The Louisiana Senate voted unanimously Monday to shift hundreds of millions of dollars in funding that currently goes to higher education, health care services, prisons and child welfare to transportation projects.
The Senate revamped House Bill 514, originally sponsored by Republican House Speaker Pro Tempore Tanner Magee, to take most of the state’s vehicle sales tax and devote it to road and bridge projects. The House and Gov. John Bel Edwards still have to approve the proposal before it becomes law.
Sen. Rick Ward, R-Port Allen, said the plan should result in $375 million in transportation funding annually, but it could leave $375 million less for other government services, particularly higher education and health care.
The vehicle sales tax currently goes into what’s called the state general fund. That fund supports a variety of state government functions, but the largest slices of it go to higher education, health care services and the prison system. Under Ward’s proposal, instead of those services, the majority of the vehicle sales tax would go to transportation projects.
The bill calls for the vehicle sales tax funding to be diverted to transportation projects starting in July of 2022 — with the siphoning happening gradually at first.
In the 2022-2023 budget cycle, only a quarter of the vehicle sales tax funding would be diverted to transportation projects, but by the 2024-2025 budget cycle, 75 percent of the vehicle sales tax funding would be devoted to roads and bridges. The diversion would be permanent.
In an interview, Ward said he is comfortable with the proposal because the state government has been running budget surpluses since 2018, when lawmakers renewed a higher state sales tax rate to avoid massive budget cuts. Ward, the chairman of the Senate Transportation Committee, also said new transportation projects will generate economic activity that should result in more tax revenue to support other government services that receive that funding now.
The state’s budget surpluses have not been as large as $375 million. The last budget cycle surplus totaled a little over $100 million. The state’s spending plan — and Louisiana’s entire economy — is also being buoyed by billions of dollars in federal funding for COVID-19 economic relief and recovery. That massive amount of federal funding is not expected to last beyond a few years.
Ward’s proposal also doesn’t shift the vehicle sales tax funding to all transportation projects. It favors a specific list of projects outlined in the bill. These include replacing the Interstate 10 bridge over the Calcasieu River, constructing a new bridge over the Mississippi River in the Baton Rouge region, upgrading Interstate 12 in eastern Louisiana, upgrading Interstate 49 and adding new noise barriers along Interstate 10 in New Orleans.
Senate President Page Cortez, R-Lafayette, has made finding new sources of transportation funding a priority. Of the $1.6 billion in federal COVID-19 funding the state recently received, Cortez drove a third of it — $563 million — into transportation projects. He also allowed lawmakers to add local road projects totaling tens of millions of dollars into the state’s operating budget plan.
Additionally, President Joe Biden is trying to pass a massive infrastructure package that could result in Louisiana receiving even more funding for roads and bridges.
But Cortez, the former chairman of the Senate Transportation Committee, believes more has to be done. Louisiana’s unfunded transportation project backlog totals $14 billion, and the federal COVID-19 money isn’t a permanent funding source that will support the state’s transportation needs over the long term.
Louisiana’s transportation funding comes primarily from the gas tax, which hasn’t been raised in decades. Lawmakers have repeatedly rejected proposals to increase the gas tax, so Cortez and Ward started looking for alternative ways to drive revenue toward roads and bridges.
Before settling on the vehicle sales tax diversion, Ward and Cortez had pushed a proposal to make a higher sales tax rate that is supposed to expire in 2025 permanent. In four years, the sales tax is supposed to drop from 4.45 percent to 4 percent. Ward and Cortez had initially proposed retaining that extra .45 percent indefinitely and putting it toward transportation projects.
That proposal went nowhere. The Louisiana House Conservative Caucus and Democrats said they couldn’t support it. Democrats consider the sales tax to be a burden on the poor — and didn’t want to vote to keep the higher rate in place. Some conservatives consider a vote to make the higher rate permanent akin to voting for a new tax.
The sales tax proposal would have also resulted in potential problems for higher education and health care as well. Currently, the sales tax revenue also goes into the general fund, primarily to support higher education and health care.
While the sales tax rate is supposed to drop in 2025, there’s a strong possibility that lawmakers will vote to renew it if they are facing large cuts to higher education and health care. That already happened in 2018, when lawmakers renewed a higher sales tax rate that was expected to expire to avoid large budget cuts.
Ward and Cortez also initially proposed removing the sales tax on utilities that large manufacturing, power and water companies currently pay. That portion of their proposal has been scrapped too, so those companies will continue to pay that levy.
Ward has also scrapped the original provisions of the legislation, authored by Magee, that would have put a 4.45 percent state sales tax on raw, smokable medical marijuana should it become legal. The Legislature has voted to allow medical marijuana pharmacies to sell smokable marijuana, but the legislation still awaits the governor’s signature.
Funding from the rejected smokable medical marijuana tax was supposed to go to public defenders and early childhood education.