02/13/2009
Some random thoughts on a Friday the thirteenth…
THE FINANCIAL CRISIS: a recent analysis by Bloomberg News caught my eye. It estimated that the total federal response to the financial crisis thus far (the stimulus legislation, bailouts, plus the vast infusion of “liquidity” into the financial system) comes to $9.7 trillion. It is almost impossible to envision how big $9.7 trillion is, but here are some illustrations:
It would pay off 90 percent of all the home mortgages in the United States.
It would take spending $13.2 million a day from the birth of Christ until today to equal $9.7 trillion.
It is 13 times more than what has been spent on the Iraq and Afghanistan wars combined.
It could be used to write a check for $1430 to every man, woman, and child alive on the planet today.
It is more than three times the annual federal budget.
Our leaders had better come up with a plan that will work to solve this crisis. There isn’t another $9.7 trillion available for them to take a mulligan on addressing the problems. It is incredible that Congress has rushed to pass a stimulus bill that will cost taxpayers over $1 trillion once the interest on the borrowing is figured in. It is the biggest single piece of appropriations legislation in history, and it is supposed to help reverse a dire economic crisis—yet few will know exactly what they are voting on when the votes are cast. That is a bad way to do business.
THE STATE BUDGET: the Revenue Estimating Conference (REC) is scheduled to meet next week in Baton Rouge. The REC just met in December and usually meets again in May, so it is somewhat unusual for it to be meeting in February. It is highly unlikely that the economists who develop the revenue forecasts for the REC will have any new data that will significantly change the revenue estimate. If that is the case, there is only one reason for the meeting: to certify money coming from the federal stimulus legislation as recurring revenue. If that is done, it would soften the budget cuts that the Jindal administration must submit in its executive budget that must be presented to the Legislature in March. If those revenues are truly recurring in nature, then the REC meeting would be timely. If the revenues are only going to be around for a year or two with no guarantee of them continuing in the future, it will be tantamount to kicking the can down the road for the governor and Legislature to use the money to fund recurring expenses in the budget.
THE LARGEST BUSINESS TAX INCREASE IN LOUISIANA HISTORY: If some legislators and assessors have their way in the upcoming legislative session, businesses in Louisiana could see the biggest hike in their tax burden in modern history. How? By the enactment of a significant increase the homestead exemption which, at $75,000, is at the top of the list in the nation. Currently, $680 million in property tax is shifted from some homeowners to other homeowners and businesses due to the high homestead exemption level. If the exemption is doubled, it would automatically result in a large roll-up of millages to offset the drop in taxable property. Those who pay property taxes would pay much more, and businesses currently pay 80 percent of all property taxes in Louisiana. If the governor and the Legislature don’t want to stifle jobs and make Louisiana even less attractive for economic development, they should nip this huge tax increase in the bud.
Wednesday, February 18, 2009
Tuesday, February 10, 2009
Small Business Tax Increase
February 9, 2009
The 2009 legislative session begins April 27, 2009 in Baton Rouge. So far there has been little or no talk of tax increases at the state level, but don’t let that fool you. During the session legislators will be debating proposals to enact one of the largest property tax increases on small business in the history of the state – by increasing the homestead exemption!
Homestead Exemption Shifts Property Tax Burden to Business
Increasing the homestead exemption would further remove residential property and improvements from the property tax rolls, thereby decreasing total assessed values in each parish. Our state constitution requires that, when assessed values decrease, millage rates automatically increase, so that the local taxing bodies will continue to generate the same revenue as collected in the prior year. Increasing the homestead exemption does not result in lower tax collections or lower tax rates – but, rather the tax burden of residential homeowners is passed on to businesses, renters, and middle-class homeowners by imposing higher millage rates necessary to generate the same tax collections as the prior year.
Louisiana’s $75,000 homestead exemption is already one of the highest in the country. The result – over 50% of Louisiana homeowners pay ZERO property tax! Other fixed-income homeowners, who are 65 years old and older and make less than $64,500, receive the benefit of special level assessments that freeze their property values. On the other hand, 100% of businesses pay property tax, which is why business and industry pays over 80% of all of the property taxes paid in the state.
Small Business Already Hurt by Current Homestead Exemption
Today, the homestead exemption shifts in excess of $650 million of the residential property tax burden to businesses, renters, and middle-class homeowners. Projections show that as all of the remaining residential property in the state approaches $75,000 in value, another $250 million tax increase will be shifted to business, even if there is no change in the current homestead exemption.
The ultimate cost of fully implementing the current $75,000 homestead exemption will be over a $900 million tax increase on the small businesses of our state. This does not take into account any increases in the homestead exemption that will be considered during the regular session – simple math would suggest that doubling the homestead exemption to $150,000 would eventually result in a total tax increase to business in excess of $1.8 billion!
Business Pays at a 50% Higher Tax Rate
Under current law, businesses pay property tax at a 15% tax rate (some businesses even pay 25%), while the homeowner’s tax rate is only 10% -- that’s a 50% higher tax rate paid by business. This disparity is illustrated as follows.
HOMESTEAD BUSINESS
PROPERTY PROPERTY
FAIR MARKET VALUE $100,000 $100,000
ASSESSMENT RATE X 10% X 15%
ASSESSED VALUE $10,000 $15,000
LESS: HOMESTEAD EXEMPTION ($7,500) N/A
TAXABLE VALUE $2,500 $15,000
PROPERTY TAX (100 MILLS) $250 $1,500
The Solution – Limit Millage Roll-Forwards
Rather than increasing the homestead exemption and special level assessments, the resolution of higher property tax bills needs to be properly focused on its root cause – property tax millage rates. When assessors perform their constitutional function of valuing property at fair market value, the higher property values result in an automatic roll-back of millages. Generally, the combination of higher property values and reduced millage rates has the overall effect of leveling off property tax bills, which benefits all taxpayers, not just a few select classes of homeowners.
