1. Louisiana Chemical Association Fiscal Update
House Fiscal Division
Louisiana House of Representatives
July 18, 2017

2. Overview of Presentation
Prior Year Issues
Fiscal Year Fiscal Cliff
2017 Legislative Sessions
Task Force on Structural Change vs Legislation
2017 Infrastructure Legislation
Capital Outlay

3. Prior Year Issues

4. Prior Year Issues Fiscal Year 2016 Deficit - $313 million
Solved in December of 2016 by Governor’s Executive Order and items approved by Joint Legislative Committee on the Budget
Fiscal Year 2017 Deficit - $304 million
Solved in 1st Extraordinary Session of 2017 (February)
Other Fiscal Year 2017 Issues
Flood funding
Cash flow issues – issued Revenue Anticipation Notes (RANS) in the amount of $370 million
FY 2019 Fiscal Cliff

5. FY 2016 Deficit - $313 million
Net reduction of $37 million to state agencies
$303 million in State General Fund reductions that are offset by:
$152 million in pushed Medicaid Payment until FY 2018
$119 million in backfilling of budgets using Statutory Dedications, Fees and Self-Generated Revenues, and Federal Funds
$10 million in reductions to Statutory Dedications
$5 million in backfilling using Statutory Dedication fund balances
Higher Education cut $12 million of the net cut
Louisiana Department of Hospitals cut $12 million of the net cut

6. FY 2017 Deficit - $304 million
Net reduction of $82 million to state agencies
$184.6 million in state effort reductions that are offset by:
$97 million in backfilling of budgets using Statutory Dedications, Fees and Self-Generated Revenues, and Federal Funds
$5 million in pushed Medicaid dental payment until FY 2018
Includes $3.5 million reduction to Legislative Branch
No reduction to Judicial Branch
$12 million in savings from funded vacancies
$99 million Rainy Day Fund
$18.3 million additional Go Zone revenues
$2 million Legislative Auditor fund balance

7. FY Fiscal Cliff

8. 2019 Fiscal Cliff – Continuation Budget (UNOFFICIAL – estimated until DOA updates and JLCB approves)

9. State General Fund Five Year Base Line Projection (UNOFFICIAL – estimated until DOA updates and JLCB approves)
$1.7B
$1.5B
$1.3B
Source: Estimated based on Five Year Base Line Projection for State General Fund produced by Division of Administration for June Joint Legislative Committee on the Budget meeting

10. Major Causes of Fiscal Cliff
TEMPORARY REVENUE SUNSETTING
Temporary Revenue Total ($ billion)
(Detail included on next slide)
EXPENDITURE INCREASES
Continuation Increase FY 2019 $ 253 million
(Of the $253 million, $146 million is related to the Louisiana Department of Health’s FY 18 approved budget accounting for only 12 managed care checkwrites; the approved budget pushed the 13 payment to FY 2019)
Source: Revenue impact presented to REC by the Legislative Fiscal Office and the Five Year Base Line is presented to JLCB by the Division of Administration and is estimated base on the June report

11. 2015 and 2016 Temporary Measures Change in Revenue from FY18 to FY19
HB 402
FY 18 $27,800, FY 19 $0
Limits the income tax credit for taxes paid to other states(2015)
HB 629
FY 18 $27,600, FY 19 ($2,900,000)
Reduces the amount of certain income and corporation franchise tax credits(2015)
HB 624
FY 18 $85,000, FY 19 ($37,000,000)
Reduces the amount of certain corporate exclusions and deductions(2015)
HB 635
FY 18 $12,200, FY 19 $18,400,000
Reduces the amount of certain rebates (2015)
HB 829
FY 18 $70,000, FY 19 Significant loss
Caps the motion picture investor tax credit (2015)
HB 61
FY 18 $272,300, FY 19 $ 45,000,000
“Cleans” existing pennies (2016)
HB 62
FY 18 $880,600, FY 19 $0
New “clean” penny (2016)
HB 87
FY 18 $8,600, FY 19 $0
Reduces the insurance premium tax credit by 5% (2016)
Total
FY 18 $1,384,100, FY $23,500,000
Majority expire June 30, 2018

12. 2016 Permanent Revenue Measures
HB 14
FY 18 $46,000, FY 19 $46,000,000
Levies an additional tax on cigarettes (2016)
HB 18
FY 18 $1,100, FY 19 $1,100,000
Reduces discount rates for tobacco tax and stamps (2016)
HB 19
FY 18 $89,300, FY 19 $94,000,000
Expands entities to which the corporation franchise tax applies (2016)
HB 27
FY 18 $19,300, FY 19 $19,500,000
Increases the excise tax on certain alcoholic beverages (2016)
HB 28
FY 18 $375, FY 19 $375,000
Reduces vendor discounts on alcohol and beer (2016)
HB 39
FY 18 $5,000, FY 19 $5,000,000
Levies an automobile rental tax (2016)
HB 43
FY 18 $4,400, FY 19 $6,400,000
Limits Vendor’s Compensation (2016)

