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‘Honey, I shrunk the state revenues’: corporate sales & income tax exemptions skyrocket on Jindal’s watch

February 19, 2012 by tomaswell

Gov. Bobby Jindal loves to use looming budget deficits as justification for cutting jobs, shredding state retirement, and privatizing state agencies as ways to bring the state budget into balance and to make state government more efficient and accountable.

But if you examine the state tax exemptions that have become the norm since Jindal took office, you would have to conclude that the state’s financial plight is of his own doing.

The state did not have to fight off a threatened $1 billion deficit last year nor was it really necessary to look for ways to avoid a $900 million deficit this year, a likelihood of which he has already warned legislators.

The question is, did he intentionally create the state’s fiscal crisis in order to justify dumping off the Office of Group Benefits, state prisons, Medicaid, and public education and placing thousands of state workers on unemployment and costing them medical benefits in the process? Is he exploiting a deliberately engineered fiscal crisis in order to revamp the state retirement system?

As incredible as that might sound, consider his veto last year of a 4-cent-a-pack cigarette tax because he didn’t want to impose any new taxes. Forget for the moment that the cigarette tax was a renewal, not a new tax. And forget, if you will, that he was not opposed to an increase in college tuition because, in his words, it was not a tax but a fee.

Forget, too, that his veto of the cigarette tax was in effect turning his back on $50 million a year in badly-need revenue—$12 million directly from tax revenue and an additional $38 million in federal matching funds.

And finally, don’t remind him of his bumbling, stumbling, fumbling of two federal grants totaling $140 million. Those included $60 million in funding for early childhood education and $80 million to fund broadband internet connection to 21 rural parishes.

And the reason there is a crisis in the state retirement systems is because the Legislature and Jindal simply reneged on the state’s contribution requirements.

So clearly, the administration won’t consider new sources of revenue—like maybe eliminating some of the exemptions. Instead, the obvious solution is to require state workers to chip in an extra 3 percent to their retirement contributions.

It would be one thing if that 3 percent went to actually fund their retirements or even to pay down the UAL. Instead, it’s to be used to bail Jindal and the Legislature out of the consequences of their moronic tax policies.

While Jindal has never met a tax he liked, all the corporate tax exemptions that have gone into effect on his watch should raise a few eyebrows. Going into his fifth year in office, there have been at least 113 bills filed that deal with tax exemptions of one description or another. Some of those were duplicates and not all of them passed, of course.

Nor did all of them call for corporate tax breaks, but most did.

Figures provided by the Louisiana Department of Revenue reveal that for Fiscal Year 2006-07, the year before Jindal took office, corporate income taxes were $721 million against exemptions of $972 million.

For FY 2009-10, the last year for which figures were available—and three years into his first term—corporate income taxes dropped by more than half to $435 million while exemptions surged to $1.3 billion.

In some cases, there was not even an accounting of money lost to corporate income tax exemptions. Take the Louisiana Superdome and Zephyr Field, for example, both managed by SMG, Inc.

The Department of Revenue Report on Corporation Income Tax, under the heading “Exemption for Events, Activities, or Enterprises Conducted in Domed-stadium or Certain Baseball Facilities,” made the following observation:

“Any event, activity or enterprise conducted in certain domed-stadium (that would be the Louisiana Superdome) or any open baseball site owned and operated by the state (Zephyr Field), or any of its agencies, boards or commissions, with a seating capacity of at least 10,000 and has a professional sports franchise that participates in Class Triple A professional baseball is exempt from all state and local taxes. The purpose of this exemption is to promote use of the domed stadium.”

Under the heading “Beneficiaries,” was the explanation that “The increased use of the dome-stadium facilities benefits the state and its residents.”

Under the heading “Estimated Fiscal Effect,” the explanation was even more ambiguous. “We are unable to estimate the fiscal effect; there is no reporting requirement for the data.”

This is an exemption that went into effect on May 23, 1985, more than 26 years ago and there is no way to estimate the fiscal impact? There is no reporting requirement for the data?