However, following the automatic roll-back of millages, local taxing bodies are authorized under the state constitution, and without voter approval, to roll-forward millage rates with only a two-thirds vote of the members of the taxing body. It is this subsequent rolling-forward of the millage rates, and not the reassessment of property to current fair market value, that produces sticker shock property tax bills. Many of these taxing bodies that choose to roll-forward their millages are not even elected officials, but rather appointed members of boards that have the power of taxation.
Limiting the ability of taxing bodies to roll-forward millages without voter approval will help lower both property tax millages rates and the property tax bills of all taxpayers.
Action Needed – Now!
The proponents of increasing the homestead exemption are getting their message out, and even circulating a petition for signatures. Your legislators need to hear from you TODAY – don’t wait until the session starts, and don’t assume they will be with us. Tell them, as business owners, we are already paying $650 million of the property tax burden of homeowners and enough is enough! Also tell them the focus needs to be on the millage rates, and limiting the rolling forward of millages will result in lower overall millage rates for all taxpayers.
Click the link below to log in and send your message:
http://www.votervoice.net/link/target/labi28823666.aspx
Wednesday, February 4, 2009
The Politics of Stimulus!
01/30/2009
During the last decade, Republican members of Congress have taken a beating in elections around the country. In most instances, those who lost elections-or whose vacant seats were turned over-were replaced by Democrats who proclaimed to be moderate or conservative. Most of those Democrats belong to the "Blue Dog" coalition. The hallmark of this caucus is their self-proclaimed strong belief in conservative fiscal policies. The Blue Dogs could hold the balance of power in the House, especially on budgetary issues-if they were willing to buck their liberal leadership and occasionally join with Republicans.
The Blue Dogs recently had such an opportunity. On January 27, the House voted on the resolution that would allow the leadership's "stimulus" bill to come to the floor. Most of the Blue Dogs felt that the bill contained entirely too much spending and was out of line with what President Obama claimed he wanted in a stimulus package. Had most of the Blue Dogs voted against the resolution, the bill would have gone back to the drawing board along with a clear message to Speaker Pelosi and her leadership that a more conservative approach was needed. The Blue Dogs would have served the nation well by taking such an action and would have put Speaker Pelosi on notice that they were a force to be reckoned with.
Unfortunately, as has happened numerous times in the past, when push came to shove, the Blue Dogs stayed on the porch.
The massive spending bill ($1.2 trillion if you count the interest on the borrowing, which certainly is a legitimate element to count) was passed without a single Republican vote and with only 11 Democrats opposing it. It is the total property of the Democrats. If it does what they claim it will do, they can take the credit. If it doesn't create 4 million jobs, if it doesn't begin to immediately jumpstart the economy, and if it only leads to bigger government and super-inflation, they will shoulder the blame.
That must be an uncomfortable thought for many of the Blue Dogs. Their constituents are certainly concerned about the health of the economy and the security of their jobs. But most of them aren't likely to believe that adding greatly to the size of government (financed through more borrowing) is going to improve the economy to any appreciable degree. That is a dilemma for the Blue Dogs, since the one thing certain about the House passed version of the bill is that it will greatly expand government and pay for the expansion by burdening future generations. The champions of "pay-go" (not allowing any tax cut or increased spending without paying for it with budget reductions or new taxes) went for the biggest increase in deficit spending in history because they couldn't stand up to their liberal leadership.
If the Democratic stimulus bill doesn't work, the Blue Dogs have a problem. If their constituents are taxed later to pay for this extravagance, they have a larger problem. If inflation soars when the economy starts to rebound because the "stimulus" wasn't designed to work immediately, they have a lot of explaining to do.
The most vulnerable Democrats are those who come from districts that were held previously by Republicans. To remain in good standing with their fiscally conservative constituents, they can't simply talk a good game in Washington. They lost an opportunity to shape a more conservative approach on the stimulus, and they may live to regret not having the courage to stand up for what they say they championed.
During the last decade, Republican members of Congress have taken a beating in elections around the country. In most instances, those who lost elections-or whose vacant seats were turned over-were replaced by Democrats who proclaimed to be moderate or conservative. Most of those Democrats belong to the "Blue Dog" coalition. The hallmark of this caucus is their self-proclaimed strong belief in conservative fiscal policies. The Blue Dogs could hold the balance of power in the House, especially on budgetary issues-if they were willing to buck their liberal leadership and occasionally join with Republicans.
The Blue Dogs recently had such an opportunity. On January 27, the House voted on the resolution that would allow the leadership's "stimulus" bill to come to the floor. Most of the Blue Dogs felt that the bill contained entirely too much spending and was out of line with what President Obama claimed he wanted in a stimulus package. Had most of the Blue Dogs voted against the resolution, the bill would have gone back to the drawing board along with a clear message to Speaker Pelosi and her leadership that a more conservative approach was needed. The Blue Dogs would have served the nation well by taking such an action and would have put Speaker Pelosi on notice that they were a force to be reckoned with.
Unfortunately, as has happened numerous times in the past, when push came to shove, the Blue Dogs stayed on the porch.
The massive spending bill ($1.2 trillion if you count the interest on the borrowing, which certainly is a legitimate element to count) was passed without a single Republican vote and with only 11 Democrats opposing it. It is the total property of the Democrats. If it does what they claim it will do, they can take the credit. If it doesn't create 4 million jobs, if it doesn't begin to immediately jumpstart the economy, and if it only leads to bigger government and super-inflation, they will shoulder the blame.