13. 2016 Permanent Revenue Measures (continued)
HB 72
FY 18 $3,400, FY 19 $3,400,000
Extends the sales tax on interstate telecommunication services (2016)
HB 25
FY 18 $21,200, FY 19 $33,800,000
Reduces the amount of the La. Citizens Property Insurance tax credit (2016)
HB 29
FY 18 $20,000, FY 19 $20,000,000
Changes the calculation of interest on certain tax overpayments (2016)
HB 35
FY 18 $124,000,000* FY 19 $124,000,000*
Establishes an annual minimum tax on HMOs (2016)
SB 6
FY 18 $17,300, FY 19 $17,300,000
Changes refundability and carry forward provisions of the inventory tax credit (2016)
SB 10
FY 18 $57,000, FY 19 $57,000,000
Limits availability of the inventory tax credit to manufacturers participating in ITEP (2016)
Total
FY 18 $408,375, FY 19 $427,875,000
All permanent changes
* In FY 18 and FY19 $111.6 to MATF and $12.4M to SGF

14. 2017 Legislative Sessions

15. 2017 Legislative Sessions Approved the FY 2018 Budget
Appropriated the full amount of the Revenue Estimating Conference (REC) projections.
One option was to appropriate less than the total dollars that are projected to be available to spend.
Options for fixing fiscal cliff included:
Raising revenues
Cutting expenditures
Not funding continuation growth
Legislators set up committees to help look at revenue issues
Task Force for Structural Change in Budget and Tax Policy
Sales Tax Streamlining Committee
Task Force on Local Taxation Laws (ad valorem taxes)
Task Force on Transportation Infrastructure Investment

16. Revenue Options
Implement Task Force for Structural Change recommendations
Gross Receipts Tax
Renew temporary tax measures
Make temporary tax measures permanent
Reduce/eliminate state funding to locals and provide locals ability to raise additional revenues
Constitutional Convention

17. Gross Receipts – Governor Plan
Implement a Gross Receipts Tax
Eliminate Corporate Income Tax
Eliminate Corporate Franchise Tax
Let 5th Penny Expire

18. Structural Change vs. 2017 Legislation
Task Force on
Structural Change vs Legislation

19. Task Force on Structural Change vs. 2017 Legislation
Tax Type
Recommendation
2017 Legislation (P) = Passed (F) = Failed
Sales Tax
Keep cleanness of pennies
Tax more services (Texas services)
Uniform local and state tax base
Create central collection
HB 609 – Made clean pennies permanent (F)
HBs 220 and 652 – Clean pennies and lower rate (F)
HB 655 – Tax services (F)
HBs 376, 548, 559 – Sales tax on business utilities (F)
Individual Income Tax
Option 1 ($338M estimated revenue increase)
Lower rates to 1.5% 3% 4.5% (25%)
Compress brackets
Eliminate federal income taxes paid deduction
Reduce excess itemized deduction to 50%
Option 2 ($717M estimated revenue increase)
Keep rate the same
Keep federal income taxes paid deduction
Eliminate excess itemized deduction
Eliminate or sunset individual income tax credits
HBs 258 (CA) and 311 (CA) – Eliminated federal income taxes paid deduction (F)
HBs 284 and 649 – Lowered rates to 1% 3% 5% (F)
HBs 103 and 175 – Doubled earned income tax credit (F)
HB 637 – Repealed La. Citizens Property Insurance income tax credit (F)
SB 25 – Sunset individual income tax education credit (P) ($9.2M FY $12.8M FY 19-20)
SB 79 - Made temporary reductions to tax credits permanent (P) ($12.5M FY 18-19)

20. Individual Income Tax Option 1
Source: Information provided by Legislative Fiscal Office

21. Individual Income Tax Option 2
Source: Information provided by Legislative Fiscal Office

22. Individual Income 2017 Legislation
Source: Information provided by Legislative Fiscal Office

23. Task Force on Structural Change vs. 2017 Legislation
Tax Type
Recommendation
2017 Legislation (P) = Passed (F) = Failed
Corporate Income
Eliminate deduction for federal income taxes paid (FIT)
Flat corporate income tax rate
Restructure, phase out, or eliminate the corporate franchise tax
HBs 258 (CA), 95 (CA), 102, 357, 422, and 649 – Eliminated federal income taxes paid deduction (F)
HBs 284, 421, and 649 – Lowered rates to 1% 3% 5% (F)
HBs 80, 361, 385, and 433 – Phased out corporation franchise tax (F)
HBs 274 and 653 – Made reductions to corporate income tax deductions permanent (F)
HB 153 – Increased NOL from 72% to 100% (F)
HB 563 – Minimum corporate tax (F)
HB 628 – Commercial Activity Tax (F)
HB 648 – Flat Business Tax (F)
HB 555 – Made dividend income from certain related entities 100% deductible (P) (SGF Decrease FY 18-19)
SB 79 – Made temporary reductions to corporate income tax credits permanent (P) (+$12.5M FY 18-19)
Motion Picture
Eliminate back end cap of $180 million and replace with front-end cap
Project only counts against cap after it commences production
SB 254 – Establishes front-end cap of $150M (P)

