Cuts for future purposes, not present pork, advisable

Interestingly political angles and motivations concerning Louisiana’s operating budget now being debated may result in much farther-reaching policy changes than originally appeared to be coming from Gov. Bobby Jindal this year.

Last week on Inside New Orleans with Eric Asher I remarked how it seemed the state’s media hardly were addressing an obvious disconnection within the operating budget proposed by Jindal: increased spending, with a big relative boost in some questionable areas, even as his administration predicted huge budget deficits over the nest few years. I had argued for shifting priorities, particularly out of a $307.1 million boost for an incentive fund to draw large employers to the state and $60 million additional going to nursing homes even though the system already is too heavily biased towards institutions for efficient use of existing dollars.

Lo and behold, even as I spoke, news was becoming public about the House sending along a request, due that day, to state agencies about how they would handle a five percent cut in revenues in anticipation of looming budget deficits. Further, in the Senate more vocal criticism was being expressed about the use of the money for the recruiting megafund.

Referring to the latter, the debate sharpened when Jindal proposed as part of an overhaul of the capital outlay process that no new projects be funded this year. One proposed use of some or all of this additional money scheduled for the megafund would be on capital projects, and Jindal appeared to partially relent by allowing that if the fund did not spend itself away by Oct. 1, some of that funding would head in that direction.

That would be a mistake. In light of looming deficits, this money needs to be sequestered into the Budget Stabilization Fund to provide a cushion for future revenue loss and/or a tax cut that would eventually recoup the loss. Even though the House seems agreeable on this approach, it’s going a step further by looking for ways to reduce spending.

That task is made more complicated in that it is unclear exactly from where the cuts could emanate. Many agencies would be protected in part of in full because their sources of funds which minimally or not all use general fund revenues – for example, all the revenues for the Department of Insurance come from fees, statutory dedications, and grants. But the two largest recipients of discretionary funds outside of the Executive Department (almost all of which revenues are federal pass-through dollars for disaster recovery) are health care, where about half of its funding is of that nature, and higher education, where almost all of it is.

As a result, Louisiana State University system president John Lombardi cried foul at this request, noting the disproportionate impact that request could have, making dire predictions. There was a bit of truth to his protestations, but such cuts would not be nearly as drastic as he asserted. For example, my employer LSUS until last year was only funded at about 80 percent of the recommended level and then brought up to 100 percent. A five percent cut still would leave us well up on where we were two years ago.

Cuts that could be coming to health care, however, may not be a bad thing if they are connected to changes in the way indigent care is provided. Moving from an institutional-based to an individual-based system promises long-term savings, especially since disaster displacement has cut down disproportionately the number of indigent, yet Jindal’s budget increases health care expenditures by a nearly a quarter. (The Administration argues this is to continue services at present levels, and that it takes the place of nonrecurring monies used for essentially recurring expenses by the previous administration.)

And cuts in higher education may cause a light bulb to go on in the Administration’s head as they could provide a reprogramming opportunity in the future for shifting education resources towards two-year degrees and technical training. Jindal and the schools offering these things have been most insistent that real growth in graduates must occur here for economic development to proceed.

Besides the obvious laudatory aspects of the desire to reduce spending in anticipation of future deficits, this jockeying may represent a power play. It may have been initially the Legislature used the five percent reduction as a way to siphon money out of the megafund. Yet the basic idea of less spending to forestall deficits is sound regardless. Reductions in spending might pave the way to reform of indigent health care spending and reprogramming of education spending towards workforce training which might entice the Jindal Administration to join the attempt. Allowing raiding of the megafund for capital projects might be the way for Jindal to get that item passed.

But the danger here is in not banking the money for the future. If Jindal and legislative leaders allow such shifts to become an opportunity for a porkfest, nothing useful has been accomplished. Keeping in mind those looming shortfalls (or, in the optimistic case, building revenues to trigger tax cuts to spur economic growth) when paring government by this strategy cannot take a back seat to any other motivation.