That must be an uncomfortable thought for many of the Blue Dogs. Their constituents are certainly concerned about the health of the economy and the security of their jobs. But most of them aren't likely to believe that adding greatly to the size of government (financed through more borrowing) is going to improve the economy to any appreciable degree. That is a dilemma for the Blue Dogs, since the one thing certain about the House passed version of the bill is that it will greatly expand government and pay for the expansion by burdening future generations. The champions of "pay-go" (not allowing any tax cut or increased spending without paying for it with budget reductions or new taxes) went for the biggest increase in deficit spending in history because they couldn't stand up to their liberal leadership.
If the Democratic stimulus bill doesn't work, the Blue Dogs have a problem. If their constituents are taxed later to pay for this extravagance, they have a larger problem. If inflation soars when the economy starts to rebound because the "stimulus" wasn't designed to work immediately, they have a lot of explaining to do.
The most vulnerable Democrats are those who come from districts that were held previously by Republicans. To remain in good standing with their fiscally conservative constituents, they can't simply talk a good game in Washington. They lost an opportunity to shape a more conservative approach on the stimulus, and they may live to regret not having the courage to stand up for what they say they championed.
Tuesday, January 20, 2009
IS THE COST WORTH THE CURE?
It would be funny if it weren't so serious. Henry Waxman (D-
Ca.) proclaimed that his powerful committee in Congress will
rush "climate change" legislation to the House floor before
the Memorial Day recess. This was announced concurrently with
the coldest temperatures to hit the heartland of the country
in over a decade.
The President-elect and the Democratic majorities in Congress
are about to launch legislation that will hit every pocketbook
in America and could cost thousands of jobs as well. Their
goal: To reduce carbon emissions that some claim is creating
rising global temperatures that threaten life as we know it.
But what if they are wrong? There is certainly a body of
scientific evidence that indicates that the earth has never
been in the complete balance of heat energy entering and
leaving the atmosphere in equal proportions as "climate
change" adherents believe is now being altered by man-made
carbon emissions. Reputable scientists have strong evidence to
show that global warming and cooling cycles have persisted in
regular intervals throughout most of geologic time long before
the first carbon emission emanated from cavemen.
Unfortunately, the scientists who have sound theories that
stray from the orthodoxy of the man-made climate change
"religion" are ignored by most of the media as well as the
agencies that fund scientific research. Indeed, some have
their careers threatened by the "case closed" true believers
of the carbon induced climate change theory.
The legislation that will be proposed in Congress will
significantly drive up the cost for both the producers and
consumers of carbon-based energy sources. The higher costs
will lead to significant economic impacts immediately. The
vehicle of choice-"cap and trade" legislation-will require a
huge bureaucracy to administer a complicated system that would
penalize some companies, reward others, and have consumers in
some regions pay substantially higher energy costs than others
due to the type of energy sources available to them. Of
course, the element that puts gleams in the eyes of some in
Congress is that the federal government could reap huge
windfall revenues from such a system.
But where would the money come from? That's easy: From you and
me and millions like us. From businesses and industries
already having a hard time making a profit for the goods and
services they produce. Who will benefit most from the system
(besides the revenue-hungry federal government)? Smatterings
of companies whose lobbyists help influence the laws and rules
to put them at an advantage over others. Who will come out the
worst? The poor, the group that always seems to come out
worst, the individuals who can ill afford to pay more for
basic energy needs.
Yes, Congress seems to be in a mad rush to push through
legislation that can have a huge impact on the job security
and livelihood of American workers. "Change" is the mantra in
Washington, but change is a two-sided coin. Before
dramatically altering the economic landscape of the nation, if
I were a member of Congress, I would want to make darn sure
that:
- The "crisis" I was attempting to fix was real;
- That my "cure" for it was definitely going to work; and
- That the sacrifices that I was asking Americans to make
was unquestionably worth the price they would have to pay.
With all due respect, I don't think our elected representatives in Washington can give us those assurances.
Unfortunately, that probably won't stop them from pushing
through the biggest boondoggle since their "reforms" of Fannie
Mae and Freddie Mac.
Ca.) proclaimed that his powerful committee in Congress will
rush "climate change" legislation to the House floor before
the Memorial Day recess. This was announced concurrently with
the coldest temperatures to hit the heartland of the country
in over a decade.
The President-elect and the Democratic majorities in Congress
are about to launch legislation that will hit every pocketbook
in America and could cost thousands of jobs as well. Their
goal: To reduce carbon emissions that some claim is creating
rising global temperatures that threaten life as we know it.
But what if they are wrong? There is certainly a body of
scientific evidence that indicates that the earth has never
been in the complete balance of heat energy entering and
leaving the atmosphere in equal proportions as "climate
change" adherents believe is now being altered by man-made
carbon emissions. Reputable scientists have strong evidence to
show that global warming and cooling cycles have persisted in
regular intervals throughout most of geologic time long before
the first carbon emission emanated from cavemen.
Unfortunately, the scientists who have sound theories that
stray from the orthodoxy of the man-made climate change
"religion" are ignored by most of the media as well as the
agencies that fund scientific research. Indeed, some have
their careers threatened by the "case closed" true believers
of the carbon induced climate change theory.
The legislation that will be proposed in Congress will
significantly drive up the cost for both the producers and
consumers of carbon-based energy sources. The higher costs
will lead to significant economic impacts immediately. The
vehicle of choice-"cap and trade" legislation-will require a
huge bureaucracy to administer a complicated system that would
penalize some companies, reward others, and have consumers in
some regions pay substantially higher energy costs than others
due to the type of energy sources available to them. Of
course, the element that puts gleams in the eyes of some in
Congress is that the federal government could reap huge
windfall revenues from such a system.
But where would the money come from? That's easy: From you and
me and millions like us. From businesses and industries
already having a hard time making a profit for the goods and
services they produce. Who will benefit most from the system
(besides the revenue-hungry federal government)? Smatterings
of companies whose lobbyists help influence the laws and rules
to put them at an advantage over others. Who will come out the
worst? The poor, the group that always seems to come out
worst, the individuals who can ill afford to pay more for
basic energy needs.
