LBP Amendment Guide

Consult this guide from the Louisiana Budget Project for information on this year's proposed constitutional amendments

Louisiana voters will decide on seven amendments to the state constitution in the November 2020 elections, along with an eighth ballot measure that deals with the legalization of sports gambling. While most of these measures will have little effect on the day-to-day lives of most citizens, two amendments have the potential to inflict long-term damage on the ability of state and local governments to provide basic services. 

The two harmful amendments are No. 4, which would change the rules that govern the state budget in ways that would force unnecessary cuts to education, healthcare and other basic state services; and No. 5, which allows manufacturing corporations to receive additional property tax breaks at the local level beyond the lavish tax incentives that already exist. 

The other ballot measures deal with issues that include abortion, sports gambling, the allowable uses of the state’s rainy-day fund and the tax treatment of oil and gas wells. Additional information about the amendments is available from the Public Affairs Research Council and the Council for a Better Louisiana

 

Amendment 1: Clarifies that nothing in the state constitution should be construed to protect the right to an abortion, or to fund abortion services. 

Background: Abortion has been legal in every state since the U.S. Supreme Court ruled in 1973 that the Constitution protects the right of a pregnant woman to terminate her pregnancy. There is nothing in the state constitution that expresses support for abortion rights, and if the U.S. Supreme Court should overturn its landmark Roe v. Wade decision there is already a Louisiana law that would automatically make abortion illegal in the state. The amendment, which passed the Legislature in 2019, is designed to ensure that the Louisiana Supreme Court does not interpret any part of the constitution as making abortion legal. 

LBP Analysis: This amendment does not change anything in state or federal law. 

 

Amendment 2: Allows property assessors to account for the presence or production of oil or natural gas when determining the fair market value of an oil and gas well. 

Background: Louisiana already collects severance taxes on most oil and gas production, which is based on the quantity and the value of the oil and gas that is produced. But the current constitution does not allow parish tax assessors to use the presence of oil or gas when calculating the value of an oil and gas well. The owners of oil and gas wells pay property taxes on the value of the land, and the drilling equipment, but not on the minerals that sit below ground. As CABL explains in its analysis, this can result in high property tax bills for newly drilled wells that are producing little oil but where the value of the drilling equipment has not yet depreciated, and low tax bills for older wells that may be producing far more oil or gas and thus creating more value for its owners. After years of disputes, the oil and gas industry and the Louisiana Assessors’ Association agreed on a solution that allows the mineral value to be part of the calculation. 

LBP Analysis: Property taxes are a critical source of revenue for parishes, and help support public schools, parks, police protection and other vital services in every Louisiana community. It is unclear how this change would assess overall property tax revenue going to parishes. Some well owners would be taxed more, while others would pay less than they currently do. But it makes common sense for the constitution to allow the value of mineral deposits to be a factor in property assessments.  

 

Amendment 3: Allows the use of “rainy-day” funds to pay the state’s costs associated with federally-declared disasters.

Background: States have to balance their budgets each year, meaning their spending must match the revenues they collect through taxes and fees. When the economy contracts, tax revenues typically decline while the demand for government services goes up. To hedge against such times, Louisiana maintains a “rainy day fund” (formally known as the Budget Stabilization Fund) that can be tapped when general-fund revenues decline over the previous year’s levels. State law says the Legislature can only tap one-third of the balance, or whatever is needed to close a shortfall – whichever amount is lower. 

LBP Analysis: The amendment would allow the Legislature – with a two-thirds majority vote – to tap the fund to pay the state’s share of costs for federally declared disasters. Louisiana has more than its fair share of disasters. Federal disaster declarations allow federal aid to flow to citizens in need and to help state and local governments with tasks like debris removal and repair of critical infrastructure. The state is typically responsible for a share of these costs, which can add unpredictability to the state budget process. Allowing this use of rainy-day funds doesn’t mean the Legislature should use the account for this purpose, but it makes sense for policymakers to have this option at their disposal. 

 

Amendment 4: Restricts the Legislature’s flexibility in managing the state budget and makes it harder to invest in education and other priorities. 

Background: In the early-1990s, Louisiana voters approved a constitutional cap on how much general-fund revenue the state can spend each year. The spending limit is established by the Legislature, and from there it grows each year according to a formula that’s based on the growth in personal income over the previous three years. The Legislature can raise or lower the cap, which it has done periodically over the years.

