Louisiana House passes penny sales tax hike; Gov. John Bel Edwards appears to be $200M short to close budget shortfall

The state House took a big step toward ending Louisiana’s short-term budget crisis Thursday by cutting spending and temporarily raising the state sales tax, handing an initial victory to Gov. John Bel Edwards and the people and institutions facing a potentially devastating loss of services without passage of a deficit reduction plan.

Thursday’s votes showed the ability of the Democratic governor to work with a Republican-led House to achieve a bipartisan solution.

But Thursday’s votes don’t completely solve the massive budget problem outlined by Edwards, meaning he and Republicans will have to find more common ground by March 9 when the special legislative session ends.

In separate votes, the House cut $100 million in state government spending, raised $210 million by increasing the state sales tax by a penny, took $128 million from the rainy day fund and took $200 million from a settlement with BP that was meant for noncoastal purposes.

Added to $60 million that the Edwards administration cut previously, Thursday’s votes would plug about $700 million of the $900 million he says is needed by June 30 when the current fiscal year ends.

“We’re still short,” Senate President John Alario, R-Westwego, said in an interview. “Making an additional $200 million in cuts would be devastating.”

The measures passed by the House Thursday now go to Senate committees for hearings on Friday.

The Revenue & Fiscal Affairs Committee, chaired by state Sen. J.P. Morrell, D-New Orleans, will hear the tax bills while the Finance Committee, chaired by state Sen. Eric LaFleur, D-Ville Platte, will get the spending bills. Both committees are likely to meet over the weekend, as will the full Senate.

An announcement that Moody’s Investors Service downgraded Louisiana’s credit rating for the first time since 2005 — after Hurricanes Katrina and Rita — provided more evidence of the grave fiscal situation Louisiana is facing.

The key vote in the House Thursday was to raise the state sales tax by a penny, a tough vote for Republicans who have long expressed opposition to taxes.

At noon, the House recessed with vote counters reporting that the measure, House Bill 62, was four or five short of the 70 votes needed.

Democrats and Republicans struck a deal: Democrats would stop pushing to add money back to the spending reduction bill sought by Republican leaders, and Republicans would round up the necessary votes to pass the sales tax measure.

The bill’s sponsor, state Rep. Katrina Jackson, D-Monroe, agreed to keep the sales tax in place for only 18 months beginning April 1. (The governor had said he didn’t want the tax to be indefinite.)

Legislative leaders neutralized the opposition of the powerful Louisiana Association of Business and Industry by agreeing to exempt purchases of manufacturing components, machinery and equipment from the additional penny of sales tax. Exempting those items from the tax would cost the state about $10 million by June 30.

Meanwhile, Edwards kept up his private meetings with lawmakers in the governor’s fourth floor office.

LSU Chancellor F. King Alexander buttonholed lawmakers just off the House floor, warning that the university could not easily withstand the budget cuts that would result without new revenue.

The House resumed work after a two-hour recess and a short time later passed the penny sales tax on a 76-28 vote.

“I know it was not easy for anyone to vote to raise revenue — it wasn’t easy for me to propose it — but combining these measures with the strategic cuts in my plan will allow us to stabilize our budget both in the short term and going forward,” Edwards said in a statement.

Among those voting for the bill were House Speaker Taylor Barras, R-New Iberia, and state Rep. Lance Harris, R-Alexandria, the Republicans’ leader. State Rep. Cameron Henry, R-Metairie, who chairs the Appropriations Committee, voted against it.

The only legislators representing East Baton Rouge Parish who voted against the measure were state Reps. Rick Edmonds and Barry Ivey, both Republicans.

The only Democrat to vote no was state Rep. Neil Abramson of New Orleans, who was also the only Democrat to vote for Barras in January to become the speaker. In a Tweet after Thursday’s vote, Abramson said he opposed the sales tax increase because it was “regressive,” which he said later means he didn’t believe the measure represented “real reform.”

John Kay, state director for Americans for Prosperity, a Virginia-based group begun by the Koch brothers, said the bill was bad tax policy. “If this bill becomes law, Louisiana will have the highest combined state and local sales tax rate in the nation,” Kay said. “Sales tax increases typically hit low income families the hardest because they are forced to spend more of their available resources on purchasing items.”

One reason so many Republicans ended up voting for the bill was the realization that further cuts were slicing into vital government services, said Robert Adley, a former Republican state legislator who now is a top adviser to Edwards. Adley noted that many Republicans joined Democrats Thursday in voting against deeper cuts in government spending.

“They concluded this was as far as they could go in making cuts,” Adley said.

On Thursday, the House also voted for measures aimed at making businesses pay a bit more in taxes and at requiring online retailers to collect sales taxes. But the House failed to support bills that would impose a car rental tax and that would renew a tax on telephones and cell phones.

The House did not take up measures that would raise cigarette taxes by 22 cents to $1.08 a pack or raise the tax on a beer or a glass of wine by about one cent.

Barras said the House would take up more tax measures on Friday.

One tax measure approved by the Ways and Means Committee on Thursday, House Bill 125, would tax the purchase of food and prescription drugs — which would require a statewide vote of the people — in conjunction with lowering the sales tax rate.

Another one, House Bill 104, would strip some of the sales tax exemptions enjoyed by businesses. This measure, however, does not touch the big-ticket exemptions enjoyed by big chemical, oil and industrial companies.

The spending measure approved Thursday, House Bill 122, includes broad cuts to state agencies with four months left in the budget cycle. Lawmakers approved it on a unanimous 102-0 vote, shortly after the two-hour recess.

Henry had initially proposed a $117 million cut in government spending but scaled that back to $100 million to address legal and political concerns that arose during the 24 hours before the vote.

“This was a long exercise,” Henry told the House on Thursday. He said cuts were largely based on what money agencies still have compared to their “burn rates” — how much money they spend each month on average.

Several changes were made to the bill before it made it off the House floor, addressing concerns that were raised after it passed the House Appropriations Committee on Wednesday, including a proposed cut to public schools funding.

The bill no longer calls for a $44 million hit to the “Minimum Foundation Program” — the key method of funding local schools. That cut was shifted instead to the state Department of Education.

Officials at the agency said a $44 million cut, combined with previous mid-year reductions, would decimate the agency — 85 percent of available dollars.

The $44 million typically goes toward vouchers, the prekindergarten program called LA4, pre-K for non-public schools, testing, department staff and other areas.

Commissioner of Administration Jay Dardenne said the cut to the Education Department was cause for pause.

“I think that’s too substantial of a cut to expect them to realize,” he said.

Follow Tyler Bridges on Twitter, @TegBridges. Follow Elizabeth Crisp on Twitter, @elizabethcrisp. For more coverage of the Louisiana Legislature, follow our Politics blog at http://blogs.theadvocate.com/politicsblog.

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