In Louisiana, the film industry, oil companies and giant corporations receive billions of dollars in tax breaks and credits, while legislators scramble to cut the cost of the state’s popular merit-based higher education scholarship program, the Taylor Opportunity Program for Students.
The program pays the in-state public school tuition for any Louisiana high school student who attains a 2.5 GPA and an ACT score of 20, reflecting the national average. Higher grades and standardized test scores result in more money from TOPS.
The scholarship program consists of approximately 1.7 percent of Louisiana’s overall budget.
In the past 18 years, TOPS has paid the tuitions of more than 700,000 Louisiana high school students. Its inaugural year cost the state $87 million, when adjusted for inflation. In the 2014 fiscal year, the program cost more than $250 million, and the legislature projects it to reach $387 million by 2018.
This legislative session, state politicians look to cut the rising cost of TOPS in the face of a $1.6 billion budget shortfall created by the state’s multi-billion dollar tax incentive program.
THE BUDGET PROBLEM
In a report on the budget crisis, Steve Spires from the left-leaning Louisiana Budget Project describes the budget shortfall as a result of a structural deficit.
Gov. Bobby Jindal says the drop in the price of oil created the state’s budget crisis. However, an examination of state records shows that the budget shortfall stood at $1.2 billion before the drop in oil prices. The drop in predicted profits from Louisiana oil only accounts for less than a quarter of the entire budget shortfall.
A review of the Louisiana Department of Revenue’s data on tax exemptions shows that Louisiana collected $7.4 billion in revenue and gave out $7.6 billion in exemptions in 2014. From 1999 to 2014, the state’s tax revenues have increased by 65 percent. The state’s tax exemptions increased by 489 percent.
The Louisiana film tax credit program alone cost the state $251 million in 2013. Taxpayers pay 30 percent of all in-state costs that exceed $300,000, and according to a 2012 report from the Louisiana Budget Project, the state recovers less than 20 percent of what it pays in tax credits to help make the films. On average, for every dollar the state invests in the movie industry, it only sees a 20 cent return.
This spring, the House passed legislation capping the film tax credit at $200 million, which legislators predict will save the state $26 million.
Spires attributes the budgetary shortfall to the repeal of the Stelly tax plan in 2008, which transferred the tax burden from sales taxes on lower-income citizens to progressive income taxes on upper-income citizens and to the state’s tax incentive program.
In 2014, TOPS and other higher education expenditures equaled $374 million, a figure the state could fully fund with a 5 percent cut to the state’s tax exemptions.
The 2015 legislative session has seen uncharacteristic moves to cut back certain tax incentive programs in order to fund higher education with the House passing $615 million in new tax revenues and the Senate Finance Committee adding $120 million in revenue to the House’s legislation. However, even with the motivation to cut down on certain tax credits, TOPS remains under legislative inquisition as long-term viability is questionable.
LEGISLATIVE ACTION
In Louisiana, legislators cannot legally touch the funding of around two-thirds of the budget due to funding protections in the state constitution. Higher education and health care fall in the one-third that is unprotected.
Higher education funding consists of approximately three percent of Louisiana’s entire budget. Of that percentage, TOPS takes up around 60 percent of the state’s funding.
“Is it affordable under these circumstances?” James Richardson, director of LSU’s Public Administration Institute, asked rhetorically. “If they are not willing to raise revenue, then no. It’s very simple.”
State Rep. J. Rogers Pope, R-Denham Springs, is one of the many politicians supporting reform for the scholarship program in the 2015 legislative session.
“Every time colleges raise tuition, TOPS liabilities for the state increase and it’s gotten to the point where we probably need to cap TOPS,” Pope said. “I don’t think it’s going away anytime soon, but I don’t think we’ll increase it.”
Capping it is exactly what state Sen. Jack Donahue, R-Mandeville, proposes.
Senate Bill 48, filed by Donahue and state Sen. Conrad Appel, R-Metairie, would untie TOPS from tuition increases and force the Legislature to vote on whether to raise TOPS awards to meet those increases.
Under Donahue’s proposal, the Legislature would not have the power to decrease the scholarship’s amount, but could allow schools to raise tuition and have students pay the difference between the TOPS scholarship and the increase in tuition.
Donahue’s bill passed the Senate on a 27-9 vote and passed the House, despite Jindal’s opposition to the legislation, on a 61-33 vote. If the Senate approves the House’s amendments, Jindal’s past statements likely point to a veto. However, after the House passed the legislation, the governor’s office remained ambiguous on whether Jindal will veto SB 48, stating “We still have concerns with the bill.”
A veto would force lawmakers to obtain a two-thirds majority to override the governor and pass the bill into law.
Currently, the TOPS award matches tuition increases, and in 2010 Jindal signed the Granting Resources and Autonomies for Diplomas Act, also known as the GRAD Act, into law, giving universities increased tuition authority in exchange for meeting specific performance objectives. Since the law’s introduction, LSU has met the benchmark each year, only to have budget cuts cancel out the additional revenue.
“Whenever we hit that benchmark, it’s a reward. You get to go up on tuition. You can put more money toward faculty, student services, but instead what the state had decided to do was cut our state appropriations by the exact same amount,” Tommy Smith, LSU’s associate vice chancellor of Finance & Administrative Services and vice provost for Finance, said.
The GRAD Act expires this year, giving the Legislature the sole power over the state’s college tuition rates.
Along with Donahue’s TOPS legislation, the senator filed Senate Bill 155, which proposes giving higher education institutions tuition autonomy.
Jindal’s opposition to Donahue’s TOPS legislation points to a likely veto on SB 155 in the event it passes the legislature, which would force another possible attempt to override a Jindal veto.
A BUDGETARY PARADOX
This spring is one of the many legislative seasons since 2008 when higher education is in danger of losing a substantial amount of state funding. While universities are the go-to target for yearly budget cuts, TOPS has been almost untouchable due to its popularity.
“It’s a certain entitlement program, and I bet if you took a poll of [students], the odds are they would be overwhelmingly in favor of TOPS,” Richardson said.
According to Louisiana Transparency and Accountability’s figures, TOPS expenditures have increased dramatically since 2010, while other spending on higher education remained stagnant.
Once the Legislature reveals the actual impact of the 2015 budget cuts to higher education, depending on whether Jindal vetoes the budget, TOPS could go from being the largest source of spending on higher education by the state to nearly being the only source of spending.
If TOPS becomes the only expenditure under higher education, legislators will have to decide whether to abide by budgetary constitutional protections, repeal the budgetary protections to free up money elsewhere or reform TOPS.
Previous attempts to reform the program, such as capping the rewards, raising the academic standards and means testing the program have all failed.
According to the Louisiana Board of Regents, the average household income range of TOPS recipients is between $70,000 and $99,999, while the median household income in Louisiana is $44,164.