SADOW: Louisiana’s Budget Is Going To Make Lots Of Headlines Next Year

Ever since 2006, the state’s budgetary picture has been whipsawed by extremes. Immediately after the hurricane disasters of that year, a great state revenue retrenchment was feared and in special session general fund spending was contracted by about 13 percent or nearly a billion dollars. The cautiousness was debated in 2006 and continued, although reductions focused mostly on reaping the “disaster dividend” (i.e., fewer social service payments because of the disproportionate displacement of disproportionately larger receivers of those), across-the-board cutting with little attention paid to structural changes to make government more efficient or to eliminating programs on the basis of need, and using the Budget Stabilization Fund.

But by 2007, the unanticipated “false economy” of the federal government steadily pumping into the state’s economy what would become in five years the lion’s share of $142 billion allocated for recovery. This created general fund revenues that in fact surpassed those of fiscal year 2006 by FY 2009, even as the country was sliding into economic recession. Now the problem became the opposite: vigorous debates not on how to cut, but on how to spend.

However, governance in economic policy by Democrats in Washington more interested in spending and redistributing wealth than in creating wealth for all when assuming full control of government by 2009 put a damper on all state economies, and Louisiana was no exception. Combined by the gradual withdrawal of federal disaster relief spending, by FY 2010 a big decline set in, which would trickle lower (to the level anticipated by the budget that came out of the 2005 special session) that only now is returning to the FY 2006 level.

While this figure misleads in one way – because funds from self-generation and statutory dedications are $1 billion higher in FY 2014 – general fund figures are the source of budgetary contention since they are entirely discretionary. Thus, the last decade has consisted of a struggle over a massive deficit, then a large surplus, and then a revenue slide downwards now returning upwards.

Yet in the last few years budget battles have featured escalating costs as well, the prime example being health care which is up in general fund terms 70 percent or a billion bucks, now reaching $2.4 billion or four times the next most expensive general fund program, higher education, which used to spend almost as much general funding as health care but has been reduced more than half by shifting more revenue generation to tuition and fees, leading to a small overall spending decline. So in baseline terms, costs of core state functional responsibilities continued to rise even as, over an extended period, the revenue picture stayed flat.

Thus, the last four years prior to this one produced controversy over the squeeze being put on, and chiefly the Gov. Bobby Jindal Administration’s response of restructuring. As opposed to previous governors, Jindal did not just limit himself to tinkering at the margins or make baseline cuts across the board, but additionally undertook structural reform to make government work more efficiently. It was these things – moving Medicaid from a fee-for-service arrangement for many, having higher education rely more on own resources and tying state aid to performance, introducing choice and flexibility into schooling, largely getting the state out of direct provision of health care, streamlining correctional services, and many other changes, often small and mundane, but money-saving and more often than not at least to some degree successfully implemented – that provoked budgetary battles because of their significant impact on the bottom line.

FY 2013’s budget featured another aspect besides revenues finally increasing that also produced heightened conflict. Eager to spend, legislative Democrats joined with populist Republicans whose agenda was to make themselves appear to improve the state’s fiscal condition, to form a winning coalition. But that group from the GOP, styling themselves “fiscal hawks,” after last year actually having achieved little substantive change on fiscal issues nevertheless declared victory and lost interest in budgetary matters, at least for now.

Then came 2014, with a much different dynamic. Jindal presented no real challenges to the political culture in terms of his restructuring proposals that had been at the margins in his first term but became relatively radical in the first half of his second term; indeed, he seemed more concerned about consolidating policy gains and guarding against their reversals. Small revenue gains permitted spending on items kept at standstill for a few years on which legislators widely agreed.

So this is why budgetary matters appeared so quiescent by comparison. For the first time in a decade, none of extreme revenue gyrations, nor of budget-influencing significant structural reforms associated with a declining revenue picture, nor of an unusual political combination intent on spending pitted against more conservative interests, presented themselves as part of the budgeting tableau. Widespread consensus on catching up in some areas, including new spending on a program that would help higher education’s bottom line, did.

Which doesn’t mean next year’s exercise won’t return to what has become the norm. One outcome of the FY 2013 Democrat-“hawk” deal was to create a tax amnesty program that will go away soon. Another impending hole is that advanced lease payments by the private operators of public hospitals won’t be present. Constitutional amendments that could be passed this fall would intensify Louisiana’s straitjacketed fiscal system and thereby putting greater limits on the use of general funds, making it more difficult to respond to areas of spending need. Unanticipated things such as spending in the legal arena to force the federal government to play by an unchanging set of rules concerning Medicaid funding of indigent care can pop up. All of these and more may reduce funding available that addressed this year’s baseline.

And pressure will come from the spending side as well. Given 2015 is an election year, legislators will try to find ways to boost spending in programs whereby they may present themselves as doling out largesse to constituencies they think can return them to office. Tax increase proposals may become part of the conflict, for the even-year restriction on proposing these in regular session will not apply. This scenario will put Jindal even more on the defensive, although his main concern will be continue to be consolidation, banking particularly on the fruits of his spending reforms that already have saved hundreds of millions of dollars to lower the baseline with an improving revenue picture to cover what some believe to represent a budgetary hole approaching $1 billion for next year.

In other words, expect more pieces in this space about the budget next year than appeared this year.

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