Yes, Congress seems to be in a mad rush to push through
legislation that can have a huge impact on the job security
and livelihood of American workers. "Change" is the mantra in
Washington, but change is a two-sided coin. Before
dramatically altering the economic landscape of the nation, if
I were a member of Congress, I would want to make darn sure
that:
- The "crisis" I was attempting to fix was real;
- That my "cure" for it was definitely going to work; and
- That the sacrifices that I was asking Americans to make
was unquestionably worth the price they would have to pay.
With all due respect, I don't think our elected representatives in Washington can give us those assurances.
Unfortunately, that probably won't stop them from pushing
through the biggest boondoggle since their "reforms" of Fannie
Mae and Freddie Mac.
Friday, January 9, 2009
ANATOMY OF A DEFICIT
The Revenue Estimating Conference (REC) met on December 15 to do its constitutionally required task of giving the official estimate for state revenues for both the current budget and the one for the fiscal year beginning next July 1. According to the economist for the Legislative Fiscal Office, the news was “bad and badder.” The REC adopted estimates that result in a revenue shortfall of $341 million in the current budget and $1.1 billion for the 2009/2010 fiscal year.
The Joint Legislative Committee on the Budget officially adopted the revenue forecasts and authorized that a letter be sent to the governor notifying him of a deficit for the current budget. That notification triggers a constitutional requirement that the budget be balanced within 30 days. State law allows the governor to cut up to 3 percent of each budgetary unit and the Joint Budget Committee to cut up to 2 percent more, without the Legislature being in session.
The media reports of the REC meeting mentioned a $2 billion estimated deficit for the 2009/2010 fiscal year. That led to some confusion since the revenue shortfall for that budget year is only estimated to be $1.1 billion. One might reasonably ask how a $1.1 billion drop in revenue triggers a $2 billion deficit. Here is some information to shed some light on that difference:
Part of the difference comes from the use of “continuation” budgeting. What “continuation” in a budget means to ordinary folks doesn’t necessarily carry the same meaning in government. In government, “continuation” doesn’t mean “carry on with what you have.” It means carry on with an automatic increase in spending. Not many households or businesses are going to fashion budgets with automatic increases next year. State government won’t have that luxury either.
Another practice that is a potential cause for the deficit exceeding the revenue loss has to do with the use of “special funds” in budgeting. When revenues were surging, the Legislature—in conjunction with sitting governors—often stuffed money into funds they created in order to prevent the money from rolling over into surpluses. (Our state constitution restricts the use of surpluses to one-time expenditures in limited areas. State officials don’t like to have their hands tied when it comes to spending.) This was especially true when state spending was bumping up against the expenditure cap. Recent budgets utilized a considerable number of these “special funds.” To the extent they were used for truly one-time expenditures, they shouldn’t have an impact on the 2009/2010 budget. If they were used to fund appropriations that were recurring in nature (or if there is no money left in the funds), it adds to the projected deficit.
To balance the current budget, state officials must cut more than the $341 million projected revenue shortfall. Half the budget year is over, so to balance the books, $600-$700 million must be reduced on an annualized basis. If Governor Jindal and the Legislature bite that bullet now (as required by the Constitution), they greatly reduce the potential $2 billion deficit for the 2009/2010 budget. If the actual 2008/2009 budget—adjusted for the cuts that must now be made—is used as a baseline instead of a “continuation” budget, the problem becomes manageable.
If those steps are taken and more still needs to be done, state officials should go back and look at what items were added to the 2008/2009 budget. The state general fund increased by approximately $1 billion in the current budget. Certainly some of those spending increases could be adjusted downward without ending critical services in Louisiana.
The Joint Legislative Committee on the Budget officially adopted the revenue forecasts and authorized that a letter be sent to the governor notifying him of a deficit for the current budget. That notification triggers a constitutional requirement that the budget be balanced within 30 days. State law allows the governor to cut up to 3 percent of each budgetary unit and the Joint Budget Committee to cut up to 2 percent more, without the Legislature being in session.
The media reports of the REC meeting mentioned a $2 billion estimated deficit for the 2009/2010 fiscal year. That led to some confusion since the revenue shortfall for that budget year is only estimated to be $1.1 billion. One might reasonably ask how a $1.1 billion drop in revenue triggers a $2 billion deficit. Here is some information to shed some light on that difference:
Part of the difference comes from the use of “continuation” budgeting. What “continuation” in a budget means to ordinary folks doesn’t necessarily carry the same meaning in government. In government, “continuation” doesn’t mean “carry on with what you have.” It means carry on with an automatic increase in spending. Not many households or businesses are going to fashion budgets with automatic increases next year. State government won’t have that luxury either.
Another practice that is a potential cause for the deficit exceeding the revenue loss has to do with the use of “special funds” in budgeting. When revenues were surging, the Legislature—in conjunction with sitting governors—often stuffed money into funds they created in order to prevent the money from rolling over into surpluses. (Our state constitution restricts the use of surpluses to one-time expenditures in limited areas. State officials don’t like to have their hands tied when it comes to spending.) This was especially true when state spending was bumping up against the expenditure cap. Recent budgets utilized a considerable number of these “special funds.” To the extent they were used for truly one-time expenditures, they shouldn’t have an impact on the 2009/2010 budget. If they were used to fund appropriations that were recurring in nature (or if there is no money left in the funds), it adds to the projected deficit.
To balance the current budget, state officials must cut more than the $341 million projected revenue shortfall. Half the budget year is over, so to balance the books, $600-$700 million must be reduced on an annualized basis. If Governor Jindal and the Legislature bite that bullet now (as required by the Constitution), they greatly reduce the potential $2 billion deficit for the 2009/2010 budget. If the actual 2008/2009 budget—adjusted for the cuts that must now be made—is used as a baseline instead of a “continuation” budget, the problem becomes manageable.
