Louisiana Budget Situation Demands Leadership; Jindal Hasn’t Shown It Yet

Over the weekend, 60 Minutes – which is all too often a left-wing hit-piece factory, but once in a while actually gets things right – did a piece on a subject we in Louisiana are struggling mightily with. Namely, the fact that state budgets all across the country are in horrible shape as a result of an orgy of overspending in the past few years.

The segment serves as a good start to a discussion of what our state’s governor Bobby Jindal, who is seeing his formerly off-the-charts popularity take a beating in the wake of the turndown in Louisiana’s finances, must do in the coming weeks.

Thankfully, Louisiana isn’t in the shape of a California, Illinois or New Jersey. It appears even Texas’ budget situation is a good bit worse than ours is.

But a $1.6 billion shortfall in a $7.7 billion general fund budget is a pretty massive hole to fill. It indicates Louisiana’s spending is completely out of line with what we have available to spend. And this is no short-term hole that can be papered over.

This state, like most other states across the country, is structurally unsound as to the size and scale of its governmental operations.

Everything needs to be cut, and drastically. In that respect we’re no different from New Jersey. But Jindal has not shown the kind of leadership Chris Christie has in that state; while Christie is out beating the drum on state employee pensions, health care costs and other unsustainable burdens on cash flows, Jindal seems to be taking a much softer approach – one which might serve to stifle panic in Louisiana, but doesn’t reflect the true situation we face.

The governor’s proposals for stopgap savings – including securitizing future lottery revenues, selling off state office buildings and other one-time fire-sale actions in an effort to paper over some of the deficit – are unserious approaches to structural problems. They lack constitutionality for one thing, the revenue those ideas would generate won’t likely arrive in time to cover the 2011-12 deficit for another, and they don’t address the basic fact that Louisiana can’t project a return of state revenue to the bubble economy of post-Katrina insurance and federal payments into the state any time into the foreseeable future for a third.

The state has about $6 billion yearly to spend in its general fund. That’s it. Jindal has to work with that number. And the construct within which Jindal – and Paul Rainwater, his current Commissioner of Administration – are working is wrong. This isn’t about what Louisiana needs to cut, it’s about what the state can afford to keep.

Christie gets that in New Jersey. And while Louisiana doesn’t suffer from the kind of bloated government New Jersey does, we have obviously unnecessary items in our state budget that Jindal and Rainwater have not begun to address – and neither have the bulk of Louisiana’s political class, who have failed to pick up the standard of leadership the governor has so far refused.

For example, the Charity Hospital system.

The graph at the left comes from the LSU Hospital system’s 2009 Annual Report, and it shows that the Charity system is a $1.4 billion enterprise, with 10 major hospitals in all the state’s major markets.

You’ll see from the graph that only 8.1 percent of the $1.41 billion in revenues coming into the Charity system is described as self-generated. Almost all of the rest comes as a function of Medicaid, Medicare, indigent care and direct cash from the general fund.

You’ll also see from the graph that 85 percent of the $1.38 billion in outlays from the system go into what it describes as operating costs and staff.

It doesn’t take a superstar accountant to look at these numbers and question the wisdom of even having a Charity system. When just 8 percent of the system’s revenues are “self-generated,” meaning that only eight percent comes from people writing checks or using private insurance to pay for medical services the system provides, you realize that despite some of the things you’ll hear from LSU on the subject the fact is that almost nobody chooses to go to a Charity Hospital. In fact, at a speaking engagement earlier this month State Treasurer John Kennedy noted that when LACHIP recipients were allowed to access private hospitals only four percent – four percent! – still chose to use Charity.

So what we’ve got in the Charity system is indigent patients, Medicare and Medicaid. And those patients are covered by the government in one form or fashion. They can choose private hospitals; they don’t have to choose Charity. Most of the patients who do choose Charity do so because the local hospital is closer to where they live; an example is Earl K. Long Hospital in Baton Rouge, which is closing next year. EKL is the only hospital in the northern part of the city, though Baton Rouge General Hospital has a campus in the mid-city area near to downtown, Women’s Hospital operates on Airline Highway just south of Florida Boulevard in the geographic center of East Baton Rouge Parish and Lane Regional Medical Center in Zachary is in the northern reaches of the parish. The function of training doctors EKL has been serving will transfer to Our Lady of the Lake Hospital in the southern part of the city; the rest of what it has done, treating patients whose care is paid for by the public sector, will be spread to the rest of the hospitals in the capitol city.

But there will still be nine other Charity campuses. The main Charity campus in New Orleans is getting a massive $1 billion new hospital.

So we’re spending over $1 billion a year subsidizing a system which doesn’t compete for private-sector dollars and is redundant in terms of its ability to train doctors – if it’s necessary to have teaching hospitals associated with LSU’s medical schools in New Orleans and Shreveport, that’s fine, but even without EKL there are still seven Charity campuses – and treating poor or indigent patients.

We’ve been able to do this largely because the federal government has provided funding through the Disproportionate Share Hospital program, which has subsidized public hospitals whose clienteles are the poor and uninsured. But DSH is changing, and permanently. Last year the state had to make up a $120 million loss of DSH funds out of the general fund. This problem is projected to only get worse as time goes by.