The amendment would remove the growth formula from the state constitution and enshrine it in law, but stipulates that state spending could never grow by more than 5% in any year. A companion bill approved by the Legislature earlier this year (Act 271), which would only take effect if the amendment is approved, lays out the new formula. Instead of calculating the growth factor based on personal income, the new cap would be calculated as the average growth of personal income, population, gross domestic product and inflation. The amendment makes one other significant change: The new cap would be calculated using the previous year’s appropriations as a baseline, instead of being based on the previous cap. 

The amendment would not take effect until 2022, and the new cap calculation would be used in the 2023-24 fiscal year budget. 

LBP Analysis: This amendment is a dangerous, blunt instrument that purports to solve a problem that doesn’t actually exist. By restricting the legislature’s flexibility to make budget decisions, it would almost certainly lead to unnecessary cuts to higher education, healthcare, public safety and other services that rely on general appropriations. It also would make it far more difficult for lawmakers to respond to economic emergencies such as the Covid-19 recession.  

This amendment starts with a false assumption: that whatever spending level the Legislature enacts in a given year is the ideal baseline for future spending levels. This ignores the critical need for new investments in early care and education, our colleges and vocational schools, our roads and bridges. Passage of this amendment would make it harder for future legislators to make these investments, even during times of economic growth. 

 

State government is not getting larger

Source: Legislative Fiscal Office, 2020

The amendment also would make it harder to recover from future recessions. The Covid-19 pandemic provides a perfect example: Louisiana’s revenue forecast decreased by nearly 10% ($1 billion) between February and May as economic activity slowed down. If the state experiences a rapid recovery, however, the 5% cap on year-over-year growth means the Legislature could be forced to make steep cuts to healthcare and education services even if there was revenue available to avoid the cuts. 

By making inflation and population growth part of the growth formula, it guarantees that the state budget will not keep pace with the cost of maintaining services, let alone making new investments. The segment of the population that requires the most state services, particularly seniors, is expanding quicker than the overall population. Additionally, the cost of providing public services grows faster than the general rate of inflation for consumer goods. That’s because public services are labor-intensive, and don’t benefit from the same productivity and efficiency gains as other segments of the economy. Teachers can only teach so many students, and nurses can only care for so many patients. 

Finally: This amendment would make Louisiana legislators less accountable to the voters who elect them. Voters expect their representatives to make thoughtful decisions about how to meet the state’s needs. A restrictive formula for budget growth will force legislators to make harmful cuts, even if there is money available, and allows elected officials to evade responsibility for the consequences of those cuts. Arbitrary spending limits also provide the Legislature with an incentive to spend money in less transparent ways, such as through harmful tax credits, that are not subject to appropriation and receive less public scrutiny than the regular budget process. 

 

Amendment 5: Allows industrial manufacturing corporations to negotiate special property tax breaks with local governments that are not available to other property owners. 

Background: Louisiana’s constitution currently includes one of the largest industrial property tax breaks in the nation. The Industrial Tax Exemption Program allows manufacturing corporations to escape paying local property taxes for up to 10 years. Reforms enacted by Gov. Edwards in 2016 reduced the amount of the exemption, requires companies to create or retain jobs as a condition of receiving a tax break, and gives local taxing authorities the ability to reject tax exemptions. 

This amendment would mainly benefit large corporations whose tax exemptions are due to expire by allowing them to negotiate special deals – called cooperative endeavor agreements – with local governments. Under these deals, corporations would agree to make up-front payments to local authorities, called “payments in lieu of taxes” (or PILOTs) in exchange for paying lower property taxes over time. 

LBP Analysis: If industrial property tax breaks were the key to a vibrant, thriving economy, Louisiana would be Silicon Valley. But it’s not, and this amendment would make a bad situation even worse. There is only one reason an industrial manufacturing corporation would seek a PILOT agreement with local governments: to reduce its overall tax bill. This amendment would allow corporations to make up-front, lump-sum payments – which could be attractive to politicians who are currently in office – in exchange for long-term tax breaks that could harm local communities for many years. Property tax revenue is a critical source of revenue for public schools, police and fire departments, parks and libraries, and other public investments that help communities thrive. This amendment will either force long-term budget cuts to such services – or push the tax burden from large, multinational corporations to local residents. Most likely, it will be a combination of both. 

