Public Affairs Research Council of Louisiana recently released its guide to the proposed Constitutional Amendments that will appear on the Oct. 24 ballot statewide.
Below is PAR’s explanation of each amendment as well as our recommendation on whether voters should approve them.
Amendment No 1: Creates a new
transportation projects fund and
restructures the state’s Rainy Day Fund
Proponents of this amendment say this amendment preserves the basic purpose of a budget stabilization fund while putting idle money to use toward state infrastructure projects. The current state savings account is put to use too rarely and inadequately, which is a bad deal for taxpayers. Although the plan likely will contribute only scarce resources to highways in the next several years, it provides a good long- term solution to state transportation needs. Texas recently adopted a similar reform for its rainy day fund to free up money for transportation work.
By comparison, the new highway funding would be better protected than the money in Louisiana’s other major infrastructure source — the Transportation Trust Fund (TTF) — which has been raided for other purposes. This additional funding would supplement transportation funding along with the TTF.
The new Trust can still be tapped on a “rainy day” to bailout the state budget. The current fund has been tapped only five times. Also, the amendment would allow the new stabilization subfund to be tapped without having to redirect money from the general fund immediately. That new rule patches a major problem with the current rainy day system.
Opponents of this amendment say it shortchanges the state on fiscal stability while delivering only limited new funding to transportation for years to come. The amendment’s transportation spending restrictions unnecessarily limit the state’s flexibility in choosing priority highway projects as well as overall budget priorities.
The amendment would create confusion because it was not drafted clearly. For example, the amendment creates a trust with two subfunds but leaves unclear whether the Constitution’s rules for appropriations apply to one or both. Adding further problems, the amendment does not specify how non-mineral revenue that currently is designated for the Budget Stabilization Fund would be distributed under the new Trust and its subfunds. The conflicting legal interpretations might be resolved as the new law is implemented or else might create difficulties in making the new Trust work as imagined.
The maximum size of the stabilization fund would shrink from more than $800 million to just $500 million. That $500 million is a static number that would not increase as the state budget grows. The potential insufficiency of the new stabilization subfund could threaten the state’s credit rating. Just as potential homebuyers must demonstrate to lenders they have the ability to pay their mortgage, states must show lenders they will be able to pay back bonds even if times get tough. A strong rainy day fund helps make that case. Credit rating agencies will be evaluating whether this amendment, combined with ongoing concerns about the state’s pension obligations and fiscal structural issues, could result in a credit re-evaluation and higher interest rates for the state.
We recommend a “No” vote on Amendment No. 1 simply because the wording of the proposed change is too ambiguous.
Amendment No. 2: Allows the state
treasurer the option of investing
in the state infrastructure bank
Proponents of this amendment note the state already has created the infrastructure bank. This amendment just takes the prudent step of providing another option for financing it. With this amendment, the state could use its own funds to invest in itself and loan money for roads. Every means should be sought to provide options for the new infrastructure bank. New financing options are needed to address Louisiana’s many needs for road improvements and infrastructure that would provide safer and less congested driving conditions and stimulate the economy. The state has deteriorating roads and a severely underfunded infrastructure. The current fuel tax, based on the volume of fuel sales, is not keeping up with the growing costs and needs of highway work. Local governments would save money with infrastructure bank loans by avoiding the more expensive interest rates and fees that come with normal state bonding costs. This would allow them to stretch their limited infrastructure dollars further. Other states, such as South Carolina, have used a similar program to great advantage. According to a 2012 Brookings Institution report, 23 states have active infrastructure banks.
Opponents of this amendment argue the infrastructure bank would cost money. Startup capital requirements could be more than $100 million before the bank could be effective. Eventually, operating expenses are expected to total $300,000 to $400,000 per year, which would be drawn from the revenue generated by the loan program. The bank’s oversight would be in the hands of a small board operating with its own criteria for selecting projects to support. That decision-making process would be separate from the legislative appropriations process and the state’s widely vetted priority plan for infrastructure spending. The state already has multiple funds and dedications to support local infrastructure projects and a bonding process to provide parishes, municipalities and other local jurisdictions access to loans. Furthermore, the treasurer may or may not find it prudent to invest state funds in the infrastructure bank. If the loans to local government are going to be affordable, then the interest rates will have to be lower than other conventional financing through bonds. That would mean investments with the bank would necessarily have a lower rate of return. Therefore, the treasurer will not earn as much interest on state money through the infrastructure bank than through more conventional bond investments.
Vote “Yes” on Amendment No. 2.
Amendment No. 3: Provides new
guidelines for legislation in a fiscal session
Proponents of this amendment say the current system is fraught with confusion and even litigation due the lack of clarity in definitions. It frustrates the efforts by some legislators to improve the state’s administration of taxes and other tax-related issues. This amendment would clear up a part of the Constitution that imposes highly technical impediments. Currently, legislators in a fiscal session might want to propose a bill that deals with tax administration or collections, only to learn that it counts as one of a legislator’s five pre-filed general bills. By extending and clarifying the category of tax and revenue-related bills, the amendment would give the Legislature greater flexibility to deal with a broader set of fiscal policy and management issues during a fiscal session. Greater flexibility to handle fiscal issues can be handy when the state is facing a budget crisis and can help lead to long-range reforms. Greater clarity is needed about whether fiscal sessions may consider rebates, which can assist the state’s economic development strategy; this amendment provides that clarity.
Opponents say the process of legislating is more streamlined when legislative sessions are limited by the number and types of bills that can be introduced. By loosening the limits on the types of fiscal bills that can be considered, the Legislature could become less efficient. Legislators would have greater opportunity to introduce bills creating intrusive tax collection or administration measures. If anything, the fiscal sessions should be more restricted to prevent a host of general, local and special bills from turning a fiscal session into a de facto general session. The amendment does not prevent legislation on rebates in general sessions, which some lawmakers in the past have sought to restrict. This amendment might contribute to confusion rather than alleviate problems. Voters should not have to deal with this level of minutia with constitutional amendments.
Vote “No” on Amendment No. 3.
Amendment No. 4: Allows local
governments to tax property within their jurisdictions
that is owned by local or state governments outside of Louisiana
Proponents of this amendment say it would clarify the intent of the Constitution to tax property in Louisiana owned by other states or local government bodies in other states. A recent Louisiana appeals court decision has incorrectly refused to heed the Louisiana Supreme Court’s guidance that has been followed for nearly 65 years on this issue. This amendment is needed now to rectify this errant court ruling and to require Louisiana parish assessors and sheriffs to collect taxes that are rightfully theirs. Local governments are under financial strain and should be allowed to collect taxes owed by out-of-state entities. The neighboring states of Texas and Mississippi already make it explicit that their property tax exemption only applies to their state and local subdivisions. As the Louisiana Supreme Court long ago stated, there is “no reason whatever to believe that the people of Louisiana, in adopting their Constitution, intended to exempt from taxation the local property of foreign countries, other states or their political subdivisions.”
Opponents of this amendment claim the current Constitution needs no tweaking on this issue and its clear language should not be lightly disregarded. A recent appeals court decision correctly interpreted the plain and unambiguous language and intent of the Constitution and the issue should rest there. The Louisiana Constitution states “public lands” and “other public property used for public purposes” shall be exempt from property taxation. The exemption should be available for all state governments and their political subdivisions. The Legislature should not ask voters for an amendment every time a court interprets the Constitution in an unfavorable way to a parish government or other narrow interest.
Vote “Yes” on Amendment No. 4.