Well, neither was any data as to the fiscal impact of the sales tax exemption for “state-owned domed stadiums” or sales by “certainly publicly-owned facilities.” Neither was there any explanation as to why state-owned domed stadium was pluralized.

At the same time, sales tax collections for 2006-07 totaled $2.8 billion while exemptions came to $688 million. By 2009-10, sales tax collections had dropped to less than $2.5 billion while exemptions had leaped fivefold to $3.9 billion.

The Stelly Plan that had eliminated sales taxes on food, drugs and household utilities and replaced them with income taxes was repealed under Jindal. That contributed to a decrease in individual income tax collections from $3.1 billion to $2.2 billion while exemptions more than doubled, from $519,000 to $1.1 billion.

The year-to-year total tax revenue losses from all exemptions are as follows:

$1.07 billion in FY 2004-05; $1.13 billion in FY 2005-06, and $2.55 billion in FY 2006-07.

The projected revenue loss for FY 2007-08 was $2.57 billion and $2.8 billion for FY 2008-09, according to the Department of Revenue report for FY 2006-07, former Gov. Kathleen Blanco’s last year in office.

Instead, the actual revenue lost to exemptions for 2007-08 was $6.7 billion, $4.1 million more than the projections. It was more of the same for 2008-09, when lost revenue was $7.2 billion, more than double the estimate. For FY 2009-10 tax exemptions accounted for revenue losses of $7.1 billion and were projected to drop slightly to $6.68 billion for the fiscal year ended last June 30 and back up slightly to $6.8 by June 30 of this year.

While all these figures admittedly are mind-numbing, it is nevertheless important to know that the five-year (FY 2004-05 through FY 2008-09) loss of revenue to the state treasury comes to $18.7 billion.

The combined unfunded accrued liability (UAL) of the state’s four retirement systems?

$18.3 billion.

Posted in Exemptions, Incentives, Governor's Office, Revenue, Taxes | 5 Comments »

Notable Quotable (in their own words)

February 16, 2012 by tomaswell

“Saying that promises are being kept and keeping promises are two different things.”

“The retirement benefits of current employees are part of the package of compensation they were promised when hired; any change to that package is breaking the promise made to those employees.”

–Cindy Rougeou, executive director of the Louisiana State Employees’ Retirement System (LASERS) in a recent LASERS publication on its web page.

Posted in Civil Service, Governor's Office, Notable Quotables, Retirement, Transparency | Leave a Comment »

More of Jindal’s smoke and mirrors: this time it’s fuzzy math on state’s retirement package from High Potentate Piyush

February 16, 2012 by tomaswell

With so many retirement bills filed in both the House and Senate, it’s difficult to make heads or tails of them all.

For example, Sen. Elbert Guillory (D-Opelousas), chairman of the Senate Retirement Committee has personally pre-filed 37 retirement bills for the upcoming session which begins at noon on March 12.

His counterpart, House Retirement Committee Chairman Kevin Pearson (R-Slidell), has pre-filed 15 such bills. They run the gamut in addressing retirement issues for municipal employees, registrars of voters, clerks of courts, teachers, school employees, sheriffs and, of course, state employees.

And those do not even include any retirement bills authored by the other 142 legislators.

And while the main thrust is to placate Gov. Bobby Jindal in his efforts to reduce retirement benefits, increase employee contributions, and to tighten retirement qualifications, nothing has been said by the administration to address problems inherent with attempts at pension reform: namely the Louisiana State Constitution.

One person who has not been shy in criticizing Jindal’s plan is Cindy Rougeou, executive director of the Louisiana State Employees’ System (LASERS).

Rougeou says Jindal is seeking to impose an additional payroll tax on state workers in the form of a 3 percent increase in employee contributions—money that will not even be used to retire the state retirement system’s $6.3 billion debt.

She also says that Jindal is:

• Targeting workers who are barred from lobbying on their own behalf, those least able to speak up in opposition to his plan;

• Attempting to force state employees to work longer for reduced benefits;

• Giving legislators false information as to the percentage that employees contribute to the cost of their retirement as compared to the state’s share;

• Ignoring the fact that the current unfunded accrued liability (UAL) came about in the first place because the state reneged for decades on paying its required contribution;

• Attempting to violate both the State and U.S. Constitutions in proposing sweeping changes to the retirement system.

