Our Leaders Don’t Care About A Balanced Budget

It’s clear that the political class in this state isn’t serious about fiscal matters.

There are people in the House of Representatives who are; that much we saw in technicolor when the fiscal hawks turned budgetary matters into high drama – if only momentarily – a couple of weeks ago.

But now, with a week to go before the Legislature is due to end the current session, the Senate has shown that it couldn’t care less about any of the budgetary issues the House raised.

C.B. Forgotston sums up what has happened in the early part of this week…

Monday, the Senate Finance Committee added $350 Million to the State Operating Budget, but still cut Higher Education by $71 Million.

Next, the committee then took $200 Million from the Budget Stabilization Fund, a.k.a. “Rainy Day Fund” to eliminate the deficit in the current fiscal year’s budget.

Finally, the Senate Revenue and Fiscal Affairs Committee added more projects to the Capital Outlay Budget.  It is now $110 Million over the maximum that can be approved in one year.

This is what a Republican majority in the Senate and a Republican governor gives us. This is what came out of the voters of this state trying their best to reduce the size and scope of state government. A slight majority in the House in favor of actually balancing the budget – and even then being unable to reach a consensus on what cuts to make, meaning they had to punt the cuts to the Division of Administration after coming up with a menu of potential items – and neither of the two other players in the budget game having any interest in balancing it at all.

The Senate Finance Committee was a particularly optimistic group this week. After all, yesterday when state treasurer John Kennedy testified about cutting some of the state’s lucrative consulting contracts he found himself getting shut down

A day after losing a slice of his office’s funding, state Treasurer John Kennedy struck out Tuesday with his budget-cutting ideas.

The state Senate Finance Committee spurned Kennedy’s suggestion that state government contracts and jobs should be cut as it rejected legislation he was pushing.

The day before, the same committee, without explanation, cut $553,480 from the roughly $12 million recommended budget for Kennedy’s office in the fiscal year that begins in July.

The budget trimming followed Kennedy’s criticism of the way Gov. Bobby Jindal wants to balance the $25 billion state operating budget.

Kennedy said Tuesday that he could not explain the cut to his office or the rejection of his budget reduction ideas.

“I can’t read their hearts and their minds,” he said, referring to the committee’s members.

Kennedy’s funding being cut is not an item of particular significance; in the midst of his dust-up with Commissioner of Administration Paul Rainwater two weeks ago it was pointed out his budget has increased 41 percent since 2005. And many of Kennedy’s proposals for cutting the budget have been shown to be somewhat dubious, so the fact that he didn’t convince a majority of the committee to re-examine the contracts isn’t all that shocking.

But when the Treasurer has zero votes on the Senate Finance Committee, that ought to open your eyes. Either Kennedy has worn out his welcome at the Capitol or the members of that committee are stooges for somebody.

Either way, Kennedy had a pretty quick hook.

On Tuesday, Kennedy went before the panel with House Bill 327 and House Bill 328, both by state Rep. Dee Richard, No Party-Thibodaux. The bills breezed through the Louisiana House.

HB327 would reduce state contracts by 10 percent.

HB328 would gradually eliminate 15,000 state government jobs.

Kennedy said HB327 was an attempt to sever needed contracts from lower-priority contracts.

Kennedy launched into a list of what he perceives as lower-priority contracts, citing financial agreements to assist students with social skills through organized play, to help state workers learn diversity and to give spiritual and religious guidance to inmates.

The committee’s chairman, state Sen. Jack Donahue, soon interrupted Kennedy.

“We’ve got the idea, and we have 25 bills or so,” said Donahue, R-Mandeville.

Kennedy isn’t exactly the spokesman for budgetary restraint – at least not in the sense that he has a wide following among the budget hawks. The House budget hawks speak for themselves. And yesterday they did. Some 25 House members put their names on this press release…

A group of members of the Louisiana House of Representatives fiscally conservative wing today commented on the Senate Finance Committee’s decision to reinstitute the unconstitutional use of $267 Million in one-time funds previously eliminated from the 2012-13 budget by the House in House Bill 1.

“We tell the people of Louisiana we will be courageous and better stewards of their tax dollars, however it appears that the political habits of the past have risen above the demands of the present. Our group will continue to fight to bring reforms to our budget based on the simple premise of spending within our means.”