If those steps are taken and more still needs to be done, state officials should go back and look at what items were added to the 2008/2009 budget. The state general fund increased by approximately $1 billion in the current budget. Certainly some of those spending increases could be adjusted downward without ending critical services in Louisiana.
Thursday, December 11, 2008
Wisdom vs. Expediency
12/08/2008
On December 15, Louisiana Revenue Estimating Conference (REC)
will meet at the state Capitol to certify some very important
fiscal data. The group is charged with giving the official
estimate for state revenues that the governor and the
Legislature must use to limit state spending. In recent years,
the conference has done a commendable job of establishing
conservative revenue estimates. While some in the Legislature
would always like to have higher estimates to grease the skids
for more spending, the members of the conference have resisted
that temptation.
When they meet on the 15th, the REC will also officially
certify the surplus (projected to be approximately $850
million) for the fiscal year that ended June 30. They will
also certify the amount of money in the state's Rainy Day
Trust Fund, which is expected to be in the $800 million range.
As the price of oil and gas plummet and world economies crash,
the status of the Rainy Day Fund is going to get a lot of
attention from legislators very soon.
The findings of the REC on the 15th will be heavily influenced
by several sobering facts. Last February, the REC estimated
oil revenues based on a crude oil price of $73.45 per barrel.
Last May, with oil prices escalating worldwide, the conference
upped the estimate to $84.23 for the current budget and $72.17
for the 2009/2010 fiscal year. Crude oil prices continued to
soar, reaching a peak of $147 per barrel in July. Then the
bottom fell out. Today, crude oil is selling for less than $45
per barrel. The importance of the price decline lies in the
fact that for every dollar the price of a barrel of crude oil
declines, the state loses $13 million in revenue.
The math is ugly. Soaring crude oil prices during the first
half of 2008 were the primary drivers of the surplus. The
precipitous drop in those prices--along with an ailing
national economy--will remove the word "surplus" from
legislative budget discussions for the foreseeable future.
Natural gas prices have also dropped significantly, triggering
an additional revenue problem for both the current and the
following fiscal years. If the REC continues its practice of
conservatively estimating oil and gas revenues, the impact on
the current budget could be a reduction of several hundred
million dollars. That shortfall will have to be addressed once
the revenue estimates are certified by the REC.
Some in the Legislature will want to tap the Rainy Day Fund in
order to avoid making cuts in the current budget. Perhaps as
much as $270 million would be available from the fund to fill
the void, but that would be a very foolish move for the
Legislature to make. Faced with a 2009/2010 budget shortfall
of as much as $1.3 billion, the governor and legislators
should begin to reduce current levels of spending now to start
addressing the problem. If state officials opt to start using
the Rainy Day Fund to cover shortfalls in the current budget,
they are setting themselves--and the taxpayers--up for a
nightmare scenario if revenues plunge even further than
estimated during the next fiscal year (a definite
possibility.)
The actions taken by the REC on the 15th will begin a very
interesting and important series of decision-making events
that will cast light on how fiscally responsible our state
leaders will be in handling our budget problems. A lot is at
stake. Hopefully, they will do a better job of resolving
Louisiana's problems than our "leaders" in Washington have
done in handling the nation's.
On December 15, Louisiana Revenue Estimating Conference (REC)
will meet at the state Capitol to certify some very important
fiscal data. The group is charged with giving the official
estimate for state revenues that the governor and the
Legislature must use to limit state spending. In recent years,
the conference has done a commendable job of establishing
conservative revenue estimates. While some in the Legislature
would always like to have higher estimates to grease the skids
for more spending, the members of the conference have resisted
that temptation.
When they meet on the 15th, the REC will also officially
certify the surplus (projected to be approximately $850
million) for the fiscal year that ended June 30. They will
also certify the amount of money in the state's Rainy Day
Trust Fund, which is expected to be in the $800 million range.
As the price of oil and gas plummet and world economies crash,
the status of the Rainy Day Fund is going to get a lot of
attention from legislators very soon.
The findings of the REC on the 15th will be heavily influenced
by several sobering facts. Last February, the REC estimated
oil revenues based on a crude oil price of $73.45 per barrel.
Last May, with oil prices escalating worldwide, the conference
upped the estimate to $84.23 for the current budget and $72.17
for the 2009/2010 fiscal year. Crude oil prices continued to
soar, reaching a peak of $147 per barrel in July. Then the
bottom fell out. Today, crude oil is selling for less than $45
per barrel. The importance of the price decline lies in the
fact that for every dollar the price of a barrel of crude oil
declines, the state loses $13 million in revenue.
The math is ugly. Soaring crude oil prices during the first
half of 2008 were the primary drivers of the surplus. The
precipitous drop in those prices--along with an ailing
national economy--will remove the word "surplus" from
legislative budget discussions for the foreseeable future.
Natural gas prices have also dropped significantly, triggering
an additional revenue problem for both the current and the
following fiscal years. If the REC continues its practice of
conservatively estimating oil and gas revenues, the impact on
the current budget could be a reduction of several hundred
million dollars. That shortfall will have to be addressed once
the revenue estimates are certified by the REC.
Some in the Legislature will want to tap the Rainy Day Fund in
order to avoid making cuts in the current budget. Perhaps as
much as $270 million would be available from the fund to fill
the void, but that would be a very foolish move for the
Legislature to make. Faced with a 2009/2010 budget shortfall
of as much as $1.3 billion, the governor and legislators
should begin to reduce current levels of spending now to start
addressing the problem. If state officials opt to start using
the Rainy Day Fund to cover shortfalls in the current budget,
they are setting themselves--and the taxpayers--up for a
nightmare scenario if revenues plunge even further than
estimated during the next fiscal year (a definite
possibility.)