Those are some pretty serious charges, coming as they do from a state employee when the governor has shown himself to be more than capable of retribution against recalcitrant underlings.

Rougeou, however, is said to be beyond the reach of Jindal’s wrath. She is hired by a LASERS board that is elected, not appointed by the governor, thus her unrestrained defense of state employees and her criticism of the governor’s retirement package.

But if Jindal is really looking for a scapegoat, he need look no further than the first floor of the State Capitol where the House and Senate chambers are located.

In 1987 the legislature passed a bill calling for a constitutional amendment that would require all the state’s retirement systems to be actuarially sound with UALs being paid off by the year 2029. Voters approved the amendment but as usual, there was a fatal flaw in the wording of the bill that allowed legislators to begin tinkering with the repayment schedule.

And tinker they did, passing Act 497 in 2009—on Jindal’s watch, by the way—that created a new payment schedule so that the state could reap a savings of $500 million. It is the state’s failure to make the necessary payments to bring the systems into manageable shape that created the current crisis in the retirement funds.

Each year between 1959 and 1969 and from 1983 to 1991, the state failed to pay its required contribution to LASERS. Not once. In 1963, for example, the 6 percent paid by the state was less than half the required 12.26 percent and in 1960, the state’s 6 percent was barely more than half the 11.81 percent required contribution. In 1990, the 7.8 percent paid by the state was far short of the 14.09 percent requirement.

Commissioner of Administration Paul Rainwater, in presenting Jindal’s executive budget for Fiscal Year 20120-13, told members of the Joint Legislative Committee on the Budget that the employees’ share amounts to less than 27 percent of total retirement contributions while the state’s share exceeds 73 percent.

Not so fast, says Rougeou. The administration’s accounting, she said, “apparently formed the basis for the justification that employees should now pay an addition 3 percent of salary toward their retirement.”

She went on to say, “The cost of the accruing benefit in 1988 was 12.8 percent of payroll, which we refer to as the normal cost. Of that amount the employee paid 7 percent and the state paid 5.8 percent. As such, in 1988 the employee contributed about 54.69 percent (of the total) toward retirement. Though somewhat less today, current rank and file employees “are still paying about 54 percent of the cost of their accruing benefit,” she said–double Rainwater’s claim.

So now Jindal is calling on state employees to kick in an additional 3 percent to the retirement fund. That wouldn’t be so bad if the extra 3 percent went to their retirement or even to pay down the UAL, but it doesn’t. The money will go straight into the state general fund so that Jindal can smooth over an anticipated $900 million budget shortfall this year.

Even that would be more palatable if Jindal was doing that across the board, but he isn’t. He promised the state’s college and university presidents that if they’d keep their mouths shut and not oppose his retirement package, they could share in the $100 million savings from university and college employees’ additional 3 percent.

While that comes to less than $5 million for each of the state’s 23 public colleges and universities, it hardly seems fair that they keep their 3 percent in-house while the remaining state employees must pony up their additional 3 percent to keep Jindal’s budgetary boat afloat.

Nor is it fair to tell a 42-year-old state employee with 20 years’ experience that he can scrap his plans to retire at 30 years, that he must continue working until he is 67. And when that employee purchased four years’ “air time” a few years back to enhance his retirement, it cost him $18,000.

If he works until age 67, he will have 45 years as a state employee. State employees currently can retire at 100 percent of their salaries with 40 years’ service. Will he be required to continue paying into the system past his 40 years? What about that $18,000? Will he get that back? He bought the time in good faith and in the belief that the state would honor its commitment to him just as the woman in the state agency next door paid $60,000 for 13 years’ air time. What’s to become of their investments?

Louisiana employees do not pay into social security, which makes any comparison with other systems invalid. Apples and oranges. A lifetime state worker will never qualify for social security benefits as do workers in the private sector.

