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Blanco's Not-So-Bold Move 

The first real test of Gov. Kathleen Blanco's leadership and political skills will come this week as lawmakers convene for the special tax session she has called. New governors often call quick special sessions to patch budgetary holes and to define and launch their agendas. Blanco's session will mostly just patch a few holes -- and that's if she gets everything she wants. Overall, her initial agenda is not very ambitious.

Business interests and conservatives are wasting no time criticizing Blanco's plan. They have accused her of breaking a campaign promise to lower business taxes.

Blanco joined all other major candidates for governor last fall in promising to eliminate the state's taxes on business debt as well as sales taxes on manufacturing machinery and equipment. Those taxes are frequently cited as the main reasons why Louisiana has so little business growth and virtually no manufacturing base.

By including debt in the computation of a company's annual corporate franchise fee, the state effectively doubles or even triples the interest rate a company pays on its borrowed capital. That severely discourages Louisiana companies from borrowing -- and borrowing is the way most businesses grow. Those that do borrow are effectively penalized for trying to grow. The same applies to manufacturers who buy machinery and equipment. And if they borrow to finance large purchases, they get a double-whammy: a tax on the debt and a sales tax on the purchase of the machinery and equipment.

Business groups made the elimination of those two taxes a top priority in the governor's race, and they felt pretty good about their chances when all major candidates bought into the idea. Now Blanco is saying she wants to delay the repeals for a year -- and phase them out over seven years. She says the state is just too broke to do without the $275 million to $310 million those taxes generate annually.

Even worse for business, Blanco wants lawmakers to renew -- and make permanent -- a "temporary" sales tax on businesses' utility bills. That tax is set to expire June 30. She wants to tie the permanent utilities tax to the phase-outs of the franchise tax on debt and the sales taxes on manufacturing machinery and equipment.

In her defense, Blanco and her legislative allies say the state faces a gap of nearly $500 million between anticipated revenues and the amount needed to maintain current service levels. If the taxes are repealed, even over time, and if the utilities tax are not renewed, lawmakers will have to make drastic cuts -- probably in education and health care.

This is not a new debate, and the tough choices facing Blanco and legislators likewise are not new. But most of us thought the last governor's race was all about changing Louisiana's options. By putting a Band-Aid on the fiscal problem without restructuring how we raise money -- and how we spend it -- Blanco is basically offering voters and businesses the same old, same old.

There is one new wrinkle: as a Democrat, she will have added political pressure from her constituent base (particularly African-American lawmakers) to maintain services. But black legislators are not immune to criticism for raising taxes. After a transition that saw African-American lawmakers (especially those from the New Orleans area) frozen out of key committee chairmanships, Blanco may find herself under attack from both ends of the political spectrum.

That's never a comfortable place for a new governor to be, and it's a big risk to take, considering she's not trying to do anything bold. Or new.

click to enlarge By putting a Band-Aid on Louisiana's fiscal problem, - Gov. Kathleen Blanco is basically offering the same old, - same old.
  • By putting a Band-Aid on Louisiana's fiscal problem, Gov. Kathleen Blanco is basically offering the same old, same old.


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