2016 Legislative Preview: Year of the Looming Tax Break(s)? | Jackson Free Press | Jackson, MS

2016 Legislative Preview: Year of the Looming Tax Break(s)?

Sen. David Blount, D-Jackson, said a large tax cut would take money away from essential services that are not fully funded with current revenue.

Sen. David Blount, D-Jackson, said a large tax cut would take money away from essential services that are not fully funded with current revenue. Photo by Imani Khayyam.

"I think now it's time for a pay raise for our taxpayers," Lt. Gov. Tate Reeves told the Stennis Press Forum in the Capital Club in downtown Jackson on Monday, Jan. 4. As legislators return to the capital city and the 2016 session begins, tax cuts are high on the lieutenant governor's—and Mississippi Republicans'—agendas.

Reeves expressed support for cuts to several taxes including the unemployment tax for Mississippi employers, the 3 percent bracket individual income tax and the corporate franchise tax. "If you look at what I proposed last year, I believe we ought to provide tax relief for individuals, we proposed eliminating the 3 percent individual income tax bracket," said the Rankin County native, the No. 2 elected official in the state.

The lieutenant governor's influence in the Mississippi Legislature is significant—with a Republican majority, the Senate has the ability to pass bills with no worry of actionable resistance from Democrats.

Tax cuts or credits have been the recent trophies of the Republican Party in Mississippi the past four years, including tax credits for businesses to offset the inventory tax, which passed in 2012.

Reeves also expressed support for the state's tax-credit program when long-term benefits outweigh short-term costs. At the forum, Reeves said he would support expansion of the tax-credit program and "the idea of encouraging investment in Mississippi downtowns" but has simultaneously expressed some reservations about it.

"These (tax-credit) decisions aren't as black and white as some people assume," Reeves said at the Stennis Press Forum. "We must be honest with ourselves about what these programs mean to other spending opportunities in government."

The Tax Cut Fight

Last year, both the Mississippi House of Representatives and the Senate tried to pass bills to cut the franchise tax in the state, which taxes a corporation's net worth in the state's economy, in order to attract more businesses and stimulate the state's economy. Sen. Joey Fillingane, R-Sumrall, said legislators still want to lower the franchise tax and expects the franchise tax cut to be back on the table.

"I know we all feel like it hampers our ability to bring business and industries (to the state)," he told the Jackson Free Press.

Surrounding states including Louisiana, Arkansas, Tennessee and Alabama do not have franchise taxes, Reeves told the Stennis Press Forum, but most Democratic lawmakers disagree with the cut.

Democrats in both the House and Senate are concerned that more tax cuts will adversely affect parts of the state's budget—like education, infrastructure and human services—that need even more funding, not less.

Longtime Sen. Hob Bryan, D-Amory, expects the upcoming session to be a desperate fight to save public education due to tax-cut efforts. He said any additional cuts will be devastating.

"It is impossible to overstate how critical the vote on the tax cut will be," Bryan said. "The ideologues that are in control of the process are determined to have a tax cut of hundreds of millions of dollars."

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Rep. Jarvis Dortch, D-Jackson, said expanding Medicaid will be a difficult challenge due to the Republican leaders’ resistance to do so in previous sessions. Photo courtesy Jarvis Dortch

New Rep. Jarvis Dortch, D-Jackson, said legislators must grapple with funding for current programs because tax breaks (like the inventory tax credits) already caused shortages in the state's general funds before the session even begins.

Dortch agrees with the Legislative Budget Committee's recommendation to not use one-time "rainy day" funds to pay for recurring expenses, but he does not believe the millions of dollars spent on tax cuts in the past four years has produced any results. He said that money could have been spent on education instead.

"We haven't seen those job creators pay off," Dortch said.

Sen. David Blount, D-Jackson, said the Legislature needs to focus on financial responsibility in the upcoming session. The general funds of the state pay for several public-interest items like K-12 education, community colleges, and universities as well as roads and the foster-care program—some needs that Blount pointed out are underfunded already without a tax cut. For instance, the Mississippi Adequate Education Program has only been fully funded twice since its creation in 1997.

"To pass a massive tax cut takes money away from those essential services that are not currently met with existing revenue," Blount said.

"To pass a bill like that is politically popular but financially irresponsible."

Rep. David Baria, D-Bay St. Louis, said it serves little purpose to focus on particular bills and legislation since the Republican leadership has taken even more control of both the Senate and the House.

