SADOW: Should Louisiana Count Its Bonus Money Toward This Year’s Budget?

So the state lost track of around $320 million starting in 2002, and it’s out there available to be spent. Whether that means the state won’t need to reduce services over the next few months is another matter.

By Aug. 15, the state knows its funds inflows and outflows from the previous fiscal year ending Jun. 30, and reports these results in early October. Part of the revenue side of the picture is money taken from dedicated funds transferred to another agency for use and self-generated monies by agencies assigned to specified uses. But apparently since 2002 if any excesses existed after transfers or generation, unused for their intended purposes, they lay fallow. Now the Gov. Bobby Jindal Administration wishes to put them to work, especially as without those leftovers fiscal year 2014 resulted in about $141.5 million of outflows over inflows.

Constitutionally, after Oct. 15 the administration reports to the Joint Legislative Committee on the Budget on the status of the previous year’s actual figures. If a deficit is declared and the JLCB concurs, this allows the governor to impose mid-year budget cuts to make up the previous year’s difference. It’s something policy-makers rather would avoid, which has seen since 2008 $1.122 billion in such cuts, with FY 2014 being the first since then not to have any.

Historically, the presumed $141.5 million figure would have to trigger some; if about $100 million fewer usually executive orders and shuffling of accounts can cover the difference. As it turned out, the JLCB acted as if there was no deficit, but members expressed they reserved the right to change their minds in future months, with many targeting the end of the year when their Legislative Fiscal Office has to come up with totals in order to give direction to next year’s budget, so that the Revenue Estimating Conference can come up with baseline totals on which budgeting may occur for FY 2016.

Adding to the confusion is whether how much of the $320 million can be used to cover any or all shortages. Two factors potentially limit this: that some of the surpluses may have legal obligations tying them to certain uses that are not in deficit, making them unavailable, and that of those that may be used for a specific purpose in deficit or generally, the fact that it seems they would have to be declared by the REC as nonrecurring in nature, being a kind of bonus, and thus not available to pay for previous deficits made by spending on recurring items.

The latter actually does not pose substantive difficulty, for the state can use the same strategy it has in the past to render nonrecurring funds for recurring use, most recently last year: as one of the half-dozen permitted uses of nonrecurring funds is to reduce debt, to pay off bonds scheduled to be during FY 2015, thereby freeing funds appropriated for that purpose for other uses. The former provides the constraint, for if the LFO’s due diligence does not find that at least $141.5 million of the entire amount can go to making up a shortage in a particular area and/or is generally available, then the difference of what can be from that figure equals a deficit.

It is entirely likely that in some form the eventual amount will get verified at least close enough to that figure and usable for debt defeasance so that shuffling around can repeat for FY 2015 what happened in 2014, if not go over. Still, on the off chance this doesn’t happen, the risk for the JLCB in waiting and in the end discovering a deficit rather than deal with it now is that this leaves just a half-year, rather than almost three-quarters, to deal with it; in other words, the same amount of money must be cut in less time, making such cuts more disruptive. And this isn’t in a static environment: if FY 2015 revenues run lower than expected and/or expenses run higher, by year’s end not only might a prior FY 2014 deficit need dealing with, but a current FY 2015 one may need addressing, too. Alternatively, the dynamics may be such that over that time a FY 2015 surplus may emerge, which then could be shoveled into closing any FY 2014 gap.

By waiting on any action, the JLCB does run the risk of allowing the situation to deteriorate. Yet with more time, additional clarity and favorable trends not only may provide a solution to there being a deficit as traditionally measured, but also may produce a bonus. Especially with an election year on the horizon, no politician wants to authorize cuts that could produce reductions in services, so that may have influenced its decision to not act. All we know is that there’s money available that could cover this shortfall, and then some, or maybe not.

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