State Budgets

Louisiana State of the State: Governor’s Occupational Licensing Reform Proposal Could Generate Opportunity, but Support for Continued Cronyism and Excessive Spending Threaten Growth

Opening Louisiana’s 2018 regular session, Governor John Bel Edwards recently gave his third State of the State address. Jumping from the Medicaid expansion and tax policy to minimum wage and occupational licensing, the governor’s wide-ranging address explored some positive reforms while continuing to push unsustainable spending and tax hikes.

The governor spent half his time touting the state’s economic “improvements” and his accomplishments since taking office in 2016. He subtly chided lawmakers for their recent “failure” to renew taxes and levies, saying he does not “want the roadblocks of the special session to hamper us,” and that “we really have so much to be optimistic about in our state.”

He highlighted Louisiana’s 4.6 percent unemployment rate, the lowest in a decade, and “record employment in construction, education, and healthcare” in 2017. He went on to praise $600 million of new spending for three major highway improvements, all part of a nearly $14 billion in pre-authorized infrastructure projects.

The governor noted Louisiana was listed by several magazines among the top states for per capita economic development investments. Unfortunately, this merely reflects the state’s propensity for subsidies and tax handouts. According to Governor Edwards, Louisiana “landed 43 new projects totaling $4.6 billion in capital investment” in 2017. All told, “nearly 24,000 more Louisianans gained employment,” due to these investments, the governor claimed. Unfortunately, these investments have cost taxpayers billions through the state’s Industrial Tax Exemption Program (ITEP). Such job growth and investments are no doubt a positive turn for those who can get in on those deals, but preferential giveaways to a favored few result in higher tax rates for everyone else. The jobs “created” are seen and thus easily referenced as evidence of “success” by politicians, but unseen are the many more jobs lost or never created due to the unfair advantages given state-sponsored enterprises and the forced diversion of capital from more profitable enterprises.

The governor moved on to the state’s Medicaid expansion, in which he claimed, “over 460,000 working people have enrolled…and is producing savings for Louisiana’s budget.” With the Obamacare’s individual mandate repealed through federal tax reform, these “savings” could prove temporary should the federal government follow through on plans to roll back its infusion of cash to state Medicaid programs. This would leave Louisiana on the hook for hundreds of millions of dollars each year in health care entitlements. Also of note, these “savings” are not really savings at all, but merely shift the burden from the state government to the federal government. Louisianans are indeed  U.S. citizens subject to federal income taxation as well.

Moving on to his legislative agenda, Gov. Edwards called for efforts to help small businesses, improve education, reform adoption and child services agencies, and implored legislators to address the state’s fiscal crisis. Much to his credit, Governor Edwards took a bold stance against economically damaging occupational licensing laws. He decried that Louisiana ranks “6thworst in the nation for convoluted occupational licensing requirements.” The governor directed his cabinet to “review all regulations, especially related to small businesses.” He proudly announced the establishment of an Occupational Licensing Review committee and that its first effort will be repealing licensing requirements for florists. In addition, he has tasked the committee to reduce the number of outdoor recreational activity licenses “from 117 to 30.”

The governor returned to discussing the budget crisis and demanded lawmakers renew a slew of expiring tax hikes, without which the state’s budget going into effect July 1stwould require $692 million in cuts. He laid out several popular programs, such as the state’s college tuition subsidy, TOPS, which would be on the chopping block in the event of such cuts. Issuing a snide challenge, Governor Edwards said “many of you have suggested that the fiscal cliff could be solved by simply making spending cuts. If that’s what you truly believe, now is your opportunity.” Louisiana’s total appropriations grew by a shocking 25.5 percent between the FY 2014 and FY 2017 budgets – over 5 times the annual rate of inflation during the same period.

Outsized tax and regulatory licensing burdens, are the other part. Louisiana is at a disadvantage with every state in its region. Its high state and local sales tax burden exceeds even that of its zero-income-tax neighbors of Tennessee, Texas, and Florida. Compounded by the 9thhighest worker compensation costs, 2ndworst tort system, and high levels of debt, unsurprisingly, the Pelican State’s economic growth was a pitiful 1.1 percent between Q2 and Q3 of 2017– lowest in the South East and 2ndlowest in the nation. Over the same period, Texas grew by 5 percent, Georgia by 3.2 percent, and Tennessee, Florida, and North Carolina by 3 percent. In today’s fast-moving economy, most states fall behind simply by standing still. While Louisiana languishes in 28thplace in economic outlook in Rich States, Poor States, tax-and-budget cutting states like North Carolina, Tennessee, Florida, Texas excel in 3rd, 5th, 6th, and 9th, respectively.

Echoing his call last year, Governor Edwards pushed for a state minimum wage to reach $8.50 by 2020. The academic literature finds such policies substantially hinder broader economic growth. A recent study of the Seattle minimum wage found it not only caused workers to lose their jobs but, ironically, the average earnings by employees to fall! Worse, another panel study showed minimum wages slow business expansion and job growth. New research from The Archbridge Institute found minimum wage is a primary barrier to social mobility.

 Governor Edwards is right to call for substantial reforms to the state’s occupational licensing laws, but those changes will mean little if the state doesn’t address taxes and spending. Louisiana remains in the bottom half of states both in terms of economic outlook and performance (including 3rdslowest GDP growth over ten years), according to Rich States, Poor States. In part because of the rampant tax favoritism, the state has endured large tax hikes over the past several years. Instead of redistributing wealth through the tax code, lawmakers who wish to bring the most prosperity to the most people should focus on creating a competitive economic climate that enhances economic growth and opportunity for all.

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