"We (Democrats) are going to be passengers on a ship of state that is run by the Republican leadership, and we'll have to see what their priorities are," Baria said.

"Hopefully, we can discuss and debate whether those priorities are right for the state or not."

The Future of Education

Democrats contend that education funding would be the hardest hit with a tax cut, but Republican leaders say they plan to fund what they believe is working in the education budget.

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Rep. John Moore, R-Brandon, said the Mississippi Adequate Education Program will be re-evaluated to see which parts of the formula need to be changed in 2016.

Rep. John Moore, R-Brandon, said legislative priorities for education will be determined by how much revenue comes in to the state—and if the state maintains another flat budget, Moore said, it is likely to be another long year for education. As the previous House Education Committee chairman, he said his party's strategy is to continue what they've been doing in the past years: "moving money into the classrooms" and determining which programs work and which don't.

At the Stennis Press Forum on Jan. 4, Lt. Gov. Tate Reeves praised the successes of the state providing reading coaches to struggling school districts, a program that he said focuses on the children in the classroom, implying that others don't.

Reeves also said it is time to revisit the Mississippi Adequate Education Program funding formula. MAEP is the funding formula the Legislature uses to distribute basic funding to the state's school districts. The formula primarily covers teacher salaries but should cover more than that with full funding. Reeves said he would like to change the "C-level" standard used to establish per-pupil spending under the current formula and said the state's support of schools should be based on how effectively districts spend their tax dollars.

Echoing Reeves, Moore also said he will likely have to look at what technical problems exist in MAEP.

Moore said he will look at several factors in the formula including the Average Daily Attendance, the number used to count the number of students in a school district which is a large component in determining how much money a district is allotted. A Senate bill last session proposed to change that factor to Average Daily Membership, which would be calculated in a different way than Average Daily Attendance. Moore said the mandates within MAEP (which led to a ballot initiative and political divide in this past year's election) need to be taken out to ensure "it's an equitable type of funding."

The state auditor's office has expressed concerns with MAEP for the past few years, specifically about the 'C' standard for school districts used as the base in per-pupil spending.

The Mississippi Department of Education also has a list of technical amendments it wants to see fixed in the formula.

Nancy Loome, executive director of the Parents' Campaign, said in November that any changes to MAEP would likely require more funding to schools—not less. 
 Any changes that would cut the amount of funding to school districts through MAEP currently would not make sense, Loome said, unless legislators want to underfund schools.

"I think it will be difficult for them to defend that," Loome told the Jackson Free Press in November.

"We fund our students at a lower level than just about anyone else."

Moore doesn't see 2016 as a game-changing year for big education bills, but he said the third-grade reading gate, pre-K collaboratives and reading coaches are investments that have paid off so far, and if extra funding becomes available, the Republicans will look to invest in those initiatives.

The body might revisit charter-school legislation, originally adopted in 2013, in the upcoming session, Moore said.

At the Stennis Press Forum, Lt. Gov. Reeves agreed saying he will work hard to change parts of the charter school law.

"I will work very hard to ensure that kids can cross district lines to attend public charter schools," Reeves said. "I don't believe some arbitrary line should preclude a parent from giving their kid the best education possible."

K-12 education makes up about 45 percent of the general-fund budget, but outgoing Democratic Party Chairman Rickey Cole said that wherever a budget cut comes from—from a tax break or elsewhere—education is the first budget on the chopping block. That is partially because other large budgets like Medicaid have to meet federal limits. If the Legislature cuts state funding to public schools, the school district's county ad valorem taxes must make up the difference in funding. Local schools receive the largest percentage of property taxes, but when the state funding goes away, cities and counties are forced to raise those taxes, Cole said.

Cuts to the education budget, specifically MAEP, will hurt the poorest districts in the state the most, Cole said, because these counties don't have the property values or taxpayer base to make up the difference to support local schools. This is the opposite of what MAEP was designed to do, especially with its at-risk component.

"The whole notion behind the state minimum was to put enough money into the poorer areas of the state, so their education wouldn't suffer," Cole said. "The poorest areas of the state will feel it (any cuts) the most because they can't make up the difference."

Medicaid: An Uphill Battle

Interest in expanding Medicaid has been scarce at the Republican-dominated capitol. Dortch said organizations with the most to gain from expansion—such as hospitals and health-care provider groups—should speak up about what they're losing if they want to see any legislative movement.

