A Budget Showdown Ends in 7 Year Regressive “Fix”
The third special session of 2018 convened on Monday, June 18 and adjourned on Sunday, June 24. When the legislature convened, they were facing a $507 million shortfall in the fiscal year beginning July 1 due to the expiration of temporary revenue measures, including the $0.01 state sales tax. A compromise was reached on Friday, June 22 that renewed .45% of the expiring penny sales tax. By Sunday, June 24, it had passed with super majorities in both chambers of the legislature.
While this renewal isn’t permanent, it does stay in place until 2025. We will still have budget problems, but Louisiana does get a few years of fiscal stability. Most importantly, catastrophic cuts to health care services, nursing homes, hospitals, and higher education have all been avoided. However, this revenue does not fill the full shortfall. It’s about $43 million short of the $507 million needed. There are shortfalls in juvenile justice, department of corrections, and sheriffs. State offices like the Office of Attorney General, Office of Secretary of State, and Governor’s Office are taking some cuts.
A portion of that remaining gap will be filled via the Supreme Court’s recent decision which will bring some internet sales taxes to our state. Louisiana will probably start getting some revenue from that sometime in this fiscal year. The legislature reached a compromise on how to distribute these taxes by giving oversight to the Joint Legislative Committee on the Budget.
A Hybrid Plan That Would Have Decreased Benefits
Senate Bill 14 by Senator Barrow Peacock was filed during the regular legislative session this year. This bill was modeled off a hybrid plan in Ohio which was optional for Ohio’s public employees. SB14 seeked to address the symptom of a larger problem, turnover in state employment, by shifting risk from employer to employee. At the same time, the bill promised “pre-funded” COLAs only when workers retire at age 65 or older. Those two concepts are in conflict, highlighting a major thematic problem with SB14, that a hybrid retirement plan is not a real cure for a decade of state pay freezes, reductions to state worker health care benefits, a down economy, and the changing reality of long-term employment.
Senate Bill 14’s hybrid plan undermined what attracts career professionals to state service to begin with. SB14’s actuarial note shows that it hurts employees who choose to make career and employment changes late in their careers. The state can attract experienced industry veterans late in their careers primarily by providing a superior system of benefits, since the state generally pays less than private industry, especially for experienced workers. SB14’s actuarial note shows that workers coming to the state in their 40s would receive an often substantially lower benefit under the proposed plan than the current plan.
The bill passed out of Senate Retirement and then Senate Finance, where it was dual referred, and passed onto the Senate floor. The bill required a 2/3 vote, and LABI and LASERS lobbied the Senate floor daily in favor of the bill. Ultimately, their efforts to secure the votes to pass the bill to the House failed, and the bill was never brought to a vote on the Senate floor.
Lingering Questions and Issues for the Future?
Constitutional Convention and the Threat to Retirement Security - Since the state’s fiscal woes entered the public consciousness, certain legislators have zeroed in on a Constitutional Convention as their priority solution. In the most recent special session, Democratic Chairman of the Ways and Means, Neil Abramson of New Orleans, and Representative Franklin Foil of Baton Rouge, a Republican, each filed legislation to put together a study commission on a state constitutional convention. Their study resolutions were rejected 3-3 by the House & Governmental Affairs Committee.
Louisiana's four state retirement systems guarantee a defined benefit within the language of our 1976 Constitution. Powerful special interests plan to return to the Capitol for full on war to pass legislation that will authorize constitutional convention, that would include subject matter of public pension restructuring or elimination.
2019 Legislative Elections and Redistricting
In 2020 the Louisiana Legislature will return with approximately 60 new legislators, who have never been properly educated on public pensions, many of whom have never participated in a public pension system. They will need to be educated, yada yada. Our continued partnership with the Louisiana Public Pension coalition to research and education about the impact of public pensions at the local level and on local economies will be invaluable during the 2019 election and beyond. Our current legislature is made up of 62% “conservative” legislators, and many important pension related matters require a 2/3 vote under our rules for bills that create a new unfunded accrued liability. This slim margin has proven crucial to killing extremely dangerous bills since many privatization and hybridization measures come with actuarial notes that show the bills actually cost the state money.