The faster we sell off the Charity campuses – outside of perhaps the ones in New Orleans and Shreveport which are connected to LSU’s medical schools in those cities – to private hospital providers and shed the cost of the brick and mortar and the staff salaries, the better off we’ll be in this state. Louisiana is hemorrhaging money we don’t have running a system of public hospitals which we don’t need in order to pay for healthcare for poor and uninsured patients.

Ochsner offered a few years ago to run the “Big Charity” campus in New Orleans and partner with LSU to train all the doctors the school could provide. LSU turned Ochsner down.

Talk to almost any politician in a position to view the Charity situation objectively, and they’ll tell you Louisiana’s system – which no other state in the union emulates, by the way – is unsustainable. But because Charity is considered a third rail of Louisiana politics and its funding and existence is bound up in the tired harangue of race, nobody will touch it.

Jindal has the bully pulpit and the purported ideological leaning toward eliminating the Charity system and letting the state’s health care dollars follow the patient like every other state does. And yet with a $1.6 billion deficit to cover, he’s not making the case for doing anything about Charity. Neither, amazingly enough, is Kennedy – Louisiana’s foremost fiscal hawk.

It’s not like the doctors, nurses and hospital administrators at Charity are unemployable in the private sector. If an Ochsner or Humana or some other hospital management company were to buy Charity campuses, the obvious decision would be to retain as much staff as possible. Those companies would bring a degree of fiscal discipline to the Charity system – or if not, the state wouldn’t be on the hook for the red ink. The chances are that a private operator would take better care of the physical plants and compete for insured patients as well, improving the community relationships which in so many places have broken down in the markets where Charity operates.

And nobody is talking about Charity.

Nobody is talking about cutting one or more of the 14 four-year college campuses in the state, a subject we’ve talked about ad nauseam here on the Hayride. Nobody is talking about reforming and decentralizing the K-12 education system in the state, which results in Louisiana spending some $10,500 per pupil on public education – a figure which if it were converted into tuition would pay for any private school in the state save for Episcopal in Baton Rouge or St. Martin’s, Country Day and Newman in New Orleans. Nobody is talking about the idea of implementing market reforms for the state’s transportation industry – in Indiana, Gov. Mitch Daniels dumped a number of roadways onto the private sector and turned a nice penny for his constituents and the state’s budget, while Louisiana, with the worst roads in America is clinging to the same system for managing them we’ve had since before Huey Long was shot.

Kennedy proposed reducing the size of the state employee workforce by 15,000 over three years by not replacing attrition in the system, which Rainwater argued wouldn’t work because the places where the most turnover occurs – like with respect to prison guards – simply can’t afford not to replace their losses. But neither are making the case for what desperately needs to happen; namely, mass layoffs from the state payroll to bring Louisiana in line with the Southern average. Refusing to replace attrition is one thing; with $1.6 billion to cut, the place Louisiana should be looking for a major portion of the cuts should be the 105,000 state employees, who make over $4.6 billion per year. Jindal added 3,200 state employees in 2008 when the cash was rolling in. He’s taking credit for making some savings in state spending over the last year, claiming a 26 percent reduction in spending over the past year which is a technically defensible statement, but on net Jindal’s budget record hasn’t reflected fiscal conservatism in any way, shape or form.

Again, Jindal’s not alone in his reticence to address this issue; he’s just the most visible of the laggards. Virtually no one in Louisiana’s political class is serious about making these changes. Kennedy is long on proposals and he’s to be commended for his efforts, whether they’re ultimately effectual or not. But while a few of the state’s House members have talked the talk about getting things under control, the Senate is a porker’s paradise and to date Jindal has been more with the Senate than the House.

The Advocate last week had a great quote from House Appropriations chairman Jim Fannin, a Democrat from Jonesboro who says he’s considering a party switch in advance of a run for House Speaker in 2012…

“People in Baton Rouge just don’t seem to want to plan for anything. They wait until it is catastrophic, then they react. We chose to push it down the road and push it down the road. We truly created that cliff, when we could have had a softer landing.”

Well, Fannin’s cliff is here.

You have to lay people off and you have to start reducing the scope of the state government’s operations. You will not achieve a balanced budget in the new reality facing Louisiana and other states without doing it.

And yet Jindal is talking about selling bonds off future lottery revenues.

In doing so, the governor is giving legitimacy to those among his critics who say he’s not serious about getting the state’s fiscal house in order. And he’s also giving credence to the complaints of Democrats who, though their ideas for covering the shortfall through attempting to soak the rich again are certainly no less ridiculous than what Jindal is conceiving, rightly pan his refusal to directly address the issues.

State Sen. Lydia Jackson (D-Shreveport), who is the vice-chair of the Senate Finance Committee, put it correctly in the above-referenced Advocate piece:

“The governor owes it to the public to say this is what we have to do without, or this is the amount of money that is needed to deliver this level of services in hospitals, and K through 12 education and all the other functions of government,” she said.

“It’s Christmas time, so the governor can have his Dickensian moment, you know, the best of times, the worst of times. But I keep hoping the governor will have an honest conversation with the citizens of Louisiana.”

Jackson is correct. She probably doesn’t realize that if and when Jindal finally does come to the table with the kind of structural reductions Louisiana needs it will help, rather than hurt, Jindal’s public opinion in the state. But his attempts at nibbling on the edges of a problem which needs a chainsaw are doing him – and the people of the state – no good.

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