ERSPAMER: Solving Louisiana’s Fiscal Crisis With Common-Sense Policy Reforms

“Louisiana is facing a massive fiscal cliff, and we need solutions.” This is a sentence that has become all-too familiar to Louisianans. Year after year, fiscal crisis after fiscal crisis, Louisiana elected leaders and their constituents echo the familiar calls for permanent solutions to Louisiana’s seemingly endless budget woes.

Now, the time for bemoaning our fiscal situation and head-scratching over what to do is coming to an end. This week, the Pelican Institute released the first in its series of deep-dive policy papers comprising A Jobs and Opportunity Agenda for Louisiana. The subject of this month’s policy solutions? You guessed it – our state’s fundamentally broken budget.

Among the primary budget challenges highlighted in the new paper is Louisiana’s abundance of non-reviewed government spending, nearly 90 percent of which is locked in “silos” and not available for discretionary use. Imagine managing your household finances in such a way that you only have say-so about how 10 percent of your income is spent?

This presents a major opportunity for reform, which is to end these arbitrary silos for government programs, re-examine the silos in the state Constitution and end those created through statutory dedications. As with your own household, there must be flexibility to manage the budget as a whole, not just mere portions of it.

Another challenge the state faces is the underfunding and unreliability of the state’s rainy-day fund. As currently constructed, the officially termed Budget Stabilization Fund, requires lawmakers to contribute a minimum of only $25 million per year to offset revenue swings. This represents less than .1% of the overall state budget, which is hardly enough to compensate for a true Louisiana-style “rainy day.” To address this problem, the Pelican Institute supports policies to bolster transfers to the rainy-day fund, such as increasing annual transfers to the fund and raising the maximum level of revenues the fund can hold.

It should come as no surprise to hear that Louisiana’s government is overdependent on federal government revenue. In the years following Hurricane Katrina, federal government support for Louisiana was high. Due to the huge influx of federal funding, our state government spending grew exponentially, however, our elected officials did not account for what would happen when those federal dollars started drying up. Now, we must exercise greater foresight and be more realistic about our fiscal situation.

A key solution the Pelican Institute recommends in this area is improving revenue forecasting in both the short and long-term. This will prevent the state from becoming subject to short-term revenue swings. Encouraging more responsible long-term planning and re-setting the state’s spending caps will also prevent Louisiana’s state government from growing without limit. By eliminating the continuation budget requirement, we can also refute the flawed notion that government must, or even should, grow larger and larger every year.

Finally, by allowing the governor item-reduction veto authority, we can create a more favorable environment to reduce expenditure levels and also avoid forcing our chief executive into a “take-it-or-leave-it” decision about whether to cut or retain an entire program’s spending. Implementing item-reduction vetoes should, and have in other states, lead to greater fiscal stability.

By embracing these solutions, we can accomplish reform without having to constantly go back to Louisiana’s working families to foot the bill. It’s time to reject a fundamentally broken status quo and blaze a new path for an approach to budgeting that will encourage more jobs and opportunity in Louisiana.

You can read the full deep dive budget reform policy overview and learn more about solutions for Louisiana’s budget woes by clicking here. And, for a shorter summary of the problems and the solutions, read our two-page outline.

Over the next several months, the Pelican Institute will release further deep dives into the major barriers to jobs and opportunity in Louisiana. Together, we can make fundamental change, and secure access to a bright future for all Louisianans.

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