SADOW: Bonus Bucks Are No Reason To Bust Louisiana Spending Cap

So, Louisiana has nearly three-quarters of a billion more bucks believed to flow into state coffers through fiscal year 2025, above and beyond required diversions. This should change nothing regarding the budget the House sent to the Senate earlier this month.

The latest meeting of the state’s Revenue Estimating Conference approved a forecast for this fiscal year of $323 million more and just over $400 million more for the next. After mandatory distributions to the Budget Stabilization Fund, the Revenue Stabilization Trust Fund, to pay down unfunded accrued liabilities, and to meet coastal restoration, this adds on to a previously recognized half-billion dollars or so above the state’s expenditure limit, a restriction which may be breached only by two-thirds supermajorities in each legislative chamber that hasn’t come close to fruition.

As a result, the BSF will hit its maximum of just over $900 million, which can be spent by as much as a third when actual revenues undershoot forecasts provided it wasn’t tapped the previous year. The RSTF, which accrues corporate income and franchise tax collections above $600 million annually, at nearing $1.7 billion remains well below its $5 billion trigger point. Upon hitting the $5 billion mark the state can draw down as much as a tenth of it per year to be used for capital projects by legislative majorities, although at any time any amount may be sucked out by supermajorities.

These numbers prompted both Republican Sen. Pres. Page Cortez and Commissioner of Administration Jay Dardenne to suggest busting the expenditure cap. They spoke in measured terms about using the additional spending for one-time expenses, but Dardenne’s boss Democrat Gov. John Bel Edwards has been more vocal about using it for continuing commitments in the hundreds of millions of dollars.

This is unwise, considering future forecasts of revenues show dropping from a peak of this current year of 9.3 percent, or at total fall or about $1.5 billion, over the next three years with a slight rebound four years from now. In part, this is due to a slowing national economy looking to form a double-dip recession, but also from the roll-off of 0.45 percent temporary state sales tax in mid-2025 and a gradual transfer of vehicle registration fees from going to use for operating expenses to only for capital projects over the next few years.

Breaching the cap also negates two tax cut possibilities. By filling up the BSF that would make its balance well above 2.5 percent of total state revenue receipts, the franchise tax – a rarity among states and often suggested for elimination, which a bill which passed the Senate aims to do – would be cut dramatically. It also would cause a smaller drop in individual income tax rates, with both of these dropping near-term revenue gains additionally. And that scenario could repeat year after year, eliminating the franchise tax and continuing to inch income tax rates lower.


In other words, by simply holding on to the extra dollars, tax cuts directly or indirectly and increasingly over the years would leave more money in people’s wallets, and the banked money can address paying down long-term liabilities, such as looming pension shortfalls or debt, embarking on capital projects, or keeping for emergencies such as inclement weather. Early payoffs also allow for having cake and eating it as well, as money saved from that would be recurring and could be subsumed into funding new commitments or (as did the budget when it left the House in shoring up retirement systems,) allowing local governments to save money where they can provide, for example, pay raises from their existing resources instead of hitting up taxpayers statewide. Meanwhile, an operating spending baseline appropriate to the coming sharp revenue decline will remain in place, rather than one that becomes unaffordable.

Edwards and others of the grasshopper persuasion will nominate a number of unconvincing scenarios to spend hundreds of millions more recurringly. They’ll say local governments with their bounties may not provide enough pay raises and too disparately, but local voters and elected officials surely can come to consensus on that. Universities may complain that the House budget has scaled back salary hikes, but jettisoning needless functions such as diversity, inclusion, and equity efforts and attached officers can free up funds to supplement. Others may bemoan expiration of $52 million in early childhood education federal grant money that the House budget doesn’t backfill, but with nearly that amount in pork line items included these can be swapped out to restore that spending.

There’s no good reason to blow a bounty that provides a bridge to improving Louisiana’s fiscal posture and shoring up its long-term capital and financial picture. Legislators must keep the expenditure limit as it and a right-sized budget shaped by it.



Interested in more news from Louisiana? We've got you covered! See More Louisiana News
Previous Article
Next Article

Trending on The Hayride