The actions taken by the REC on the 15th will begin a very
interesting and important series of decision-making events
that will cast light on how fiscally responsible our state
leaders will be in handling our budget problems. A lot is at
stake. Hopefully, they will do a better job of resolving
Louisiana's problems than our "leaders" in Washington have
done in handling the nation's.
Friday, November 14, 2008
ABBERWOCKY
11/17/2008
“And, as in uffish thought he stood,
The Jabberwock, with eyes of flame,
Came whiffling through the tugley wood,
And burbled as it came!”
I couldn’t help but think of those words from Lewis Carroll’s “Through the Looking-Glass” as I listened to Treasury Secretary Hank Paulson’s recent press conference. Paulson, the 700 billion-dollar man, was indicating yet another change in direction for the Bush administration’s financial bailout plan. The stock market didn’t seem overly impressed with Paulson’s change of course, as evidenced by a further 400 point plunge in the Dow Jones average.
A recent article in Forbes magazine estimates the total fiscal stimulus put forth so far by both the Federal Reserve Board and the Treasury Department to be approximately $5 trillion. Before this avalanche of “stimulus” began, the federal debt was $10 trillion. Our federal government is potentially putting us half as much again in debt (though Fed Chairman Bernanke and Secretary Paulson would argue that taxpayers will be getting some of the $5 trillion back—they just have no clue how much or when.)
The whiffling through the tugley wood isn’t confined to the Fed and the Bush administration. Congress and the Obama team will soon be burbling as well. They have their own list of bailout targets.
The automobile industry is in dire straits and is asking for help. The state of California has already requested billions in loans to put off the tough fiscal decisions needed to rein in its $15 billion deficit. New York, New Jersey, and Michigan—to name a few—are other states tottering on the edge of bankruptcy. Many major cities will likely join the bandwagon. The line of supplicants forming at the doors of the White House and the Capitol will be long, indeed.
Before we wade further into the swamp, we might want to remember that our mission was to drain it. The original bailout was designed to thaw the freeze in lending necessary for the economy to function. The concept was for the Treasury Department to buy the bad real estate loan portfolios which were creating uncertainty in the markets. Treasury has now decided that approach is too difficult to implement and is using the bailout money to purchase preferred stock in banks--with no requirement for increased lending or for private equity to match the federal dollars.
Lending billions of dollars to struggling state and local governments would be a slippery slope. The states in the worst shape are the ones with high tax rates and excessive spending habits. Their politics are often unduly influenced by their public employee unions. These special interest groups are quick to push through tax increases and are adept at stopping any attempts to cut spending. Sending huge amounts of federal tax dollars to states that refuse to live within their means will not be popular with taxpayers in states with sound fiscal practices. The fiscally challenged states are generally the ones that gave President-Elect Obama and the Democrats in Congress their margins of victory. That being the case, they won’t be bashful about asking for favors.
Taxpayers should pray that the bailout explosion does not cause more harm than good and gets refocused to practices that will shore up the economy, not grow government. At the outset, the goal of federal intervention was to address the collapse of the housing market and restore the availability of credit for businesses and consumers. It is time to drop the jabberwocky, focus on the original goals, and minimize the impact on deficits, inflation, and the future standard of living of our children and grandchildren.
“And, as in uffish thought he stood,
The Jabberwock, with eyes of flame,
Came whiffling through the tugley wood,
And burbled as it came!”
I couldn’t help but think of those words from Lewis Carroll’s “Through the Looking-Glass” as I listened to Treasury Secretary Hank Paulson’s recent press conference. Paulson, the 700 billion-dollar man, was indicating yet another change in direction for the Bush administration’s financial bailout plan. The stock market didn’t seem overly impressed with Paulson’s change of course, as evidenced by a further 400 point plunge in the Dow Jones average.
A recent article in Forbes magazine estimates the total fiscal stimulus put forth so far by both the Federal Reserve Board and the Treasury Department to be approximately $5 trillion. Before this avalanche of “stimulus” began, the federal debt was $10 trillion. Our federal government is potentially putting us half as much again in debt (though Fed Chairman Bernanke and Secretary Paulson would argue that taxpayers will be getting some of the $5 trillion back—they just have no clue how much or when.)
The whiffling through the tugley wood isn’t confined to the Fed and the Bush administration. Congress and the Obama team will soon be burbling as well. They have their own list of bailout targets.
The automobile industry is in dire straits and is asking for help. The state of California has already requested billions in loans to put off the tough fiscal decisions needed to rein in its $15 billion deficit. New York, New Jersey, and Michigan—to name a few—are other states tottering on the edge of bankruptcy. Many major cities will likely join the bandwagon. The line of supplicants forming at the doors of the White House and the Capitol will be long, indeed.
Before we wade further into the swamp, we might want to remember that our mission was to drain it. The original bailout was designed to thaw the freeze in lending necessary for the economy to function. The concept was for the Treasury Department to buy the bad real estate loan portfolios which were creating uncertainty in the markets. Treasury has now decided that approach is too difficult to implement and is using the bailout money to purchase preferred stock in banks--with no requirement for increased lending or for private equity to match the federal dollars.
Lending billions of dollars to struggling state and local governments would be a slippery slope. The states in the worst shape are the ones with high tax rates and excessive spending habits. Their politics are often unduly influenced by their public employee unions. These special interest groups are quick to push through tax increases and are adept at stopping any attempts to cut spending. Sending huge amounts of federal tax dollars to states that refuse to live within their means will not be popular with taxpayers in states with sound fiscal practices. The fiscally challenged states are generally the ones that gave President-Elect Obama and the Democrats in Congress their margins of victory. That being the case, they won’t be bashful about asking for favors.
