Jindal Pushes Bill To Free Dedicated Funds

One common complaint from those who have analyzed Louisiana’s problems in delivering  stability to funding for health care and higher education is that the state’s constitution protects too many sources of state revenue and thus forces draconian cuts when times get lean.

Those critics of the process will likely be heartened by the announcement today that Gov. Bobby Jindal is backing legislation to free some dedicated state revenues so as to divert them into the general fund. Jindal announced his administration will push three bills, all sponsored by Sen. Gerald Long (R-Natchitoches) aimed at increasing the state’s budget flexibility to restore funding for higher education and health care.

“As we confront the budget challenges in the next fiscal year, we must transform state government to become more efficient and sustainable while protecting critical services for our people like education and health care,” said Jindal in a release this afternoon. “These budget flexibility bills are an important way to free up funds that are currently locked away, while the areas of higher education and health care are left vulnerable to reductions in tough budget years.”

Jindal said that some $4.75 billion in state revenues in the current fiscal year is unavailable for the governor’s use in covering a $1.6 billion budget deficit. “As we have said before when we fought for similar legislation,” he said, “we must be able to put all state spending on the table, especially as we work to make reductions and improve efficiencies across state government.”

The suggestions involved in Jindal’s advocacy aim primarily at funds dedicated by statute, rather than the Louisiana constitution. The initiative tracks closely with the first of several suggestions put forth by Blueprint Louisiana, a business-supported good-government group which has been researching potential structural solutions to the state’s budget woes, last week. Blueprint Louisiana claimed in its recommendations that moving money out of statutorially dedicated (as opposed to constitutionally dedicated) funds could result in as much as $100 million in restoration to general fund budgets.

The Division of Administration has compiled a list of special funds that exclude constitutional requirements and other mandates, pursuant to Act 492 of 2009.  This list totals more than $1.8 billion of the Fiscal Year 2011 budget.  The administration and legislature should target at least $100 million in non-constitutional, nonfee for service dedicated funds from this list for elimination, representing just two percent of all protected dollars.  This conservative target could be expanded after careful analysis and debate.  Re-directing these funds to the SGF means additional resources for more urgent priorities.

Not surprisingly, Blueprint Louisiana chairman Bill Fenstermaker was happy about today’s announcement.

“For the last four years, Blueprint Louisiana has advocated for systemic reforms to make the state a better place to live and work. We recognize the state’s budget challenges are considerable, but they also present an opportunity for additional governmental reform. We applaud Governor Bobby Jindal’s budget flexibility package, which aligns with Blueprint’s recommendation to unlock protected dollars and free up funding for statewide priorities, such as health care and higher education. We look forward to working with the Legislature and the Governor to get this set of bills passed into law.”

And naturally, the state’s higher education principals are for anything which frees up money for them to shore up budgets.

Louisiana Board of Regents Chairman Bob Levy…

“I support any effort that would result in a lessening of the disproportionate burden borne by post-secondary education when there is a severe budget deficit.”

LSU System President John Lombardi…

“Given the challenging budget circumstances we face in Louisiana, we all need to make the necessary adjustments to enable education, health care, and other vital services to continue for our citizens. The LSU System continues to support initiatives that will give legislators flexibility to make strategic adjustments throughout the state budget to spread and minimize the impact of revenue reductions on all of the state’s public services.”

Louisiana Community and Technical College System President Dr. Joe May…

“There are areas of our budget that we could tap into in times of revenue declines; however, we’re limited by a five percent reduction cap, meaning we lack options in balancing the state budget. We need to open up the process and give the Legislature more options for how they can properly balance the budget while avoiding cuts to higher education. I think the Governor’s budget package does just that.”

UL System President Randy Moffett…

“The University of Louisiana System supports the efforts of Governor Jindal to review all dedicated funding with an eye towards the more appropriate distribution of funding and flexibility as government priorities and functions change. Currently, the hands of our legislators and administration are tied during economic downturns, forcing significant cuts to higher education and health care. If Louisiana is to prosper, we must invest in the education and well-being of its citizens.”

From a release by Gov. Jindal’s office this afternoon, the specifics of the “flexibility bills” are as follows…

Three Budget Reform Initiatives to Improve Budget Flexibility:

1.) Increase the annual five percent cap of cutting dedicated funds to 10 percent during a deficit. This initiative will help mitigate budget reductions that may be made to health care and higher education as a result of a deficit. (Sponsored by Sen. Gerald Long)

Traditionally, general fund expenditures in health care and higher education in Louisiana are the most vulnerable in budget challenges. Nearly 95 percent of higher education’s state general fund monies are unprotected. This initiative will help direct funding to health care and higher education to ensure that funds are available so critical services are protected.

In the 2009 legislative session, the Governor signed ACT 479 by Sen. Chaisson which eliminated the two-year limit on dedicated fund reductions to find savings in dedicated funds in back-to-back years during multiple year budget shortfalls. Prior to passage, 5 percent of budget adjustments had to be spread over a two year period.

This new law would allow another option for the administration and Legislature to use when developing a budget savings plan. Current law, in accordance with the state constitution, allows reductions to be considered to statutory dedications of up to five percent during a deficit. Previously, the Governor proposed a similar plan that would increase the annual cap from five to 10 percent that would affect constitutionally mandated funds. This year’s legislation will focus on those funds that are not protected by the Constitution and will also exclude those dedications based on fees paid by businesses for specific regulatory services.

The author of the bill, Senator Gerald Long, said, “For us to best do our jobs, we need to have the freedom to review the budget and make adjustments accordingly, and right now we just don’t have enough access to certain parts of it to make the best decisions for our citizens. The Governor’s budget package will provide the budgeting process with more transparency, give us more of an opportunity to openly discuss how we’re using our dollars and empower us to vote on how those dollars should be used. In tough economic times, we need more flexibility to make a more efficient and effective government, and I think this package of bills will get the job done.”

2.) Access interest (non-principal funds) generated by statutory dedications during a deficit, and mitigate any budget reductions that may be made to health care and higher education as a result of a deficit. (Sponsored by Sen. Gerald Long)

This new statute would allow interest earned on specific statutory dedications to be used to ensure that critical services are not disproportionately affected during a deficit. Interest that is earned on funds is often carried over year after year to increase fund balances. It often does nothing but earn more money. Rather than cutting critical services while allowing interest to accumulate in a fund, this legislation will allow access to this funding to help mitigate reductions to the most vulnerable budget areas – health care and higher education. Approximately $153.9 million in interest was accrued in FY10 for all statutory and special funds and 180 funds earned interest in FY10, ranging from $3 to $30.5 million per fund.

The proposed law would allow the interest of funds to be reallocated during a deficit. The bill will focus only on the interest of funds that are not protected by the Constitution and will not include those dedications based on fees paid by businesses for specific regulatory services.

3.) Require the sunset of all dedicated funds, with few exceptions. (Sponsored by Sen. Mike Walsworth)

Last year, Governor Jindal signed into law Act 492, which requires that an annual report be submitted for all entities and activities supported by appropriations from each fund. Additionally, 25 percent of funds must be reviewed every two years by the Joint Legislative Committee on the Budget. While the enactment of this law ensures that the Legislature exercises greater scrutiny over dedicated funds, there is no mechanism in this statute for removing special protections for funds that are no longer necessary or that no longer serve their intended purpose.

This legislation will routinely remove special protections for dedicated funds, except as provided by the Constitution of Louisiana and those that are exempted in present law. Unless the Joint Legislative Committee on the Budget recommends the continuation of a fund, and the Legislature enacts a law to continue or modify a fund, that fund should sunset for regular review.



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