The Pessimism and Optimism of Conservatism

You expect Republicans and Democrats to have opposing ideologies. Differing viewpoints between members of the House and Senate are not unexpected, either. But committee hearings Monday on either side of the Capitol pointed out a massive philosophical disconnect between two conservative Republican leaders – Rep. Lance Harris and Sen. Conrad Appel.

In a twist on the classic glass half full vs. glass half empty analogy for optimism vs. pessimism, Harris argued the glass is overflowing, while Appel predicted the glass would crack and spring a leak.

Having received the full House-approved budget bill late last week, the Senate Finance Committee was taking testimony on the sections pertaining to the Department of Health.

“I want to talk about the growth patterns of spending,” Sen. Appel said, when it was his turn to query state health officials. “My concern is about the demand on state resources for LDH – primarily general fund – over the next five to ten years, because that will be a determinant factor for what funds are available for other state priorities.”

Sen Appel (R-Metairie) tends to fret. Yet you have to give him a big attaboy for his fretting about the budget needs five and ten years into the future, especially since he is term-limited out this year.

“Looking at this five-year projection you prepared, it’s mostly driven by the Medicaid piece,” he continued. “From FY 19 to FY 24 it will grow by about $3.1-billion. Now, of that, what I don’t have here is how much is state effort. If I remember right from last year, over 10 years state effort will grow by about a billion for all of LDH. Do we have a strategy to be able to afford all this?”

LDH Secretary Dr. Rebekah Gee (top, far left), Sen. Conrad Appel (inset)

“The Medicaid expansion is something that has benefited the economy of the state. It’s brought over $3-billion of additional federal money,” state Health Secretary Dr. Rebekah Gee replied. “It’s also brought increased economic activity, 19000 jobs. People are healthier, able to work, so I want to make that point.”

“I understand all of that,” Appel said, “but can we project for the next few years – for the next decade, say – what’s it going to cost?

LDH officials told committee members they’ve engaged Dr. Jim Richardson’s group at LSU to study that and make some projections, noting that all the data the Health Department has is from prior utilization patterns, not economic forecasting data. Specifically, they told Sen. Appel they currently use a projection of 4% growth each year because that’s historically what’s happened.

“I hope the LSU study takes into account, in their model, a future downturn in the national economy,” Appel stated. “In the business world, we all expect that to come in the next 2 years, 4 years, who knows. But it could be a 25% drop – I’m making that number up so don’t quote me – drop in the US GDP, and that in turn would reflect back to the number of employed people, who would throw people onto the…onto the…to LDH, either as uncompensated care or Medicaid. If our costs spike because of an economic downturn, we’ve got to find the money to pay for it.”

“Much of that is beyond the control of the state, as it deals with federal level issues,” Dr. Gee replied.

“But there is a built-in growth in our whole LDH budget. It’s gonna grow and grow and grow!” Appel said, his voice rising with insistence. “And as it grows, either state revenues have to grow, with more taxes, or we have to start whacking education, infrastructure, all the other state priorities that we have. So first, somebody needs to be looking in a macro sense at the state budget, and how a fixed growth pattern from LDH affects the ability of the state to do its business. And number two, we all know that we’re going to get a downturn cycle, and it could be devastating because of the amount of funds that are tied up in healthcare. It’s 50% of the state budget now. If we’re going to be having demand spike, we need to know the potential damage to the state fisc.”

“It’s 50% of the budget because so many federal funds come in to support it,” Dr. Gee gently reminded Sen. Appel.

“I understand that!” he said, sounding a bit annoyed. “It’s great, but you have an economic downturn and a spike in demand for services and you still have to come up with matching funds!”

“That’s correct, but the Medicaid expansion was designed to be in large part self-sufficient through the hospital assessment, through the managed care premiums,” Dr. Gee said. “Coverage for the state match was built in. Right now, it’s an economic no-brainer to have the expansion.”

“I’m not talking about right now, rather the mathematics of an economic downturn,” Appel insisted. “When you have fixed expenses, and falling revenues, you’ve got a problem. I’m just asking to look at that problem so we know how to adjust to it when it inevitably happens.”

“You’re right. We have to have a plan and reassess if there’s a downturn,” Dr. Gee said, conciliatorily. “But that’s not where we are right now. The economy is improving; we have the lowest unemployment in 10 years; so we’re actually doing better than we were a few years ago.”

“You’re in favor of Trump’s policies?” Appel asked, incredulously.

“I’m in favor of Gov. Edwards’ policies,” Dr. Gee retorted, with a smile.

“Whoa!” Appel exclaimed, leaning back in his chair, throwing his arms up as if blown back. Chuckling, he added, “Good answer! But Gov Edwards didn’t do anything for the economy.

