This morning as part of the program at the Louisiana Association of Business and Industry’s annual meeting, Rep. Jim Fannin, chair of the House Appropriations Committee, Sen. Jack Donohue, who chaired the committee on streamlining state government last year and Louisiana Commissioner of Administration Paul Rainwater engaged in a panel discussion on solving the state’s $1.6 billion budget deficit.
Fannin, Donohue and Rainwater all sounded similar notes on the necessity to shrink the size of state government. But the devil in the details was never more apparent than when the three began to outline their vision for how that shrinkage should take place.
Donahue, a Republican from Mandeville, opened the panel by identifying the reason a $1.6 billion deficit is so nearly intractable for legislators to resolve. It’s a structural problem, he noted, because while it would seem relatively easy to trim six percent out of Louisiana’s budget of some $25.5 billion, so much of that budget is untouchable that bringing it into balance will be a very heavy lift.
Donahue offered the following breakdown. Of the $25.5 billion total budget:
- 45 percent, or $11 billion, is provided by the federal government for specific purposes and can’t be touched;
- 18 percent, or $4.6 billion, is constitutionally dedicated from sources like gasoline taxes, hunting and fishing licenses, mineral leases, etc., into specific purposes;
- Seven percent, or $1.7 billion, comes from fees charged by state agencies for their services; otherwise known as self-generated funds (an example of which might be university tuition or drivers’ license fees); and
- 30 percent of the budget, or $7.7 billion, represents the general fund from which the cuts might come.
But it’s even worse than that, Donohue says. Because of that $7.7 billion, $5.1 billion of it is considered non-discretionary. Included in that $5.1 billion are items like state debt service, state costs in covering the cost of unfunded retirement benefits, office rent for state agencies and other contractual obligations, and funding for the Minimum Foundation Program from which the majority of teacher pay in elementary and secondary schools comes from.
That leaves $2.6 billion for everything else, and $1.6 billion will have to be cut from that.
What’s included in the $2.6 billion?
Donahue says 37 percent of that figure goes to higher education (think of this as a tuition subsidy for Louisiana’s public college students) and 29 percent goes to health care. Some 34 percent goes to everything else – the TOPS program, the budget of the governor’s office, the state Department, Louisiana Economic Development and most of the other things which come to mind when “state government” is discussed.
Donahue also says cutting at this point won’t be easy because this is the third year the state has been trying to trim its budget – so all of the low-hanging fruit has already been picked. He says the streamlining commission he chaired recommended 238 actions to save money, and some 139 of those have already been implemented.
But moving forward, Donahue said Louisiana has got to start prioritizing resources. “If, God forbid, we ever start writing priorities in Louisiana,” he lamented, “higher education and health care would be the overwhelming choice of our people. But those are the first to get cut.”
Donahue said what’s going on in higher education and health care is wrong. He said he’s “not willing to sacrifice them;” rather, the bloated bureaucracy has to be cut. And as such, he pointed to Act 1000 (SB 293), a bill he authored and passed last year which is intended to force a five percent attrition rate in state employment per year over the next three years. The bill, touted by state treasurer John Kennedy as implementable without having to lay anyone off – which brought objections from Rainwater, who said to do so would make the state’s prisons and police dangerously underfunded since that’s where the turnover is – will save Louisiana $300 million per year.
“It’s got to be done,” Donahue said. “We can’t afford the size of the state government we have with the funding structure the voters are willing to give us.”
But while Donahue hinted that finding a way to get at the dedicated funds holds a key, Fannin said that’s unworkable.
“You can’t change the Minimum Foundation or TTF (highway fund),” he said. “The people won’t vote for it.”
For Fannin, a Democrat fiscal hawk from Jonesboro who is rumored to be weighing a switch to the GOP, the protection of higher education and health care is less of a priority. He takes the position that the reason cuts will fall so heavily on those areas is that’s where the money is being spent.
“Higher education has to participate in resizing government just like everybody else,” he said.
Fannin noted that the state’s general fund will merely need to seek its level. Before Hurricane Katrina, he said, general fund expenditures were about $7 billion. And after that storm blew through the southeastern part of the state the legislature met and scrubbed $1 billion from the fund as an emergency measure.
But those cuts never needed to be implemented, because federal money flooded into Louisiana and the false recovery economy created a public-sector boom – to such an extent that by 2008 the general fund budget had soared to $10.2 billion. Fannin said all the reputable economists in the state warned those levels of spending weren’t sustainable for long.
“Nobody listened,” he said. “Not even the higher education folks.”
Donahue likened the run-up in costs to the state driving in a Chevrolet prior to Katrina and a Cadillac after the storm. He said the state ought to be in a Buick and that’s what will ultimately result.
“We will keep those critical services the people need in this state,” he said. “But the services we might want probably won’t be there.”
Donahue stipulated that higher education in Louisiana needs to be “reworked,” though neither he nor Fannin nor Rainwater were willing to delve into the issue of cutting campuses – the 800-pound gorilla in the room when long-term higher education priorities are concerned. But he answered Fannin by saying that spending on the state’s colleges and universities had merely returned to where it should have been but for a massive de-funding following the oil bust of the mid-1980’s when the state budget collapsed.
Fannin and Donahue also disagreed on the use of one-time money to patch the budget hole. Fannin decried such a solution and noted that the budget which cleared the House last year didn’t utilize any cash from the state’s rainy-day funds. He said the Senate was the culprit for that inclusion, echoing criticisms made by many of the state’s pundits (C.B. Forgotston being prominent among them) that Gov. Jindal’s having sided with the Senate version of the current budget was a colossal mistake. Donahue disagreed.
For his part, Rainwater didn’t want to wade too heavily into the philosophical differences between Fannin and Donahue. He said it will be March before the administration will have a comprehensive proposal to put in front of the legislature. But the Commissioner was steadfast in his agreement that state government has to be resized, and he reiterated his disagreement with Kennedy that attrition in the state workforce will carry pain with it.
“There are going to be layoffs,” he said.
Rainwater noted that some 6,300 positions have already been eliminated in the state workforce and another round of 700 jobs are being cut now – including 15 in his own office. But while he didn’t want to go into specifics on structural changes that will clearly have to be made to meet that $1.6 billion shortfall – a shortfall he agreed with Donahue and Fannin will not be addressed through revenue measure, saying “we are not going to raise taxes in this administration” – he did note that there are several one-time initiatives his department is considering in an effort to soften the blow of this year’s cuts.
One of those measures, the one which received the most attention, is the idea to privatize the state’s Office of Group Benefits. Rainwater said that by March he would have a better idea what the specific fiscal consequences of that decision might be, though his office is convinced that yearly savings would be realized by doing so. But the one-time revenue from the sale of the plan is still being valued.
Rainwater did note, as did Donahue and indirectly so did Fannin, that growing the state’s economy is the only way to ultimately improve the state’s finances. “Louisiana’s economy is resilient, but we’ve been hit by the national economy,” he said, stating that the state’s economy grew at 2.5 percent in 2009 – which was 5th nationally. He also noted that the most recent Manpower survey projects Louisiana’s job growth to be best in the nation in the first quarter of this year – leading to optimism that while cuts need to be made it’s possible that the picture which ultimately emerges might be less bleak than it looks today.
While that might be true, the back-and-forth between Donahue and Fannin indicates that consensus on how to tackle the budget problems staring Louisiana in the face simply isn’t existent yet. And it’s going to fall to the Jindal administration, and Rainwater specifically, to provide the leadership to bridge those differences and keep Louisiana’s government afloat.