The Legislature has more options than a full expansion of Medicaid, Dortch said, adding that even surrounding states, including Tennessee with a Republican governor, have supported a Medicaid waiver plan that at least helps reach those uninsured people who currently fall in the "Medicaid gap" and cannot qualify for affordable insurance.

Dortch said the waiver program works; Gallup research revealed that in Arkansas their uninsured rate has dropped the most in the nation since 2013 when they began the program.

"The crazy thing is that people often say it's going to happen eventually, but people literally die because they don't have health insurance—they put off care because they can't afford it," he said. "You're not saving any money by waiting."

Sen. Dean Kirby, R-Pearl, who chaired the Senate Public Health and Welfare Committee in the last session, said there is not enough support in the House or the Senate to pass a Medicaid-expansion bill, and even if there was, the governor would likely veto it.

Kirby said legislation to help support rural hospitals that are losing money and funding will likely come up this session. But committee chairmen appointments were not final by press time, so Kirby could not speak as the current chairman.

"I can assure you, as chairman, I have been concerned with rural hospitals and keeping them open," Kirby said. "If I am re-appointed, I will help them—but unfortunately my committee doesn't do funding."

Spending on rural hospitals would go through the Senate Appropriations Committee. Lt. Gov. Reeves told the Stennis Press Forum that all hospitals—not just rural ones—are facing challenges in Mississippi. Reeves said hospitals are going to have to change the way they do business whether Medicaid is expanded or not.

The Division of Medicaid's budget deficit is much lower than projected, and Reeves said his budget committee has "taken the necessary steps to find some budget certainty through managed care."

The division is transitioning the way it reimburses those who provide inpatient hospital services, paying managed-care partners—Magnolia Health and United Healthcare Community Plan—a set per-member/per-month fee for services, instead of paying hospitals per-service fees.

From Voter Laws to a New Flag

Since the recent straw-drawing tiebreaker in the District 79 House race, voting and election laws are fresh on several legislators' minds.

Sen. Blount said he plans to introduce a bill again for early voting and online voter registration to encourage voter turnout and participation.

The bill failed previously, but this time around, Blount said one of the secretary of state's taskforce groups is endorsing it, bringing bi-partisan support.

As for changing the straw-drawing law, Blount said use of it is so rare that he's not sure changing the law is a priority.

"I think it may be discussed, but I don't know about anything specific," Blount told the Jackson Free Press.

Rep. Bo Eaton, D-Taylorsville, won the straw contest in November after he and Republican challenger Mark Tullos drew the exact same number of votes to represent District 79.

Following his winning draw on Nov. 20, Eaton said he would work to challenge and change the law so tied future elections would not leave the future representation of a district to chance.

Tullos challenged the race before the straw drawing and maintains that nine affidavit votes were not properly counted in the race. Tullos petitioned the House, asking for the seat. The Associated Press reported that Eaton's attorney, John Corlew, wrote in a filing with the House that the nine affidavit votes in question were properly counted and initially were not included because of an error in the computer system that records registered voters.

House Speaker Philip Gunn, R-Clinton, has appointed a committee to resolve the dispute. It met briefly before the end of the year and will meet again Jan. 5 to consider Tullos' petition. The committee's actions in the District 79 House race were not available by press time.

Following a year of state flag debate—and South Carolina's removal of the Confederate battle flag from outside its capitol building—the state flag may become a legislative topic in the new session. Sen. Blount, who believes that Mississippi should change its state flag, said he knows of some legislation in the works to change the state flag, but could not disclose any more information.

Last June, House Speaker Philip Gunn, R-Clinton, called for the removal of the state flag.

In a statement released in June, Gunn said: "As a Christian, I believe our state's flag has become a point of offense that needs to be removed. We need to begin having conversations about changing Mississippi's flag."

U.S. Sen. Roger Wicker, a Republican also called for the flag to come down last summer.

"After reflection and prayer, I now believe our state flag should be put in a museum and replaced by one that is more unifying to all Mississippians," Wicker said in a news release.

Gov. Phil Bryant has previously said the flag vote should go to the people, which could mean it would go on the 2016 ballot for voters. Rep. Baria said that the will of the governor will likely take precedent on the flag issue. Baria said the issue of the flag is important enough to transcend a popular vote.

