APPEL: JBE Needs To Remember That Federal Funds Come And Go

The governor announced that Louisiana would be receiving $1.8 billion in federal funding from the CARES legislation that President Trump signed Friday. That’s good news, we need the help as the epidemic has caused our revenues to decline even as our expenses have climbed. But, based upon our history how this windfall is applied raises a huge red flag of potential fiscal danger to our state.

The bait in the lurking trap is that these federal relief funds are transitory. If our leaders act as they did after Katrina and the BP oil spill, they will fail to use this crisis as the opportunity to make meaningful changes. Instead they will simply use the windfall to grow government by expanding recurring expenses. Should that happen again it would be one more case of kicking the can down the road, growing government and letting someone else worry about paying for it later. Aggravating such a travesty, we know that once recurring expenses are increased, people become ever more dependent on government and when the one-time money dries up it becomes difficult, even impossible, to roll expenses back.

The $1.8 billion in federal money is intended to cover state expenses related to the virus. Nobody knows what those expenses will be at this point.

There is no doubt that Louisiana’s budget will be decimated by the twin disasters of the loss of the tourism/convention business sector coupled with chaos in the oil/gas extraction sector. This will be exacerbated as the downturn in these two business sectors will create a negative ripple effect through so many other elements of our economy. Now, for an indeterminable time to come, the state’s revenue will be severely impacted. As a result, the pressure to spend the windfall on sustaining the status quo and on increasing recurring expenses will be strong. But we have seen the impact of such behavior, and we know that it only leads to bad long-term outcomes for our people.

The current crisis has left us with two paths. As the governor will undoubtedly insist, we could fitter away the windfall as we have done before. Or, the legislature can take the lead and it can embark upon a multi-step strategy to restructure government to create a viable economy going forward.

Critically, the first step would be to estimate our predictable revenue streams over at least five years. These predictions must be exclusive of the windfall and not tainted by politics. Theoretically this process is what is done through the Revenue Estimating Conference procedure, but in fact that body recognizes revenue available to spend based upon a single year time frame. There is a five-year projection but is usually conveniently ignored. Because of our fiscal instability we must expand the revenue recognition period and makes its application mandatory.

Currently the legislature only matches spending to current year revenue projections, with little consideration for projected revenues or the inflationary growth in expense category costs. Going forward the legislature must appraise current and increased spending based upon the REALITY of future revenue estimates and defined future priorities.

Let me cite an example. When the governor signed us up to enroll in Medicaid Expansion, we were assured that funding was in place. However, if ones looks at the Legislative Fiscal Office’s 5-year analysis one will see that, even before coronavirus, our Medicaid expenses were growing by millions a year. Therefore their 5-year projection described a near half billion-dollar budget deficit (and that was based on a $60+ / barrel oil price). Five years is a long time in a politician’s life, so kick the can works just fine. No doubt the governor’s next executive budget will show that the new federal windfall be applied to solving the Medicaid shortfall for as long as he is in office.

Unlike what we have always done, this new windfall should be spent intelligently: first and foremost, bolstering our state healthcare efforts. The state must continue the pandemic fight, prepare for a recurrence in the fall, and create a strategic medical reserve, that amazingly we just didn’t have.

After we set aside enough to protect the health of our people, we must prepare for the economic tsunami descending upon us. There is no doubt that our state has slipped into a serious recession, a recession not unlike the 1979 recession that devastated our economy for a decade. Based upon reports of economic experts before the coronavirus became an issue, we are probably $2 billion short of the funds needed to pay for current budgetary obligations, many of which ironically were increases in recurring expenses that were incurred after previous windfalls. That $1.8 billion river of federal cash won’t solve the long-term budget problem.

Only after these two prerequisites are met should we consider any funds available to maintain our status quo. In the past, funding of state programs and departments was based upon a baseline of how much they had received previously, not upon their success as measured by legislative expectations. This practice was always a failure of government, and highlights why it so imperative that the legislature evaluate all of our programs and policies for efficacy and efficiency. Then that evaluation should be used by the legislature to establish funding levels to achieve what its expectations are.

Finally, once we have a budget aligned with multi-year revenue expectations, restructured to properly fund state priorities and to eliminate funding just-because-we-always-have programs, should we even begin to consider incurring additional recurring expenditures. And doing so must be linked to measurable metrics of success and include a sunset so that future legislatures can evaluate their efficacy and decide if funding should continue.

This pathway to better government is only a by-product of tragedy. It would have been impossible to consider good government reform in normal times. But we have been presented that opportunity, and though the path that I have described should be obvious for all to see, the power of the status quo is strong. This would not be a quick, painless process. Funding for healthcare and survival of the recessionary nightmare would be relatively easy, but evaluation of government structures entails true leadership and courage. Not doing this is folly and will leave Louisiana mired at the bottom of states, that is until we finally have leadership that for the sake of our people is willing to undertake it.

The $1.8 billion federal windfall is a lucky break for our state. But the twin medical and economic disasters must lead to a reconsideration of what Louisiana’s government is and what the taxpayers should be paying for. Should we embark upon the same path as we had with other windfalls in the past the only thing that is assured would be fiscal problems in the future.

Frittering away this windfall by failing to restructure government and by increasing recurring expenses that don’t align with the reality of predictable revenue is beyond folly. It is dereliction.

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