SADOW: No, The State Can’t Spend That Surplus

Cautious optimism may have sprouted from a recent estimate that Louisiana finished fiscal year 2013 nearly $163 million in the black, but caution dictates this money and other projected savings go to fulfilling an unusual legal requirement so fantasies of beefing up state spending remain just that.

On the heels of the production of the state budget for FY 2014, which gives expenditure totals close to what actually occurred  from July of last year through this past June, revenue estimates as of now made by Gov. Bobby Jindal’s Division of Administration show this surplus. Final numbers won’t be in until the end of the year, but this should not drift much lower. Shortly before then, the Revenue Estimating Conference will meet to produce the official numbers that may be used for budgeting for FY 2015 next year.

Any leftover surplus can be used for just a small selection of purposes, all of which deal with long-term expenditures. But even as legislators mused about what to do with it, state Sen. Jack Donahue had the right idea from the eligible purposes – put the money into the Budget Stabilization Fund, the state’s savings account that can be used to offset state-generated revenue declines – even if he and the state really have little choice in the matter.

That’s because, through a complicated series of events that skirted constitutional requirements, the state must pay back around $330 million into the fund by FY 2016 – this present and the next fiscal year. Another like surprise next year made through conservative budgeting and forecasting would clear that debt.

Whether that might happen is another matter. While job growth no doubt contributed to this bonus, considerable evidence points to much of it being a product of a variety of tax increases inflicted upon America by Pres. Barack Obama and congressional allies. Given their timing, this prompted tax filers in Louisiana to make transactions earlier than typical to recognize revenues so that tax revenues manifested more quickly, meaning that those transactions beggared future tax revenues. In essence, by shifting forward these revenues, Louisiana may have put itself actually in a more difficult position, because revenues recognized later have more flexibility attached to them.

Fortunately, other good news may be on the way. The Jindal Administration has put particular emphasis on operational efficiencies. For example, in its managing of home- and community-based services the Department of Health and Hospitals before the end of the year plans to roll out electronic visit verification technology that historical data show usually reduces costs (by elimination of waste and fraud) by a minimum of 10 percent. As for FY 2012 $689 million was spent on such programs, at least $35 million in costs would decrease for the remainder of FY 2014 by this implementation.

It’s these kinds of efficiencies that will have to suffice to prevent other spending reductions, as revenue growth will continue to suffer for the next couple of years due to the Obama-inspired non-recovery of national economic performance. Further optimism as reflected in a university forecast specifically about Louisiana (one author of which sites on the REC) shows it might suffer this slow growth less than most states, but the fact is whatever revenue surprises may come already are spoken for on behalf of the BSF.

This will create an interesting political pressure on the December REC meeting to overestimate revenues for this year, in order not to entrap them for BSF use by going lower, increasing any future surprise that then must go to the BSF. However, this would counter to the general tendency for the two entities involved, DOA and the Legislative Fiscal Office (the REC usually chooses one of the two forecasts in whole), to underestimate revenues during slower growth periods (and to overestimate them during periods of higher growth rates, because they have difficulty in gauging the exact inflection points). Policy-makers representing the governor and both legislative chambers who sit on the REC also might shy away from this, after the last three years of revenue estimates falling short and public complaints about that.

Regardless, this and if any other surplus appears, unless unusually large, won’t save the day for higher education, health care, state employees and teachers agitating for pay raises, legislators wanting to distribute some pork, etc. So be glad about it, but don’t go crazy about it, either.

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