When it comes to actions in state government, it doesn’t take history long to repeat itself. Years ago, fiscal reformers pushed through a constitutional amendment to create a Budget Stabilization Fund (BSF), which became popularly referred to as the “Rainy Day Fund.” The actual intent of the legislation was not so much to create a piggy bank for tough economic times as it was to prevent the budgeting of “windfall” revenues for recurring expenditures. The rapid rise and fall of volatile oil and gas revenues had led to feast-or-famine budgeting. The objective of the BSF was to divert non-recurring revenue to a fund that could only be tapped when state revenue declined unexpectedly during the course of a fiscal year.
Over the years, a sizeable amount of money has been sequestered in the BSF—currently almost $800 million. Our state constitution requires that surplus funds and excess oil and gas revenues (above the $850 million level) must be deposited into the BSF unless it is full. Constitutional restrictions limit how the fund can be tapped—for good reasons. If the Revenue Estimating Conference certifies that state revenues are projected to decline during the course of a fiscal year, up to one-third of the fund can be appropriated to make up for the unforeseen shortfall. On several occasions, the fund has been used to make up revenue shortfalls in such circumstances.
In times past, members of the Legislature have tried to outright raid the BSF or remove the requirement that excess oil and gas revenues be deposited into the fund in any year it is tapped. Those attempts have failed in the past. Now the threat has returned in the presence of Senate Bill 1 (SB 1) of the 2010 Regular Session, a bill introduced by Senate President Joel Chaisson.
SB 1 proposes a change to the state constitution that would do two things: first, it would allow the fund to be accessed when federal, not state, revenues decline; second, it would remove the requirement that excess oil and gas revenues be deposited into the fund in a year in which it is tapped.
As the saying goes: The more things change, the more things remain the same. Every time there is a budget pinch, the first target seems to be the BSF. The main culprit for the budget pinch is invariably the practice by legislators and governors of spending more during good economic times than the revenue base of the state can afford when the economy turns downward. Thus, SB 1 is the latest of numerous attempts to turn a vehicle for budget stability into a means for budget instability.
The Budget Stabilization Fund was not designed to front the state money when federal funds disappear. Federal funds come with strings and caveats and should be scrutinized long and hard before being accepted. If the BSF is turned into a piggy bank to be cracked every time the feds renege on promised money, it will be anything but a vehicle for fiscal responsibility. The provisions of SB 1 that would eliminate the requirement that excess oil and gas revenues must be deposited into the BSF before any go into the state general fund are particularly onerous. Spending unstable revenues on recurring items is a recipe for fiscal disaster, something that happened time and again before the BSF was enacted and approved by the voters.
The fiscal conservatives in state government—including the governor—should come out four-square against SB 1. This bill would kick the can far down the road of fiscal irresponsibility. This ill-advised legislation should not become law.
Dan Juneau is the President of the Louisiana Association of Business and Industry.