In addition to reinstituting the unconstitutional raid of funds to balance next year’s budget, the Senate also supported the use of the state’s Rainy Day Fund by using $204 Million from it to pay for expenses in the current budget year.  The Senate Finance Committee further killed Rep. Dee Richard’s common sense legislative package that would reduce government positions and trim state consulting contracts.  The latter bill has passed the House unanimously this year and the prior year.

“We have the most conservative legislature in Louisiana history, and yet, basic adjustments to our budgetary practices are resisted.  At a time when most Louisiana citizens and businesses have reduced their own budgets to meet their income, if we cannot do the same as a state, we fear we never will.  The hardworking taxpayers of our state deserve our commitment to budget reform and we will not be swayed by public relation tactics being used to undermine that commitment.”

Two things appear obvious here.

First, nobody in the Senate appears to have any objection to giving Jindal what he wants on the budget. Yesterday’s 37-0 vote in favor of hitting the rainy-day fund up to cover the 2012 fiscal year deficit – which arose from a failure to address structural budget problems in last year’s session – indicates there isn’t a serious fiscal conservative in that entire body. That’s a complete abandonment of the legislature’s responsibility to set spending priorities and balance the budget, and while there are lots of people in the House who have a problem with it we now know nobody in the Senate does.

And maybe that’s reasonable. The 2012 fiscal year is almost over; finding $205 million now is essentially like finding $1.2 billion over a year. It practically can’t be done; like we said above, that ship sailed last year when the legislature passed, and Jindal signed, a Senate-driven budget which was not balanced.

Those same Senators are likely to make the precise same mistake this week in voting for another budget which isn’t balanced. When the Finance Committee takes almost zero time putting $300 million in cuts back into the budget and there isn’t any opposition, it’s a signal the Senate floor won’t be any different.

And that means by this time next year they’ll be looking to go into the rainy-day fund for more money, and pretty soon they’ll find out that fund is empty. They might well find that out next year; the fund is supposedly worth $646 million now, so if it’s being drained of $204.7 million this year that leaves $441 million in the till. Does anybody really think a budget which is some $300 million out of whack now can’t be even more so at the next estimate in a few months?

$441 million would be a tiny budget deficit in comparison to the ones we’ve been papering over the past three years.

And second, the House can’t do anything to stop the Jindal/Senate budget train. Technically, the House has the power to throw a wrench into the works; it requires a 2/3rds vote in the House to use one-time funds on the budget and right now there are enough fiscal hawks to stop such a vote.

But nobody really thinks those hawks will hold strong when the House gets a bloated Senate budget back with less than 24 hours left in the session – which is exactly what’s going to happen, because it’s what happens every year.

The House will get that budget back, and they’ll be expected to melt at the last minute and give Jindal, Donohue and Senate President John Alario what they want – in the knowledge that next year’s budget will be just as big a disaster as this year’s budget is, but with less room to punt to the rainy-day fund, less ability to sweep dedicated funds (though if those funds aren’t sacrosanct then maybe it’s time to un-dedicate them and stop lying to the public) and less public confidence in the state’s fisc.

Because if the House doesn’t knuckle under, they’ll force a special session on the budget. And the stakes for that session will be as high as can be – because if the House refuses to play ball with the Senate’s budget bloat, it’s going to make for national media attention on Jindal’s budget problems since his stock as a potential vice presidential candidate continues to grow. And that attention will likely damage Jindal – because Romney can’t run on a fiscal responsibility ticket like he wants to if his #2 man is a guy who can’t balance his state’s budget. A special session on the budget means Jindal won’t be VP (whether he’d be VP anyway is a question; this would likely insure that he isn’t). And that will have all kinds of repercussions in the state.

Not to mention that many fiscal conservatives in the House might analyze this situation and conclude that if Louisiana isn’t capable of balancing the budget with Jindal in the governor’s mansion the best thing to do is to help him move up to the VP chair and thus get him out of the mix for next year. If Jindal is Romney’s Veep pick and Romney wins, that means by January there’s a new governor.

His name would be Jay Dardenne, and he’d have three years to play with the budget before he’d be running for re-election.

