Jindal must resist siren song to spend, not save

Recently it has been argued here that with a surplus for the last state fiscal year but a looming deficit for the next that Louisiana bankroll the surplus now and dole some of it out in the future. The need to do so is greater than ever and it will be a challenge to use the savings, collected in the Budget Stabilization Fund, in the most responsible way.

When House appropriators meet today, one option they say they will investigate to tackle an estimated 2009-10 operating deficit of $1-1.3 billion is to tap the fund. Legally, the initial portion of “excess” mineral revenues and a quarter of any declared nonrecurring budget surplus goes to the fund and the remainder is voluntarily entered into it. Up to a third of the balance at the beginning of this fiscal could be used next fiscal year so long as none is used this fiscal year.

This year’s ending balance looks to be about $854 million which technically is not the baseline on which the one-third amount eligible to be released is calculated as the Constitution states it is to be calculated from the beginning balance of the state’s current fiscal year, so it appears roughly $275 million would be available to shore up next year’s budget. That figure could have been over $450 had Gov. Bobby Jindal saved more than spent earlier this year (any appropriation into the fund cannot make the fund’s balance exceed four percent of the previous year’s revenues, and federal recovery dollars had boosted state revenues to $34 billion the fiscal year before Jindal assumed office).

So, a fund withdrawal still would leave a substantial deficit. Further, it essentially locks out using the fund again until another year has passed, so this is a temporary and incomplete solution at best. While economic growth from increased business confidence from ethics laws changes and tax cuts enacted earlier this year will occur, it won’t be overnight. All of this means that lawmakers are going to have to make hard choices.

Let’s say that the amount does get deducted, leaving about $575 million in the fund, and revenues come in at last year’s figures (even with further reductions in federal recovery aid), maintaining the $1.2 billion cap on the fund and leaving $625 that could be pumped into it for fiscal year 2009-10. Jindal therefore could ask to dump $550 million into the fund during any special session held to deal with the surplus, or if one does not occur during the regular session.

At the same time, Jindal must cut state spending deeply, and there are some legislators that are going to want a form of “compensation” through the use of the nonrecurring surplus, getting capital projects built to make up for losses to their favored recurring programs, especially when they point out committed funds could not be used for another year. Jindal must resist adding this sweetener and make sure the hard and correct choice is made, saving now and spending cuts (combined with fundamental reform) to ensure a solid state fiscal footing for the future.