APPEL: Louisiana’s Budget Is Increasing While Its GDP Is Cratering

Over the last fifteen years has Louisiana become a better place?

If you based your answer on weakness of opportunity or prosperity you would not be surprised to learn that in 2005 the state’s GDP was $246.0 billion, but up to the last reporting period in the 3rd quarter of 2020, with COVID admittedly distorting the statistics, GDP was down to $229.0 billion. Any reasonable person would have expected a steady increase in GDP, with ups and downs sure, but on average much higher over 15 years. But ours has been static or declined over that time even prior to the pandemic. Making the impact of this indicator worse, we did not benefit over the last few years of the Edwards’ administration, though it coincided with the Trump economic boom, one of the strongest growth periods in US history.

To the average citizen, it would seem only logical that state spending would at least loosely track state GDP. But this is Louisiana, the land of a chicken in every pot! The data in the following chart tells the tale. While over 15-years our GDP shrank by 6.9%, spending has increased to 207% of what it was.

Flying to defend these metrics, the Governor will tell us that a large amount of this spending is federal largess. That is true but federal transfer payments generally come with strings attached. The state must pay a match to receive federal funds and that match is derived from the state taxpayer money, i.e., state general funds and statutory dedications. Spending of all direct taxpayer funds, much of it triggered to secure the federal funds, has increased over this period by 49%.

(in billions of dollars; STATE EFFORT reflects state general fund and statutory dedications)
YEAR CIRCUMSTANCES GDP BUDGET STATE EFFORT
2004-05 Pre-Katrina $246.0 $17.7 $10.1
2007-08 Blanco last year (post-Katrina) $237.9 $28.6 $14.5
2015-16 Jindal’s last year $225.6 $24.3 $12.7
2019-20 Edwards (last year) $241.8 $31.2 $13.6
2020-21 Edwards (this year) $229.0 $36.1 $15.0
2021-22 Edwards (next year, proposed)  — $36.6

Notes :

  1. The 2021-22 proposed budget does not have any new Federal COVID funds in it. That could add billions more.
  2. The 2021-22 budget is not adopted yet and will undergo debate in the legislative session which opens later this month.
  3. Just a few weeks ago the Legislative Fiscal Office was predicting a shortfall of nearly a billion dollars. Suddenly we have made that up. Magic, I suppose.
  4. The $229 billion state GDP figure comes from BEA data through the 3rd quarter of 2019 – all data in 2012 dollars

Sources:

https://house.louisiana.gov/housefiscal/DOCS_TENYEAR/Total-Budget-History-Trends.pdf

https://www.bea.gov/

What can we conclude from these statistics?

First, re-ask yourself my opening question, can you identify where Louisiana has improved since 2005? Better education, better infrastructure, better jobs, less social ills and crime, better opportunities? If you answered yes, then quit reading, you are clearly not living in our state.

The right answer is that despite spending 207% times today than what was spent 15-years ago nothing has markedly improved. In fact, GNO, Inc. and the Bank of America just released a report about the New Orleans region that said because of COVID almost 50% of jobs, many low-income jobs, are “at risk.” Is “at risk” a sign of a healthy state climate?

The state GDP statistics reveal a lot, as GDP is a metaphor for current and future prosperity for our people. As the trend points downward, we are unable to even keep up with the natural growth such as measured by the Consumer Price Index that should be expected of any well-run state. Clearly Louisiana is in deep trouble. Unmistakably, any linkage between spending and success as a state does not exist.

Now once again, the Legislature is being asked by Governor Edwards to spend every penny that may or may not exist, and to spend much of it on recurring and growing expenses that will require more and more state funds in the future. Just as happened after Katrina, this governor is planning to use one time windfall funds to increase recurring and growing government expenses without the slightest concern that we have had stagnant or negative economic growth for at least the last 15 years.

Imagine this, you get a big bonus from work and so you rush out and buy a bigger house, encumbered by a bigger mortgage. Over the next few years, the business does not do so well, so no bonus. But you still have that mortgage, and your maintenance, taxes, utilities, and insurance costs keep going up. That scenario describes Louisiana under Edwards: spend, spend, spend, do not worry about the future. His attitude reads like “So what if the budget implodes after I am out of office? I am giving away free stuff!”

The numbers tell a sordid tale, our budget has grown dramatically but we have little to show for it. Intelligent leadership policies would look at what we are doing, understand why they are or are not working, and abandon or restructure those that do not work. Then it would reallocate funds from weak or failing initiatives into those that demonstrate alignment with our priorities and strategies. We do not do that; we just find excuses to spend more and more to maintain the failed status quo.

What should the legislature do? Two things; reduce spending to an earlier, more stable level, and then use some of the expected one-time windfall to pay off the state’s unfunded accrued liabilities in its pension funds before investing the rest in some major infrastructure. The expected windfall should in no way go to increase recurring expenses, instead it should be used just as its name implies, on one-time expenses.

As you hear his loyal media defend this governor’s increased spending plans, even though they lack in accountability or strategy, ask yourself that opening question. Are you better off over the last fifteen years?

Maybe better, do you see any possibility that you will be better off over the next fifteen years?

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