 

Amendment 6: Raises the maximum income threshold to qualify for a property tax freeze. 

Background: Louisiana has long been one of the most generous states in awarding property tax breaks – for individuals and businesses. The state’s Homestead Exemption ensures that the first $75,000 of the value of a primary residence is exempt from property taxes. And since 1998, Louisiana has allowed “special assessments” – essentially a freeze in property taxes – for senior citizens below a certain income level, as well as disabled veterans, spouses of service members killed in action, and people who have been declared totally disabled. To qualify for this special assessment, which means property taxes would not go up even if real estate values rise, a homeowner must have income below $77,000 per year. Amendment 6 would raise that income ceiling to $100,000 per year, which would be indexed to inflation. 

According to the Legislative Fiscal Office, Louisiana currently has 180,803 special assessments, with 90% of those going to senior citizens (people 65 or older). As the income cap rises, that number is likely to increase. But the increase is unlikely to be significant, as most senior citizens in Louisiana already earn well below the current threshold. 

LBP Analysis: Louisiana citizens already pay some of the lowest residential property taxes in the country, which is a major reason why the state’s combined sales tax rate (state & local) is the second highest. The money to fund basic government operations has to come from somewhere. Every time the state adds new exemptions to its property tax structure, the cost gets pushed on to other taxpayers. While the desire to protect senior citizens and people with disabilities from paying higher taxes is understandable, Louisiana should not make its tax base any more narrow than it currently is. 

 

Amendment 7: Creates a permanent state trust fund for unclaimed property.

Background: Unclaimed property is money that has been turned over to the state treasurer’s office by banks, credit unions or businesses after its original owner could not be located. It includes money left in dormant savings accounts, long-forgotten security deposits or refunds that were never claimed. The treasurer’s job is to safeguard the money, track down the rightful owner and pay the claims. Each year the treasurer’s office typically receives more unclaimed property than it pays out. The leftover balance is turned over to the state general fund, where it is spent on regular government operations. But in recent years, Treasurer John Schroder unilaterally ended that practice by refusing to turn over the excess dollars, which resulted in a court fight with Gov. John Bel Edwards’ administration that the governor won. In response, supporters of Schroder’s position backed a constitutional change that would lock all unclaimed property proceeds in a new trust fund. The treasurer’s office would invest the money in the fund, and any investment or interest earnings would be turned over to the treasury. The rest of the money would remain in the fund. 

LBP Analysis: This is another solution that’s in search of a problem. While the unclaimed property funds belong to the owners, not the state, it’s important to note that the state has never failed to pay a claim and is in no danger of doing so regardless of how the voters decide this issue. If this amendment passes, it means the state would have around $25 million – $50 million less to spend each year on services such as education, public safety and health care. This is revenue the general fund can ill afford to surrender, especially at a time when Louisiana is looking at a long economic recovery from the Covid-19 pandemic. 

 

Sports wagering proposition: Asks voters to decide whether gambling on sports should be permitted in their parish. 

Background: In 2018, the U.S. Supreme Court ruled that decisions on whether to allow gambling on sporting events belonged to states, not the federal government. Since then, more than a dozen states have legalized the practice, and several others are considering doing so. In Louisiana, the Legislature elected to let parishes decide the issue, similar to the way parishes were given discretion in the 1990s on whether to allow video poker. The ballot question is not a constitutional amendment, and does not immediately legalize sports wagering in parishes that vote “yes.” The Legislature would still have to decide how wagering should be taxed, and the Gaming Control Board would have to set up the rules governing where and how citizens can gamble. 

Analysis: Louisiana’s ban on sports gambling has not kept anyone who’s intent on gambling on sports from doing so. Still, making the practice legal – and regulated – is likely to attract new patrons to this unofficial national pastime. It also means the state would derive some revenue – though not a great deal – from an activity that will continue to occur in every parish regardless of how citizens vote. While gambling is, for most, a voluntary activity, parishes should proceed cautiously before expanding its scope, and should ensure that resources are available to help anyone who becomes addicted. 

Jan Moller

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  • Phillip Normand
    published this page in Voter Info 2020 2020-10-16 17:25:04 -0500

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