Thursday, May 23, 2024

Lawmakers push for changes in how costs – and benefits – of bills are estimated

by BIZ Magazine

By David Jacobs | The Center Square

Louisiana legislative leaders this summer ousted John Carpenter, head of the nonpartisan Legislative Fiscal Office, and replaced him Christopher Keaton, a veteran Fiscal Office analyst.

Senate President Page Cortez, a Lafayette Republican, expects the change in leadership to lead to a change in how the office operates.

“We can be utilizing the Fiscal Office for so much more,” Cortez said.

Among other duties, the LFO estimates the potential impact on state finances of proposed laws and presents its findings in “fiscal notes.” Cortez and many other lawmakers believe the fiscal notes focus too much on the potential cost of a proposal and not enough on the possible benefit. Tax breaks might reduce state revenue, they argue, but they also can boost the economy and spur job creation.

“When you lower certain taxes, you’re going to take in less revenue immediately,” said Rep. Mark Wright, a Covington Republican. But over a three-to-five-year time frame, the state might bring in more revenue than it would have at the higher tax rate, he said.

A version of this debate played out in a meeting of the state’s Revenue Estimating Conference. Greg Albrecht, the Legislative Fiscal Office’s chief economist, said lowering the proportion of lottery revenue that state government keeps actually will increase state revenue. He said he was skeptical at first, but lottery officials showed him evidence that allowing them to keep more money and offer bigger prizes will entice more people to play, thereby growing the pot.

But at that same meeting, Cortez questioned Albrecht’s contention that exempting casinos from some of the taxes on vouchers for free play would cost the state more than $9.5 million.

If a promotion brings in a new customer who keeps playing after using up their voucher, that’s a net gain for the state, Cortez said. But Albrecht said industry representatives, who supported the change, couldn’t show evidence the promotions bring in gamblers who wouldn’t have come regardless.

The Fiscal Office considers how policy changes affect behavior and incorporates those impacts when there is sufficient evidence to do so, Keaton said by email.

“The LFO will continue to consider all of the dynamic variables that can be proven to affect the estimated fiscal impact of proposed legislation,” Keaton said. “The objective is to get the estimates as accurate as possible to help the legislature balance the budget.”

One of the tools Cortez said he would like to see incorporated into more fiscal notes is “dynamic scoring,” which purports to take into account how taxes affect incentives to work and invest. To use a blunt example, if income is taxed at 100 percent, no one will want to work.

Renee Amar, vice president for policy and government affairs at the fiscally conservative Pelican Institute for Public Policy, says the fiscal office often does not consider how tax changes affect behavior, which she compares to a quarterback calling a play while assuming the defense won’t move from the line of scrimmage.

“While no model can predict with 100% reliability and accuracy the outcomes of a complex economy with innumerable variables, dynamic scoring at least gives us a better starting point and a fuller picture of the consequences of proposed policy to help lawmakers make better decisions,” she said by email.

But skeptics say dynamic scoring estimates are highly uncertain and subject to manipulation. Politicians can use dynamic scoring to overstate how much tax cuts will stimulate growth and “ease the path for a tax reform plan that’s revenue-neutral on paper but, in reality, would increase budget deficits,” says the left-leaning Center on Budget and Policy Priorities.

Cortez said dynamic scoring could be included in fiscal notes along with other approaches. He worries the Fiscal Office relies too heavily on executive branch agencies’ assertions about how much a proposal will cost. Opponents often wield fiscal notes when they try to kill a bill.

“If the agency doesn’t like the bill, they can say it’s going to affect us to this gross amount, and if they do like the bill, they can say, ‘Oh, it will be minimal,’” Cortez said.

Jan Moller, as a reporter and now director of the Louisiana Budget Project, has followed the legislative process since Mike Foster was governor. He said he has never seen evidence of a Republican or Democratic administration providing false information to the Fiscal Office.

Moller said the LFO staff are non-political public servants who “do their best every day to provide the best possible information.”

“I can think of a lot of things wrong with state government, but the legislative fiscal office is not one of them,” he said.

Cortez likewise praised the LFO staff but said the legislature hasn’t given them much direction. Between sessions, he would like to see them look back at fiscal notes from previous years to see how accurate their estimates were, which could help to inform lawmakers’ policy choices going forward. More information is always better than less, he said.

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