Louisiana Secretary of Revenue Richard Nelson wants the Legislature to hold a special session next month to change the state’s constitution to give lawmakers more leeway when writing tax policy ahead of next year’s anticipated fiscal cliff.
But though that plan appears to have the support of Gov. Jeff Landry, it is unclear whether the Legislature will be on board after a grueling six months in Baton Rouge that included two special sessions and one regular session.
Landry for months pushed for a full constitutional convention, a plan that passed the House but stalled in the Senate. Now, Nelson has proposed rewriting Article VII of the constitution, which deals with fiscal policy.
During a joint meeting Thursday of the House Ways and Means Committee and the Senate Revenue and Fiscal Affairs Committee, Nelson urged lawmakers to hold a special session to do so, lest they have to wait several years to get constitutional changes on a ballot. Any such changes require voter approval.
Article VII safeguards a number of state funds and protects popular tax exemptions, such as the homestead exemption and sales tax exemptions for groceries, prescription drugs and residential utilities. Changing the constitution could leave those exemptions vulnerable.
The discussion comes as the state gears up to face an anticipated half-billion-dollar budget deficit next year, due in large part to the roll off of a temporary 0.45-cent sales tax. Lawmakers have not signaled plans to extend the tax.
“These are serious challenges for the state,” Nelson said. “This is something that we’re staring down the barrel of. We have to come up with some kind of solution.”
Where the Legislature stands
Senate President Cameron Henry, R-Metairie, who showed his willingness to buck Landry during the recent legislative session, did not return requests for comment. But House Speaker Phillip DeVillier, R-Eunice, indicated his support and said he planned to speak with representatives to gauge theirs.
“If (a special session) is something that members would be supportive of, then I would certainly support it,” he said.
DeVillier has typically been more willing than Henry to play ball with the governor’s office.
Landry could call a special session without the agreement of legislative leaders, but their backing is critical if he is to get any legislation passed.
Sen. Franklin Foil, R-Baton Rouge, who chairs the Revenue and Fiscal Affairs Committee, said he previously thought legislators would have rather waited to hold a special session. But he believes Nelson may have changed some minds.
“I thought Secretary Nelson laid out some very good reasons about why it may be to our advantage to act sooner,” he said. “I’m supportive of going in as soon as we can, as long as we have the votes to get something accomplished.”
Kate Kelly, a spokesperson for Landry, issued a statement supportive of an Article VII rewrite.
“With an anticipated $500 million budget cut, Louisiana needs budget and tax reform. Refreshing our constitution, in whatever way the legislature deems appropriate, is the only way to get this done on behalf of all Louisianians, she said. “This is one more step towards the overall structural reforms we have brought, and need to bring, to state government.”
Evaluating Louisiana’s tax structure
An Article VII rewrite would give lawmakers added flexibility when they reach the fiscal cliff, and help them avoid having to renew the temporary 0.45-cent sales tax, Nelson said.
Lawmakers passed that tax increase in 2018 in the middle of a budget crisis, but it faced fierce pushback. Whether they have the appetite to renew the tax is doubtful.
“I don’t think we need the 0.45, and I also don’t think that I have support to pass the 0.45,” DeVillier said.
An Article VII rewrite also could pave the way for a major overhaul of Louisiana’s tax structure. Nelson wants to reduce and flatten corporate and individual income tax rates, increase taxes on services and eliminate some corporate and sales tax exemptions. He argues such changes would draw more individuals and businesses to Louisiana and help combat the state’s population loss.
Lawmakers may more easily repeal any tax policies moved out of the constitution and into state statute.
Any changes to the constitution require a two-thirds vote of the Legislature and then must head to the ballot. But when tax policies are written into state statute, they only require a majority vote of approval followed by the governor’s signature.
It remains to be seen whether policymakers will go after sales tax exemptions, of which Louisiana has 223, according to the Department of Revenue. Only a few of those are constitutionally protected, including exemptions for groceries, prescription drugs and residential utilities, said Nelson.
Asked whether he would seek to remove those protections, he said that was up in the air. Some could be removed to help lower the sales tax. In other cases, he may seek to protect sales tax exemptions, which do not apply to the local level, he said.
Nelson is looking to consolidate or eliminate about 100 tax exemptions but said he was still evaluating specifics.
If constitutional changes do not make it to this year’s ballot, the next statewide election is scheduled before 2026. Louisiana could hold a special election before then, but it would cost millions, Nelson said.