Three ballot initiatives are currently on file with the secretary of state's office to keep the current state flag as it is. One ballot initiative is on file that would ban all symbols of the Confederacy from appearing on a Mississippi state flag ever again.

Budget Woes

Some state departments should brace for budget cuts if the joint legislative budget proposal is an indicator of what next year's budget brings. The Legislative Budget Committee imposed more cuts than the current year's budget, appropriating $37 million less than it did last year.

The committee proposed a $5.67 billion general-fund budget Dec. 15 despite projections that revenue will be 1.9 percent higher than last year. The proposal suggests that budget cuts reflect an elimination of general-fund dollars spent for one-time spending.

The rainy-day fund—the unallocated funds in the budget—currently totals $481 million that the proposal suggests could address needs in the current or future years' budgets but does not specify any state budget items or projects the money could pay for.

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File Photo/Virginia Schreiber

Sen. Joey Fillingane, R-Sumrall, said a cut to the franchise tax will likely come back to the table for discussion in the Senate in 2016.

Sen. Fillingane is on the committee that created the budget proposal in late 2015. He said the committee tried to spread the cuts evenly but that previous legislation obligated it to make cuts in certain instances to make room for legislative-mandated raises for judges and Mississippi Highway Patrol staff.

Fillingane said the budget proposal is just the beginning of the discussions going into the upcoming session and that the budget is malleable and subject to likely changes in the upcoming session. The budget proposal is for fiscal-year 2017, the budget that begins in July 2016.

"This is simply a starting point, and this is not the final budget that will be approved," he said.

No Infrastructure, No Business

A Mississippi Economic Council report released in December showed that 936 state bridges and 24,591 miles of state road need repair, and the number increases when county and local roads and bridges are factored in. The report said $375 million is needed annually to make the necessary repairs over 10 years. The report calls for the Legislature to increase funding by at least $75 million annually.

Funding for the Department of Transportation primarily comes from the federal government, but MEC Chief Operating Officer Scott Waller said that in order for Mississippi to address two major issues—safety and business growth and development—the Legislature should look at MEC's "menu of funding options" to support infrastructure needs.

Options range from excise or sales taxes on gas and diesel, increased registration fees, tolls or other tax increases. Waller said the Legislature could use several of the suggested options at once and that MEC hopes to work with legislators in the upcoming session to figure out how to fund the infrastructure needs.

"MEC and the board has adopted this as something they support," Waller said. "The support of the business community to do this is there and that's what makes this strong from my perspective."

Waller said that businesses look at workforce first and accessibility second when considering the economics of bringing in a business to a state.

Cole, the departing Democratic Party chairman, said he expects Democrats in both the House and the Senate to push for infrastructure improvements across the state. Cole said the state needs long-term investment in infrastructure to promote economic development in all parts of the state, affluent and not.

He said infrastructure is needed "in the places where they have a real need for economic development because if you don't have quality infrastructure, you can't bring in businesses."

Sen. Willie Simmons, D-Cleveland, who served as the chairman of the Senate Highway and Transportation Committee previously, points to strong support from the business community, especially following the MEC report's release, for the Legislature to invest long-term in the state's infrastructure. Simmons said it's a non-partisan issue because the state-owned roads and bridges affect public safety, commerce and economic development.

"In order for us to address the infrastructure, we have to create new revenue," Simmons said. "And it needs to be long-term because (we) can't afford to put up $3 (billion) to 4 billion."

Two years ago, when the Senate looked at the problem of infrastructure, they estimated the repairs would cost $3 billion to 4 billion, Simmons said. Of course, the question of "where is that money going to come from?" will differ depending on the politician.

Cole said a federal bond could work because interest rates are low and the Republican leadership is largely against raising taxes. The state's fuel tax is relatively low compared to other states, so raising that tax is another option, but the "how" of addressing infrastructure needs does not need to be decided now, Simmons said.

"I want to keep (options) holistic and universal, and what I mean by that is keep everything on the table ... and look at where we are and what we need and come up with a system that will spread the cost around," Simmons said.

Simmons also plans to work on an initiative to boost the Mississippi Delta in education and economic development to make it a competitive region of the state. In terms of infrastructure, road repairs are crucial in the Delta especially near the Mississippi River where ports bring commerce to the state, and trucks need good roads to transfer goods on.

Email legislative reporter Arielle Dreher at [email protected] Comment at jfp.ms/politics.

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