The Revenue Estimating Conference (REC) met recently to update the state’s official revenue estimates in time for the House Appropriations Committee to begin finalizing work on the FY 10/11 budget that will take effect this July 1. The analysis coming from the economists who serve as staff for the Conference was illuminating. The numbers clearly show that the state’s economy—as reflected in total taxes, licenses, and fees—is inadequate to keep up with the high levels of spending in recent years. To put it succinctly, state government has a spending problem and needs to be more aggressive about putting state expenditures in line with the amount of recurring state revenues available.
The REC dropped the revenue estimate for the current budget by approximately $320 million and reduced the estimate for the FY 10/11 budget (now being drafted) by almost $250 million.
The story behind the numbers provides an interesting insight. Individual income tax collections are down significantly. That isn’t surprising since Louisiana lost almost 50,000 jobs in 2009 and many workers saw no increase in their wages. Corporate taxes were also down, reflecting the slowdown in the economy. Sales tax collections also declined, as did severance taxes. It is clear that the softening of the state’s economy is sending a clear signal that current levels of state spending cannot be sustained by current economic activity.
The focus by some state officials at this point is centered on using one-time revenues to paper over the problem with the budget. For the second year in a row, $1.5 billion in federal “stimulus” money is being used to plug the hole left by declining state revenue collections. These funds will be gone when the governor and the Legislature begin fashioning the FY 11/12 budget next spring. Instead of bringing expenditures more in line with revenues in both the FY 10/11 and FY 11/12 budgets, the game plan is to raid dedicated funds in order to pump more one-time money into the budgets in order to prop up the high levels of spending that our state economy can no longer sustain. Raiding the dedicated funds doesn’t fix the systemic budget problem. These one-time sources of revenue cannot, in the long run, bring the state’s spending problem in line with reality.
It is time for our state officials to explore real solutions to the state’s fiscal problems, not temporary fixes. Louisiana spends hundreds of millions of dollars on state aid to local governments. Can our state government continue that funding at current levels and still fund things like post-secondary education and indigent health care that are the sole responsibility of the state? Louisiana also has a disproportionate number of state employees compared to other states. Can that trend continue in tough economic times? We are also one of the few states that maintain a statewide hospital system for indigent health care, and we fund it almost entirely by using federal funds. Those funds will begin to disappear in a few years. Shouldn’t we be acting now to change that system? These and other areas of state funding should be actively addressed at this juncture instead of simply relying on one-time revenues to plug current and future state budgets.
If the use of one-time money continues and expenditures are not brought in line with recurring revenues, soon there will be a $2 billion problem and no one-time money to apply toward it. At that point, the discussion will likely center on how to bring revenues in line with expenditures—and that won’t be good news for the taxpayers.
Dan Juneau is the President of the Louisiana Association of Business & Industry (LABI)