The governor’s retirement package also contains a provision that retirement benefits for currently active employees be based on the formula of 2.5 percent times an average of five years’ highest income times years of service. That is a change from the current formula that computes retirement based on three years’ average earnings.

As things now stand, that would have negligible impact; employees are going into their fourth straight year without merit raises but extending the work years to age 67 could be devastating to certain employees. Depending on their dates of birth, some employees who retire after 30 years could see their benefits cut by more than half than if he/she had been born one day earlier.

Jindal, while attempting to force state employees to work longer and pay more into their retirement, is also trying to revamp their retirement from a defined benefit to a defined contribution, similar to 401(k) investment account with no guarantee of return.

Former House Speaker Jim Tucker (R-Terrytown) said last year the 3 percent increase in employee contributions was a tax and would require a two-thirds vote of both the House and Senate. Jindal has vowed throughout his term that he will veto any new taxes that appear on his desk and so obviously does not see the 3 percent increase as a new tax any more than he saw college tuition increases last year as a new tax.

But the bigger question is one of constitutionality, both state and federal.

“Many of those employees already have ‘vested’ rights in their retirement benefits,” Rougeou said. “To change provisions such as those targeted would violate the (U.S.) constitutional restriction against impairing existing benefits. She cited Article X, Section 29(B) of the State Constitution which says “…membership in any retirement system of the state…shall be a contractual relationship between employee and employer.”

“And of course the U.S. Constitution in Article 1, Section 10, Clause 1, states, ‘No state shall…pass any…ex post facto law, or law impairing the obligation of contracts…’” she said.

“Proposing changes that are unconstitutional attains only protracted litigation and doesn’t result in a sound pension system,” she said.

She said Jindal should not count on using any of the anticipated $450 million in taxpayer savings resulting from his pension reform to help balance the budget because there will be court challenges if the administration is successful in getting the bills passed.

One must be starting to wonder by now just how many more shell games Jindal will introduce to cover his budgetary backside. Retirement and the privatization of the Office of Group Benefits, state prisons and Medicaid are all on the table this year, so what financial wizardry will he conjure up for the next three years?

Posted in Governor's Office, House, Senate, Legislature, Legislators, Retirement | 14 Comments »

Notable Quotables (in their own words)

February 15, 2012 by tomaswell

“Would attending a rally be considered lobbying?”
“No it would not. A rally is a gathering of people to inspire enthusiasm for a cause.”

“Can I go to public rallies on issues and carry a sign, cheer and boo?”
“Yes you can.”

–Louisiana Department of Civil Service General Cicular Number 2012-004 of February 9, 2012.

“I have had discussion with our attorneys concerning a citizen organizating a rally outside of the hospital. I am directing all employees and physicians not to attend this event either on or off the clock. There are potential serious legal issues with our participating in such an event. Violation of this directive may result in discipline (sic) action against you.”

–Larry Dorsey, administrator of University Medical Center in Lafayette, in a February 1 email to UMC employees directing them to not attend a public rally protesting the elimination of 130 positions at the hospital by the Jindal administration.

Posted in Civil Service, Notable Quotables, Transparency | 1 Comment »

State hospital administrator suspends employees’ First Amendment rights by prohibiting attendance at rally

February 15, 2012 by tomaswell

The administrator of a state hospital may have overstepped his authority and placed his office in violation of state civil service rules when he sent a short email to hospital employees two weeks ago.

His email actually pre-dated by eight days the email of LSU Systems President John Lombardi that we wrote about last week. It seems to be the trend these days that the administration of Gov. Bobby Jindal will tolerate no outward signs of resistance from state employees.

This, of course, is the governor who touts his openness, his transparency, his accountability while attempting to suspend the First Amendment to the U.S. Constitution: that pesky little guarantee of free speech and free assembly.

Not that he would ever dirty his hands with issuing a direct order; he’s far smarter than that. That’s what his subordinates are for. People like Lombardi who last week sent out an email admonishing his LSU troops to be thankful they still have jobs and not to be critical of Jindal’s budget cuts.