24. Task Force on Structural Change vs. 2017 Legislation
Tax Type
Recommendation
2017 Legislation (P) = Passed (F) = Failed
Tax Incentives
Quality Jobs
Revisit wage requirement of $14.50/hour and adjust periodically
Research and Development Program
Restructure program from 40% credit to 30% rebate
Program Sunsets
Establish program sunset of July 1, 2021 for all tax credits incentives
Establish program sunset of July 1, 2022 for all tax rebate incentives
HB 173 – Made reductions to rebates permanent (F)
SB 79 – Made temporary reductions to tax credits permanent (P) (+$12.5M FY 18-19)
SB 178 – Sunset corporate apportionment, Angel Investor, Sound recording, Green jobs, Urban revitalization, Technology commercialization, and Motion picture incentive tax credit programs (P) (SGF Increase FY 18-19)
SB 183 – Sunset University research, Enterprise Zone, Mega-Projects, Quality Jobs, Competitive Payroll rebate programs (P) ($10.4M FY 19-20)
Property Tax
Industrial Tax Exemption
Add role for locals in granting ITEP
Inventory Tax Credit
Eliminate credit over 5-year period
Eliminate tax over 10-year period
Consider enhancing sources of local revenues
HBs 180 (CA) and 206 – Established ITEP program requiring local approval (F)
HBs 444 (CA) and 445 – Authorized CEAs and PILOTs between locals and business (F)
SB 140 (CA) – Ad valorem exemption for CWIP (P)

25. 2017 Infrastructure Legislation

26. 2017 Infrastructure Legislation
Tax Type
2017 Legislation (P) = Passed (F) = Failed
Highway Priority Program
HB 598 – Provided for changes to the Highway Priority Program and required program audit (V)
Transportation Trust Fund (CA)
HB 346, 348, and 447 and SB 57 – Provided for use of the funds in TTF (F)
HB 354 – Establishes the Construction Subfund within the Transportation Trust Fund and prohibits the avails of new gas taxes levied after July 1, 2017 from being used to pay employee wages (P)
Gas Tax
HB 632 – Increased the gas tax 17 cents/gallon and required the tax to be indexed annually (F)
HB 578 – Increased the gas tax 7 cents/gallon (F)
HB 600 – Increased the gas tax 10 cents/gallon (F)
HB 659 – Increased the gas tax 9 cents/gallon and required the tax to be indexed annually (F)
HB 553 – Increased the gas tax 7 cents/gallon and levied a ½ cent sales and use tax on gasoline (F)
HB 632 – Levied a ½ cent sales and use tax on gasoline (F)

27. Capital Outlay

28. Current Capital Construction Budget Appropriated Amounts
Total Capital Outlay (all MOF) FY Budget:
$3.76B
Priority 1 (P1) = $916M
●Reauthori zation of previously funded projects
●Eligible for a cash line of credit
Priority 2 (P2) = $112M
●Proposed new funding for projects
Priority 5 (P5) = $1.2B
●Both re- authorizati ons of existing funding & proposed new funding for projects
●Eligible for a non- cash line of credit
Amounts as of July 17, 2017

29. Capital Outlay Line of Credit (LOC) Comparison
FY 15-16
FY 16-17
FY 17-18
(Current Year)*
Difference from FY16-17 to 17-18
P1 CLOC =
$1,360,121,300
P1 CLOC = $1,077,751,955
$916,077,055 Proposed (July SBC)*
P1 CLOC = ($161,674,900)
P2 CLOC =
$79,933,700
$68,031,300 $0
P2 CLOC = ($68,031,300)
P5 NCLOC =
$2,213,932,800
$1,435,832,300
$865,209,050
Proposed (July SBC)*
P5 NCLOC = ($570,623,250)
Note: * using July SBC proposed amounts only; not yet approved.

30. Actual “Cash” for Capital Outlay
Balance of the Capital Outlay Escrow Account as of July 1, 2017 was $272 million.
In April 2017, $203 million in new bonds were issued. A new bond issue in the amount of $340 million is proposed for September 2017.
Based on January 2017 Revenue Estimating Conference (REC) forecast, amount of GO Bonds that can be issued between FY18 and 19 is $490 million; however, slightly more could be issued with some debt structuring.
In FY20, and each year thereafter, $300 million could be issued.
NSTSD Limit shall not exceed 6% of the estimate of money to be received by state general fund and dedicated funds contained in the official forecast adopted by REC at its first meeting after the beginning of each fiscal year.
Example: $1 billion increase in forecast equals additional $60 million in debt service. $60 million is approximately two months of current spending.

31. Cash Capacity Illustration
Total Cost of Construction = 
$1,140,750,000
Cash in Checking Account -
$272,000,000
Borrowing Limit from Bank
$245,000,000
Total Available for Construction
$517,000,000
Shortfall =
($623,750,000)
Assumes no new projects to the House in the future
Bank will allow between $245 million and $340 million in new borrowing this year, depending on the state’s revenues, the structure of any debt issuance, and market conditions.