Home » Amendment 5 would create revenue stabilization trust fund

Amendment 5 would create revenue stabilization trust fund

by Minden Press-Herald

An in-depth look at the six proposed amendments to Louisiana’s constitution have been made available by the Public Affairs Research Council of Louisiana, which is an independent voice, offering solutions to public issues in Louisiana through accurate, objective research and focusing public attention on those solutions. PAR is a private, nonprofit research organization founded in 1950.

The first two amendments were addressed in Tuesday’s issue, amendments 3 and 4 in Wednesday’s issue. Information on Amendments 5 is below and 6 will be published in the Friday issue of the Minden Press-Herald.

5. Creates a revenue stabilization trust fund

Proposed change

The amendment would leave in place the Budget Stabilization Fund and create a new pot called the Revenue Stabilization Trust Fund. The purpose of the new fund is to smooth the volatility of corporate and mineral tax receipts from year to year and create a long-term asset for the state of Louisiana. While the establishment of the fund will occur with approval of the voters, it would not begin to be filled unless revenues return to higher levels.

A vote for would

Create the Revenue Stabilization Trust Fund to receive a portion of revenues from corporate and mineral taxes and to spend the money on infrastructure and pension liabilities.

A vote against would

Continue to allow corporate tax and mineral revenue above a certain threshold to flow into the state general fund for appropriation by the legislature.

Argument for

Louisiana’s spending problem stems from the fact that the Legislature appropriates nearly every dollar it receives every fiscal year. This amendment will stop that practice by introducing forced fiscal restraint as it relates to the volatile revenue sources of corporate income tax and mineral revenues.

It will have the added benefit of recognizing that credit rating agencies assess the strength of Louisiana’s trust funds when calculating the state’s fiscal health and the reliability of the state to make good on its commitments. The fund would help the state find solid financial footing despite the booms and busts of the global oil industry and volatility of corporate tax receipts.
Adopting this amendment now is critical because the Legislature is likely to lack the willpower necessary to reintroduce such legislation when times are better and revenue receipts are up. Legislators will have an additional tool at their disposal to address budget crises without having to impose new taxes on citizens or businesses.

The fund would reduce political pressure on elected officials to spend new money on pet projects and other priorities that would derail comprehensive, long-term budget reform and create greater uncertainty in future budget years.

Argument against

This proposal further ties the hands of the people’s elected legislators and reduces the flexibility needed to fund priorities appropriately. In order to govern effectively officials need every tool possible at their disposal to capitalize on opportunities or address downturns.

If the Legislature is serious about making government more transparent and stabilizing the state’s budget, simpler solutions exist that do not require the creation of yet another trust fund that would further complicate an already convoluted system of transfers, thresholds, and other mechanisms.

Reforming the existing Budget Stabilization Trust Fund by removing the cap on the total fund balance or adjusting the types of revenue channeled into the reserve may be more prudent. This amendment is an overly complicated fix.

Additionally, the lack of limitations on what might constitute an “emergency” and the two thirds vote authorization to sweep money from the fund undermines the ability of this account to serve its stated purpose.

When lawmakers are forced to cut popular programs, raise taxes, or tap into reserves of one-time money, transferring cash from accounts such as the Revenue Stabilization Trust Fund would likely be the path of least resistance.

The proposal put forward in this amendment fails to establish the trust fund needed to promote real fiscal responsibility.

In times of severe financial stress and revenue shortfalls, the governor and lawmakers have the ability to tap some funds that typically are protected through statute or the state constitution.

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