The Louisiana Legislature voted overwhelmingly Thursday to move approximately $300 million annually from a fund that pays for higher education and health care to a fund that pays for large transportation projects.
Supporters have said the spending will not only improve the state’s infrastructure system, but that it will also create construction jobs. Critics are concerned the proposal would exacerbate an already expected budget deficit in July 2025 affecting state universities, hospitals and other health care programs.
Gov. John Bel Edwards needs to sign the legislation for it to become law. Edwards hasn’t decided if he approves of the bill because he is concerned about the financial shortfall it could create.
“I’m not prepared yet to say whether we can support it,” he said at a news conference Thursday evening after the legislative session ended.
Starting in July 2023, House Bill 514, sponsored by House Speaker Pro Tempore Tanner Magee, R-Houma, would move 30 percent of money generated by the state’s vehicle sales tax from what’s called the state general fund to a transportation fund. Then in 2025, 60 percent of the vehicle sales tax revenue would be taken out of the state general fund and put toward transportation projects.
That state general fund supports a variety of state government functions, but the largest slices go to education, health care services and the prison system. Under Magee’s bill, instead of those services, the majority of the vehicle sales tax — estimated to be about $300 million by the 2025-2026 budget cycle — would go to transportation projects.
Edwards and Democrats raised concerns about moving money away from higher education and health care for transportation funding, especially since the state only recently stabilized its funding for public universities. In an effort to address those concerns, Magee inserted some restrictions on the funding transfer.
If the state is running an annual deficit of $100 million during any budget cycle, the amount of money that could be transferred to the transportation trust would be limited to $150 million for the year. The state would also only be able to borrow against $150 million of the expected revenue to fund transportation. That limit will make it easier to shift funding away from transportation and back to health care and higher education on short notice if needed.
The Louisiana Association of Business and Industry — the state’s biggest business organization — celebrated the passage of the bill Thursday. The Louisiana Budget Project, which advocates for financial relief for low-income people, said it opposed the legislation because it takes money from critical services.
The bill doesn’t shift money to all transportation projects. Seventy-five percent of the funding is going to a specific list of “mega projects.” 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 and widening Interstate 10 in Kenner — among others.
The other 25 percent of the new transportation funding will be spent on existing bridge and road repairs, according to the bill.
Senate President Page Cortez, R-Lafayette, has made finding new sources of transportation funding a priority. Louisiana’s unfunded transportation project backlog totals $14 billion.
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.
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, Magee and Sen. Rick Ward, R-Port Allen, 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 permanent a higher sales tax rate that is supposed to expire in 2025. In four years, the sales tax is scheduled 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.
This new proposal, however, could expand a significant budget hole that is expected to open in 2025. With the sales tax rate expected to drop from 4.45 to 4 percent that year, Louisiana will already be losing $500 million in tax revenue that generally supports higher education and health care.
The state is also expected to lose a more generous federal funding match rate for health care dollars in the next few years. Much of Louisiana’s economy is also being propped up by federal funding for COVID-19 pandemic relief and economic recovery. That money won’t be available four years from now.
Edwards said he is worried House Bill 514 could make what will already be a difficult financial situation for Louisiana in 2025 that much worse by removing more funding streams for the state’s universities, hospitals and other health care programs.