Taxpayers should pray that the bailout explosion does not cause more harm than good and gets refocused to practices that will shore up the economy, not grow government. At the outset, the goal of federal intervention was to address the collapse of the housing market and restore the availability of credit for businesses and consumers. It is time to drop the jabberwocky, focus on the original goals, and minimize the impact on deficits, inflation, and the future standard of living of our children and grandchildren.
Tuesday, November 4, 2008
Is The Gravy Train Ccming to an End?
By Dan Juneau
LABI
10/27/2008
For a number of years, higher government revenues have been flooding into the state’s coffers. Budget surpluses have set records and state spending has hit unprecedented levels. Now the “embarrassment of riches” may be coming to an end, and it will be interesting to see how the governor and a Legislature with many new faces handle the new economic reality.
Two factors drove the recent explosion of state revenues: hurricane recovery spending and record-setting oil and gas prices.
In the aftermath of Hurricanes Katrina and Rita, higher levels of recovery spending propelled state sales tax revenues to record levels. Road Home money, insurance settlements, and personal spending fueled these increases. Construction and retail activity led to higher levels of business revenue and resulted in higher business tax collections.
In addition to soaring revenues from hurricane reconstruction, record oil and gas prices have also led to huge increases in state tax collections. Our Revenue Estimating Conference has done a good job of using conservative estimates for oil and gas revenues at a time when the price of these commodities has skyrocketed. The end result has been budget surpluses in the billion dollar range and constant upward revisions of excess revenues available for spending by the Legislature--and the Legislature has not been bashful about spending those excess revenues.
A confluence of factors is now bringing Louisiana’s revenue party to an abrupt end. The U.S. is experiencing an economic meltdown that has undoubtedly ushered in a recession. Louisiana will certainly feel the effects of this downturn. Even more of a problem for our state finances is the huge decline in oil and gas prices.
For the current budget, the Revenue Estimating Conference budgeted oil at a market price of $84 per barrel. As this column was being written, the price had plunged below $70. The price had risen as high as $147 per barrel. For a long time, billions of dollars in oil and gas revenue went directly into the state’s general fund and was quickly spent. It is more fun being a legislator when you are spending surpluses and excess revenues instead of cutting the budget. The fun is now gone.
Governor Jindal recently stated that he expected a billion dollar shortfall in revenues available to fashion the 2009/10 state budget. He also stated that he had no plans to raise taxes in order to address that shortfall. Hopefully, he will stick with that approach.
For openers, the billion dollar shortfall the governor was referencing undoubtedly was in the context of a “continuation” budget. In state government, new budgets are not submitted using the base of the old budget. An automatic “inflation adjusted” increase is added in before any other changes are made. By simply not submitting a “continuation” budget to the Legislature, the governor could reduce the potential red numbers by $600 million or more. That would leave a shortfall of approximately 3 percent to be made up in the $12 billion state fund budget.
Taxpayers will soon find out if our current Legislature is going to take a fiscally conservative approach to address the new economic reality or if it will attempt to continue record levels of spending that no longer can be sustained with current revenue streams. Governor Jindal’s initial comments are encouraging. Some in the Legislature will not share his view. He will need to provide strong leadership to insure that our state government lives within its means and adds no additional financial burdens to taxpayers who have their own fiscal problems to address.
LABI
10/27/2008
For a number of years, higher government revenues have been flooding into the state’s coffers. Budget surpluses have set records and state spending has hit unprecedented levels. Now the “embarrassment of riches” may be coming to an end, and it will be interesting to see how the governor and a Legislature with many new faces handle the new economic reality.
Two factors drove the recent explosion of state revenues: hurricane recovery spending and record-setting oil and gas prices.
In the aftermath of Hurricanes Katrina and Rita, higher levels of recovery spending propelled state sales tax revenues to record levels. Road Home money, insurance settlements, and personal spending fueled these increases. Construction and retail activity led to higher levels of business revenue and resulted in higher business tax collections.
In addition to soaring revenues from hurricane reconstruction, record oil and gas prices have also led to huge increases in state tax collections. Our Revenue Estimating Conference has done a good job of using conservative estimates for oil and gas revenues at a time when the price of these commodities has skyrocketed. The end result has been budget surpluses in the billion dollar range and constant upward revisions of excess revenues available for spending by the Legislature--and the Legislature has not been bashful about spending those excess revenues.
A confluence of factors is now bringing Louisiana’s revenue party to an abrupt end. The U.S. is experiencing an economic meltdown that has undoubtedly ushered in a recession. Louisiana will certainly feel the effects of this downturn. Even more of a problem for our state finances is the huge decline in oil and gas prices.
For the current budget, the Revenue Estimating Conference budgeted oil at a market price of $84 per barrel. As this column was being written, the price had plunged below $70. The price had risen as high as $147 per barrel. For a long time, billions of dollars in oil and gas revenue went directly into the state’s general fund and was quickly spent. It is more fun being a legislator when you are spending surpluses and excess revenues instead of cutting the budget. The fun is now gone.
Governor Jindal recently stated that he expected a billion dollar shortfall in revenues available to fashion the 2009/10 state budget. He also stated that he had no plans to raise taxes in order to address that shortfall. Hopefully, he will stick with that approach.
For openers, the billion dollar shortfall the governor was referencing undoubtedly was in the context of a “continuation” budget. In state government, new budgets are not submitted using the base of the old budget. An automatic “inflation adjusted” increase is added in before any other changes are made. By simply not submitting a “continuation” budget to the Legislature, the governor could reduce the potential red numbers by $600 million or more. That would leave a shortfall of approximately 3 percent to be made up in the $12 billion state fund budget.
Taxpayers will soon find out if our current Legislature is going to take a fiscally conservative approach to address the new economic reality or if it will attempt to continue record levels of spending that no longer can be sustained with current revenue streams. Governor Jindal’s initial comments are encouraging. Some in the Legislature will not share his view. He will need to provide strong leadership to insure that our state government lives within its means and adds no additional financial burdens to taxpayers who have their own fiscal problems to address.