Now we’ve learned that on Feb. 1, Larry Dorsey, administrator of University Medical Center (UMC) in Lafayette issued an even sterner memorandum to the employees of his facility which is facing the elimination of 130 positions.

Word of the impending layoffs at UMC went out in mid-January in the form of an email from Dr. Roxane Townsend, CEO of the Health Care Services Division of the LSU Health System.

In all, seven facilities will be affected by the layoffs, Dr. Townsend said. Those include, besides UMC, Bogalusa Medical Center, Earl K. Long Medical Center in Baton Rouge, Lallie Kemp Regional Medical Center in Independence, Leonard J. Chabert Medical Center in Houma, Interim LSU Public Hospital in New Orleans, and W.O. Moss Regional Medical Center in Lake Charles.

Dorsey was quick to point out to Capitol News Service that there will not be 130 employees who will lose their jobs because some of the eliminated jobs are vacant positions that will be abolished and that some employees would be allowed to “bump” those with less seniority in order to save their jobs. He did not say how many would actually lose their jobs or how many unfortunate souls would be bumped.

The layoffs at the seven facilities, scheduled to take effect on March 5 once they have been approved by the Director of Civil Service is being proposed due to the inability of the Health Care Services Division to realize $29 million in additional federal funding for care delivered to the uninsured and Medicaid population during the current 2011-12 fiscal year, Dr. Townsend’s memo said.

But back to that Feb. 1 memorandum, issued as an email to all UMC employees. Here it is in its entirety:

“I have had discussions with our attorneys concerning a citizen organizing a rally outside of the hospital. I am directing all employees and physicians not to attend this event either on or off the clock. There are potential serious legal issues with our participating in such an event. Violation of this directive may result in discipline (sic) action against you.” (Boldface emphasis Dorsey’s.)

The rally, organized by private citizens who use the hospital, was held on Feb. 2, the day after Dorsey’s email.

Dorsey told Capitol News Service that he issued the directive on advice of his legal staff.

Perhaps his in-house counsel should have sought legal counsel of her own.

The directive, it turns out, is in direct contravention of the provisions of General Circular 2012-004, issued on Feb. 9 of this year by the Louisiana Department of Civil Service and drawn directly from the state lobbying act: R.S. 24:56. That date, by the way, just happens to coincide with the issuance of the Lombardi email.

The circular, re-issued in anticipation of the 2012 legislative session in order to clarify state classified employees’ rights and restrictions, says that classified employees “are prohibited from engaging in efforts to support or oppose a candidate, party or faction in an election.”

But in the very next sentence, the circular says, “These constitutional restrictions do not prohibit a classified employee from expressing themselves either privately or publicly on issues that may be pending before the legislature or other body.”

The circular cautions employees than when speaking publicly on an issue, “make sure you are addressing matters that are of public concern and not personal to your particular work environment.” The elimination of positions at a state hospital would appear to come under the banner of public concern.

The circular also poses several questions, one of which asked if a classified employees attends a public rally, would it be permissible for the employee to “carry a sign, cheer and boo?”

The circular answered that rhetorical question by saying it is permissible for employees to carry signs, cheer and boo so long as the same standard of public concern is observed.

The circular said a classified employee is allowed to be a member of an organization that lobbies before the legislature but that the employee cannot personally lobby legislators.

Active classified employees are allowed to attend rallies conducted by the Retired State Employees Association, even “on the steps of the Capitol so long as the employee is a member of the association and provided the employee is on approved annual leave if the rally is held during normal duty hours.”

To the question, “Would attending a rally be considered lobbying?” the circular said, “No, it would not. A rally is a gathering of people to inspire enthusiasm for a cause.”

The circular also said that classified employees are allowed to place signs in their yards in opposition to or in support of proposed legislation.

The legal counsel at UMC could well be up for special recognition and perhaps even a merit raise from the Jindal administration for doing such an effective job of stifling employees’ First Amendment rights.

Posted in Civil Service, Governor's Office, Layoffs, Teague, Transparency | 2 Comments »

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