There are people who would tell you Dardenne would handle the budget issues by raising taxes. That’s based on Dardenne’s history in the state senate, in which he carried the load for more than one tax increase – including the Stelly plan, which the state’s Democrats now lament the repeal of. But Dardenne hasn’t weighed in on the budget issue recently; he’s pretty good about keeping his nose to the grindstone and he’s focusing on tourism. So nobody knows whether Dardenne’s critics are right.

The fact is, though, at this point nobody has any reason for confidence that the state’s political class is competent on the budget. Louisiana won’t balance its budget this year, as required by law. Louisiana didn’t balance the budget last year or the year before. Louisiana has a structural budget deficit built off the fact Louisiana has too much government and not enough of a private economy to support it. Nobody in the state’s political class is willing to propose the kind of restucturing – selling off the Charity Hospitals, closing or merging some of the 14 four-year campuses in the state’s overbuilt higher education system – that will allow the budget to come into line.

And Louisiana can’t grow its way out of this problem because Louisiana’s tax code is inferior to what Texas has next door; Texas’ economy will grow considerably more than Louisiana’s will because Texas has no state income tax and all Louisiana can do is offer tax breaks to newcomers to paper over the inferior system we have.

You’ll probably hear calls later this year for a special session to address the “$7 billion in tax breaks and corporate welfare” in Louisiana’s tax code. And those tax breaks will be counted as crony-capitalist giveaways to connected fatcats by the Left. Except those breaks really are attempts to compete with Texas. Texas doesn’t need to offer tax breaks because Texas doesn’t tax. Texas has much smaller budget problems than Louisiana, even though Texas has over a million illegal immigrants they’ve got to find a way to provide health care and education for (not to mention incarcerate sometimes), because in Texas they get their tax dollars largely from property taxes and in Texas they’ve got bigger local governments and a smaller state government. The money stays close to the people, it’s not wasted at a central location and the legislature only meets every two years.

When you’re in direct competition with a well-run, low-tax state like that you’re going to lose. You’re going to lose when Todd Graves decides it’s better for Raising Canes to move the bulk of his operations to Dallas as the company expands because the tax and business environment is better than what Baton Rouge has to offer. You’re going to lose when Les Miles sets up an LLC in Texas LSU is paying for the incidentals on his contract. You’re going to lose when Sean Payton can save himself over $100,000 a year by “living” in Las Colinas rather than New Orleans. You’re going to lose when most of the oil industry vacates New Orleans for Houston because it’s more lucrative there.

The only way you can keep Texas from bleeding the state dry is with those tax breaks. Until you finally get smart and get rid of your own state income tax, or at least your corporate income tax. Doing that will mean your economy will grow, and the property and sales taxes will increase to an extent that you’ll find your budget isn’t a mess at some point. But as hard as the Jindal administration is working to make Louisiana more business-friendly, and as many economic development wins as Jindal is able to announce, the fact is this state isn’t really growing. And it won’t, because Texas is stealing our thunder. Their policies are better, and their business environment is better.

We could change that. But doing so would mean a major downsizing of not just the governmental infrastructure – which would mean no Charity Hospital in Alexandria, for example, and no four-year college in Thibodaux – but the scope of state government. It would mean shrinking the Minimum Foundation Program and forcing local governments to pay for their own public schools. It would mean wiping out a good bit of the state’s regulatory structure and the money which goes with it. It would mean eliminating things like the film tax credit program. And so on.

And because it would mean doing lots of hard things, and upending lots of policies and institutions of long standing in Louisiana, you can bet it won’t happen. Not with the crowd currently in office. The people of this state are looking for fiscal conservatism, but they’d better look harder – because they haven’t found anywhere near enough serious people to get a government we can actually afford.

UPDATE: One correction. From a reader, the immediate future is actually even worse than we characterized it…

…if the Legislature does tap the Budget Stabilization Fund (I refuse to call it the “Rainy Day Fund” because it was created to slow down the spending of volatile revenues, not to serve as a piggy bank) this year, they can’t tap it again for two years. So when their bogus budget they are creating goes #### up, they won’t have that back up. They may be forced to make some hard choices that they don’t know how to make.

And if our correspondent is correct, which we’re certain he is, we’re going to see tax increases being discussed – because if we don’t raise taxes we’ll be denying the poor access to health care and our kids a chance at college. Or something.



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