its core, the administration is about Jindal’s future more than it is about governance or real vision, about appearances instead of substance.
Colleges and other state institutions benefit from stability, but in the name of tax cuts the Stelly repeal brought us into a new era of instability in state budgeting.
Every time there is a bump in the road — a drop in the price of oil, a slowdown in the national economy — the state budget relapses into crises reminiscent of the pre-Stelly era.
Vic Stelly not only can say “told you so” now, but will, unless something changes dramatically, be able to say “told you so” for the foreseeable future in state budgeting.