“I would disagree,” Dr. Gee said, grinning at Appel.

Chuckling, he concluded, “Okay, good answers. Thank you.”

Clear across the building in a basement committee room, House majority leader Lance Harris was offering his HB 599, supporting a contrary view of the state’s fiscal future.

“We’ve shown surpluses for the past three years, so we’re obviously taking too much out of our taxpayer’s pockets,” Rep. Harris (R-Alexandria) told the Ways and Means Committee. “This bill ratchets back on the point-four-five sales tax we enacted in the last session last year.”

The bill reduces that partial penny of sales tax incrementally, beginning with the fiscal year that starts July 1, 2020. It completely repeals that tax effective July 1, 2023 – a full two years before it is currently scheduled to sunset.

“The administration is telling us the economy is growing,” Harris expounded. “Oil prices are going up, and we’re showing surpluses. So to put it back into the private sector, I went to the most recent tax we did.”

Rep. Lance Harris; Rep. Paula Davis

But Rep. Paula Davis (R-Baton Rouge), the author of last year’s hard-won compromise bill that finally ended the seemingly interminable sessions seeking to avert the fiscal cliff, was concerned that Harris was over eager to undo that deal

“We’ve passed some tax reform measures out of this committee, and on to the House floor,” Davis told Harris. “If the Stokes, Ivey, and/or Zeringue reforms pass, we’re down by $200-million or more. Add in your bill and we’re back to a deficit again.”

“Not necessarily,” Harris asserted blithely. “It’s not a built-in deficit. The budget is built on what REC projects. There is no deficit since the budget has to match the prediction.”

Rep. Joseph Bouie (D-New Orleans) remarked, “We don’t have a tendency to embrace REC’s projections.”

Harris dismissed that critique, insisting, “Ultimately you have to build the budget to that number.”

Davis had another question: “Have we gotten any feedback from the credit rating agencies about this proposal?”

“Not yet,” Harris replied. “But we have three years of surpluses, which means we don’t have to extract as much money out of taxpayer pockets as we thought last year. Constituents ask why we’re collecting more sales taxes if we have surpluses. We need to be doing this to give them some relief.”

“The surpluses are not the result of sales tax. They’re the result of income growing,” State Revenue Secretary Kimberly Robinson said, contradicting Harris’ spin on the situation. “Tax cuts in 2007 and 2008 created the problem, essentially undoing the voter-approved Stelly Plan intended to prevent all of this. Plus, from Gov. Blanco on, we created a myriad of new credits and incentives.

“You asked about the credit rating agencies, Rep. Davis? We have finally gotten off the negative watch list,” Sec. Robinson said. “If we continue to tinker with the stability we created through last year’s compromise, we’ll be back on the negative watch list.”

“We’ve already forgotten how bad it was,” agreed Rep. Robert Johnson (D-Marksville). “Just a year ago TOPS was in question. We still have a $14-billion backlog in road projects. Teachers haven’t had raises in a decade. And remind me where we rank in terms of citizen tax burden?”

“We are 46 of 50, ranked highest tax burden to lowest,” Sec. Robinson responded. “Or the fourth lowest in the nation.”

“And what is the business tax burden?“ Rep. Johnson asked.

“The lowest.”

“How much will this bill cost?” Johnson queried.

“The fiscal note says $87-million next year, going up to $392 million by fiscal year 2022,” Robinson answered.

“Who do you represent?” Rep. Phillip DeVillier (R-Eunice) asked Sec. Robinson, rather aggressively.

“The Governor’s office,” she replied, calmly.

“What is the administration’s vision for 2025 when this sales tax – as it stands now – goes away?” Devillier demanded.

“Overall structural tax reform,” she answered. “What’s been suggested over and over by tax reform studies: income tax changes, and for sales tax, broadening the base and lowering the rate.”

That didn’t satisfy DeVillier, so he tried yet again to intimidate the soft-spoken Revenue Secretary.

“What’s more important? To have good tax policy, to attract business, or raise revenue?” “Good tax policy,” she answered, with a smile and a slight shake of her head, conveying that she wasn’t about to rise to his bait. “For example, in order to have a broader base and a lower rate, we need to cover more services with sales tax since that sector is growing, compared to sales of things. We need to look at what’s exempt that shouldn’t be. But we have to look at our entire tax system holistically, not just piecemeal.”

In his closing argument for advancing the bill, Harris made clear he’s doing this as an election-year appeal to white, middle-class voters.

“Our people are paying an extra 50-dollars a month in taxes,” he said. If this continues, they might have to cancel pizza night on Fridays or tell Johnny he can’t play Little League baseball.”

Without objection, the committee advanced the bill to the full House.