Congress Should Protect Workers’ Freedom to Choose
By Dan Juneau
LABI
Imagine an election in which you cast your ballot in public instead of in the privacy of a voting booth. Imagine that you have to mark your selection on a card in full view of others, including a representative for one of the candidates and your friends who support that candidate. What if you don’t really want to vote for this candidate? Should election laws place you in this situation? Of course not, and they don’t. But the federal laws governing labor union certification elections might do so after next year.
Over the last few decades, private sector union membership has steadily declined. Many workers are realizing that unions can be a bureaucratic obstacle to workplace efficiency and employee freedom. They see how some unions have crippled companies’ ability to maneuver and compete in the demanding world market, and they want no part of that.
Union membership has certainly diminished as workers at unionized companies lost their jobs because their employers were no longer competitive. However, membership has also fallen as employees -- disenchanted with their union leaders -- have sought to have the National Labor Relations Board (NLRB) remove (decertify) a union from their workplace. During the one-year period ending July 2008, the NLRB conducted 330 decertification elections and the unions lost 201 of these, or 61 percent.
Meanwhile, the number of elections to certify unions has dropped significantly. The NLRB conducted 2,726 such elections over the one-year period ending July 2001, and yet during the year ending July 2008, the NLRB conducted just 1,604 elections, a 41 percent drop.
Recognizing that they are on the mat and down for the count, union leaders are struggling to get back on their feet. So, for the past two years, they lobbied Congress to pass legislation eliminating secret ballot elections for certifying unions, replacing this procedure with one that would require the NLRB to accept signed authorization cards from a majority of workers. This process is referred to as “card check.” Thus far, this legislation has failed to pass, but it will be before a new Congress next year -- one that will likely be more willing to approve it.
Card check legislation is a desperate attempt by union leaders to stack the deck to reverse their dismal experience in union elections. It would permit the use of peer pressure and even intimidation to expand union ranks. It is a power play that should never be sanctioned by Congress.
The role of government in labor/management relations is to ensure balance. Governments -- local, state, and federal -- must never tip the scale in favor of one side. The fact that neither the employer nor the union knows how workers vote in a secret ballot election effectively stops coercion by either party. Workers are free to choose and need not tell anyone how they voted.
Contrary to assertions by card check advocates, current law in no way limits the ability of unions to organize workers. What it does do is protect workers who don’t want a union in their workplace from being forced to have one. That is balance, and it is what the majority of voters in Louisiana believes should happen.
Seventy-four percent of Louisiana’s voters say that having an NLRB-supervised secret ballot election is the best way to protect workers’ rights during a union organizing effort. And this sentiment is even stronger within union households (91 percent).
As a right-to-work state, Louisiana law protects workers’ freedom to choose. It would be wrong for Congress to erode this freedom by favoring union leaders over workers.
Jim Patterson, Vice President and Council Director for LABI’s Employee Relations Council, contributed to this column.
LABI
Imagine an election in which you cast your ballot in public instead of in the privacy of a voting booth. Imagine that you have to mark your selection on a card in full view of others, including a representative for one of the candidates and your friends who support that candidate. What if you don’t really want to vote for this candidate? Should election laws place you in this situation? Of course not, and they don’t. But the federal laws governing labor union certification elections might do so after next year.
Over the last few decades, private sector union membership has steadily declined. Many workers are realizing that unions can be a bureaucratic obstacle to workplace efficiency and employee freedom. They see how some unions have crippled companies’ ability to maneuver and compete in the demanding world market, and they want no part of that.
Union membership has certainly diminished as workers at unionized companies lost their jobs because their employers were no longer competitive. However, membership has also fallen as employees -- disenchanted with their union leaders -- have sought to have the National Labor Relations Board (NLRB) remove (decertify) a union from their workplace. During the one-year period ending July 2008, the NLRB conducted 330 decertification elections and the unions lost 201 of these, or 61 percent.
Meanwhile, the number of elections to certify unions has dropped significantly. The NLRB conducted 2,726 such elections over the one-year period ending July 2001, and yet during the year ending July 2008, the NLRB conducted just 1,604 elections, a 41 percent drop.
Recognizing that they are on the mat and down for the count, union leaders are struggling to get back on their feet. So, for the past two years, they lobbied Congress to pass legislation eliminating secret ballot elections for certifying unions, replacing this procedure with one that would require the NLRB to accept signed authorization cards from a majority of workers. This process is referred to as “card check.” Thus far, this legislation has failed to pass, but it will be before a new Congress next year -- one that will likely be more willing to approve it.
Card check legislation is a desperate attempt by union leaders to stack the deck to reverse their dismal experience in union elections. It would permit the use of peer pressure and even intimidation to expand union ranks. It is a power play that should never be sanctioned by Congress.
The role of government in labor/management relations is to ensure balance. Governments -- local, state, and federal -- must never tip the scale in favor of one side. The fact that neither the employer nor the union knows how workers vote in a secret ballot election effectively stops coercion by either party. Workers are free to choose and need not tell anyone how they voted.
Contrary to assertions by card check advocates, current law in no way limits the ability of unions to organize workers. What it does do is protect workers who don’t want a union in their workplace from being forced to have one. That is balance, and it is what the majority of voters in Louisiana believes should happen.
Seventy-four percent of Louisiana’s voters say that having an NLRB-supervised secret ballot election is the best way to protect workers’ rights during a union organizing effort. And this sentiment is even stronger within union households (91 percent).
As a right-to-work state, Louisiana law protects workers’ freedom to choose. It would be wrong for Congress to erode this freedom by favoring union leaders over workers.
Jim Patterson, Vice President and Council Director for LABI’s Employee Relations Council, contributed to this column.
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