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8.3.06

Blanco's risky budget fails to promote real fiscal reform

Be prepared for a budgetary two-step coming from the administration of Gov. Kathleen Blanco: she’s going to claim it represents fundamental reform and a decrease in spending when it really doesn’t, and when all is said and done, it will continue to perpetuate past inefficient practices and priorities that have become less affordable than ever in this era of budgetary uncertainty.

Comparing the budget placed into law by the Legislature at the end of the 2005 regular session, there is a noticeable hike in expenditures over twice the rate of inflation. But get ready to hear that this budget not only doesn’t create a big increase, you’ll hear it actually represents a decrease – because Blanco will argue that it is less than the budget approved after the special sessions and executive orders she issued which incorporated a huge influx of federal funds put there in response to the hurricane disasters of 2005.

In other words, the proposed budget ($20.294 billion) is considerably higher than the one that went into effect on 7/1/05 ($18.427 billion). But it is actually slightly lower than the one that went into effect 12/1/05 ($20.787 billion). (A difference which, at first, left some legislators scratching their heads.) Guess which difference will be harped upon in the next three months by the Blanco Administration?

Actually, when all is said and done, that’s the only real difference between last year’s and this year’s budget – federal funds. When you subtract out the extra amount of it that added in, there’s little difference between the two.

Which, if you take a glass half-full approach, isn’t a bad deal. You could argue that an essentially standstill budget is a good thing in a state with a history of living beyond its means. But that would be, unfortunately, the wrong way to look at it.

Besides the influx of federal funds (which will go away when the aftermath of the disasters becomes ameliorated), three other substantial changes occurred within the past eight months. One, the Blanco Administration and Legislature cut about $615 million in spending; two, the Budget Stabilization Fund was raided to the tune of nearly $154 million, and three, in the current budget additional revenues of $410 million have been recognized. In essence, around $1.1 billion of a combination of restored cuts and new spending wiped away gains from cuts and use of new revenues (mainly revenues, as some lawmakers have pointed, which really should be treated as nonrecurring where Blanco foresees them as being used for continuing items such as educator salary increases and health spending – the administration’s excuse: Blanco’s not doing anything not done in previous budgets).

Admittedly, a few items do point to a half-hearted attempt to restructure state spending. The urban and rural funds were not resurrected, and a few hundred employees did drop from the state government rolls (whether they were needed in light of cuts to provision of social services and education, resulting from reduced population from the disasters, is another matter.) Blanco also wants to marginally increase spending on more efficient community-based long-term health care, by way of another example.

However, her budget lacks major structural reforms. One example here is in monies spent on the wasteful institutional bias present in long-term health care; the budget seems to reflect no attempt to realize roughly $100 million a year in savings from changing reimbursement policies to nursing homes. In short, some expenditures got moved around to make the state a marginally more efficient enterprise, some mostly lower-priority, previously-cut items along with some big ticket new spending got added, and the state drew down on its “rainy day” fund and upon revenues uncertain to continue in order to compensate.

To pull all of this off, Blanco is betting that projections don’t materially change and that Louisiana experiences a “hurricane dividend:” that people displaced from the state disproportionately were less productive to the state in terms of revenues they brought to it but bigger drains on health and human services they claimed from the state. Only time will tell, and it may tell very badly if neither of these come to pass.

So, do not be fooled if Blanco proclaims that her budget not only does not promote “big government,” but that it represents real reform. It does not: real reform would have entailed keeping most of the cuts enacted in the past few months, extending them further into areas based on priority, shifting expenditures to deal with bigger but more obscure problems (such as unfunded accrued liabilities in Louisiana’s pension funds, estimated to grow by about another $237 million this year), demanding more efficiency out of the bureaucracy, and utilizing far more conservatively additionally recognized revenues from the state’s own and the federal government’s resources. The glass is half-empty, and until reform beyond what Blanco seems willing to offer occurs, Louisiana always will risk fiscal difficulties.

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