2011 A Year Of Definition For State Fiscal Policy

Perhaps our state government could ease its budget problems by charging admission for people to attend the war over the budget that will be the focus of the 2011 Regular Session of the Legislature. And it will be a war.

Depending on whose estimate is used, there will be somewhere between $2 billion and $3 billion less revenue available when the Legislature confects the 2011-2012 budget next spring. What taxpayers should know is that the budget problem doesn’t come primarily from a drop in state revenues (although that is a part of the problem). It stems more from the fact that, for the past two years, approximately $1.5 billion of one-time money was stuffed into the budget each year, money everyone knew was not permanent funding. It is now time to pay the piper.

One of two philosophies will prevail in the next legislative session. On one side, there will be legislators who will file bills that will raise billions of dollars of new taxes. They will claim that the budget chasm is so large that only tax increases can solve the problem. They will “promise” that, if more taxes are passed, they will agree to bring the budget in line later—and they will make the claim made so many times in the past: “With a problem this big, you just have to take a little bite at a time.”

Of course, the proponents of this school of thought haven’t done much about taking “bites” in the wake of the huge explosion of state spending in 2007 and 2008. When the economy began collapsing—along with oil and gas prices—in the fall of 2008, little was done to bring reliable state revenues in line with a reassessment of what the critical spending needs were. Almost everything was deemed critical, so the budget was stuffed with one-time money, primarily from the federal stimulus funds.

On the other side of the debate should be fiscal conservatives who will say, “Enough is enough.” The debate doesn’t have to be about cutting versus spending per se. It should be about reforming areas of state government that cry out for reform.

Bringing the number of state employees in line with those in other southern states could save hundreds of millions of dollars. Reforming the retirement systems could save dollars in both the short-term and the long-term. Transitioning from the archaic Charity Hospital system can save large sums as well. Right-sizing post-secondary education in Louisiana can save money and better serve students in the process. And the whole system of state finance to local governments needs to be reviewed. Can the state still afford to deliver the current amount of local government aid when it can’t meet its own primary obligations?

Many in the Legislature will have the philosophy that it is easier to tax people and businesses more than it is to reform spending. The question is: how many true fiscal conservatives are there in the Legislature and will they finally stand up and demand spending reforms?

The year 2011 will be particularly definitive for Republicans. Half of the House is now made up of Republicans as is well over a third of the Senate. We have a Republican governor. No tax can pass without Republican support. Will fiscal conservatives use the fiscal crisis to bring long overdue reforms to state spending or will they make the Tea Party movement’s day by going along with huge tax increases?

Stay tuned.

Dan Juneau is President of the Louisiana Association of Business and Industry.



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