SADOW: Prudence Requires Rejecting A Louisiana Spending Cap Hike

Conservatives in the Louisiana Legislature can’t flinch at the chance to keep state spending at a more sensible level.

The Wuhan coronavirus pandemic bonus tax revenues for states, from record increases in federal borrowing sustained by Washington Democrats that force-fed an expanded money supply through the economy, has made state coffers flush last year, this year, and likely the next before it fades away – although this action also eroded the value of those dollars by triggering record price inflation that hardly has moderated. This has produced for last year, this year, and forecast for next year extra dollars to the tune of two and a quarter billion for Louisiana.

Naturally, politicians have plans for that. Around a third has to go to nonrecurring spending that includes mandatory paying off unfunded pensions and replenishing the Budget Stabilization Fund, with the remainder to a few select uses. Both Democrat Gov. John Bel Edwards and legislative leaders have offered to use the balance for capital outlay projects.

The rest is up for grabs. Edwards would take a good chunk and spend it on low priority and/or unwise recurring commitments. Legislative leaders would steer it to capital outlay although it may take years to work through all they anticipate.

But the problem all face is the state’s expenditure limit. At $15,889,263,342 for fiscal year 2023 and $16,497,721,252 for FY 2024, it computes an allowed increase year-to-year from an existing baseline done similarly that depends upon changes in personal income, applied to spending not tied to federal government revenues to the state or those self-generated or transferred into the state general fund or dedicated funds.

Its computation indicates only about $500 million more can be spent this budgetary year. The remainder as a default goes into the BSF, but that may be problematic as it will hit its own cap on four percent of state previous year tax receipts. That means the rest must be set aside for future spending that when deployed also would have to remain below the future years’ growth factor.

Edwards and Republican Sen. Pres. Page Cortez favor raising the cap, although the latter would want the excess to go only to infrastructure. Even so, that still would allow room for the Edwards budget new commitments despite the near certainty the pandemic bonus will end and significant changes in future revenues loom on the legal horizon, principally the end of a “temporary” (now seven years old) sales tax increase of 0.45 percent in just over two years.

Far wiser is the approach laid out by GOP state Rep. Jack McFarland, who heads the Louisiana Conservative Caucus, a group of nearly 40 representatives pledging to follow conservative principles in governance. He notes the coming end of the sales tax boost that will need a few years to work its way through the economy with eventual increased avails but perhaps never as many that will require short-term cushioning, and other future liabilities such as a final payment to the federal government for hurricane protection infrastructure and constitutionally-mandated elimination in a few years of part of the pension shortfall.

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Exactly. Instead of siphoning out the roughly $473 million nonrecurring dollars not automatically allocated to the BSF or reducing unfunded accrued liabilities towards capital spending that could count against the limit, plow it all into the UAL reduction that wouldn’t. This would have the derivative impact of reducing the amount that local governments – read mainly school districts – would have to set aside as their share of offsetting the UAL trimming due, leaving them extra cash to do things like offer employee pay raises so the state wouldn’t take on this new commitment that spends more indefinitely.

As far as recurring cash, a good chunk of that could go to compensating for the sales tax hike roll-off by triggering that early in stages. This also doesn’t count against the limit, because spending would not increase, just be swapped in means of finance. The rest could go to weaning the state off a variety of taxes collected, such as personal income, corporate income, and corporate franchise, with an eye on reducing or eliminating these. A number of prefiled bills would void those taxes, and would recapture the foregone revenues largely through the increased economic growth a friendlier tax code would spur. The same dynamic of replacing spending with leftover dollars by eschewing their current collection also means the cap won’t bust.

Keeping the cap where it is almost forces the Legislature to accept, and Edwards to swallow, more prudent spending and less of it in the future while facilitating future economic growth through lower taxes. And the tool is there to do it: breaching the cap requires two-thirds majorities in each legislative chamber, and the Conservative Caucus has enough members, if they hold the line, to defeat any such attempt.

The big-spending/live-for-today forces in the Legislature already have cued up the instruments by which to raise the cap, SCR 3 and SCR 4 by Cortez (they differ in that one asks to add on $750 million for last and this year and the other adds over $16 million more to that for each year). Conservatives need to hold firm to reject these and to set the state on a much wiser and sustainable spending course.

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