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19.11.08

Review of dedicated funding desirable for possible unlocking

One idea Gov. Bobby Jindal has suggested as a way of dealing with budgetary inflexibility is to unlock state dedicated revenues. The idea should be developed into a broader review matching funding to purpose.

First, it must be understood that, even though the state took in around $30 billion last year, it had discretion to spend only about 30 percent of it. The other 70 percent is locked in a variety of formats. Some, approaching half of the locked amount, comes from federal grants to be spent on some legally-defined function. Others arise from some legal obligations of the state, such as repaying debt. Yet others are self-generated by agencies themselves, either through their statutory activities or through ancillary operations which also stay in the agency. Only the last of these essentially could be altered, as the state really can’t violate federal and financial obligations without severe penalty, and that would create financial chaos as agencies creating “surpluses” would be raided and thereby discouraged from performing these activities (not that this hasn’t been done before; in the past, revenues that exceeded expenses in the charity hospital system would be removed from the LSU system that runs it).

What Jindal refers to is the 36 different statutory dedications made by the Legislature for a variety of purposes. For example, it’s not commonly know that within the 4 percent state sales tax paid, 0.03 percent is redirected to the Tourist Promotion District that generates nearly $20 million a year to aid tourism across the state. These divert more than 15 percent or a little under $2 billion from the state’s general fund which leaves almost $9 billion for “discretionary” spending from the general fund. In times of deficit, normally it is from this pot only that cuts may be made in programs (as opposed to cuts in general government operations which can occur anywhere through tactics such as travel curtailment, position freezes, etc.).

Program cuts, or those to the actual services being funded or provided, come from a projected budget deficit and if less than 0.7 percent of the appropriated amount from a fund (such as the general fund) with no agency suffering more than a 3 percent cut, the governor can do it by himself. If more, he can go up to 5 percent reductions in funds with approval of the Joint Legislative Committee on the Budget (1 percent for the Minimum Foundation Program). Anything more requires a legislative special session. These are constitutional requirements.

So when Jindal refers to flexibility by removing dedications from some degree to totally, four things must be kept in mind. First, these are statutory matters that could be undone easily by the Legislature. Second, in essence the expenditures from these funds after appropriation can be “cut” but only in a budget emergency, which in essence means that dependence on “discretionary” money that an agency might have could be reduced as its budget gets chopped, but not as part of a budget planning process. Third, constitutional changes could give the governor greater latitude in making unilateral cuts which could have the effect of increasing the proportion of “discretionary” money available to the functions that use well over half of it (because their operations don’t come close to self-financing) – higher education and health care. Fourth, removing dedications would increase flexibility, but given their relatively small proportion of the entire general fund (about a fifth of the non-dedicated monies’ size), not by a whole lot.

Therefore, it would not take great effort to induce more flexibility into the budget process itself, just statutory changes. More effort would have to be expended regarding dealing with deficits, because these would require constitutional amendments. As to the former, legislative will is all that is necessary.

Some legislators frown on the idea, arguing removing dedications could endanger programs funded by them. But is that necessarily a bad thing? A few of these dedications go back decades, and even though sunset provisions in law mandate review of agency functions on a periodic basis, no real effort has been made in recent years to study whether dedicated revenue sources truly align with the degree and necessity of functions performed using that money. Simply, money could be going to something of low priority and/or does more than is really needed, and it could be better used elsewhere.

“Dedication” implies there is some importance to the activity. After all, instead of depending upon annual appropriation subject to the whims of popular and legislative preference and financial conditions, by dedicating them the agency receiving these funds for operating of one or more programs gets far more protection. But is this necessarily true, that all of these functions are so important to have this security, to the extent that they are funded?
At the very least, the Legislature should embark on a comprehensive review of the scope and usefulness of the dedicated revenues and the activities they fund, in concert with the governor. This can determine whether optimal direction of these revenues is occurring, and maybe changes then should be sought. It’s unwise to make a blanket assumption that existing programmatic functions by virtue of the mere presence of a funding source for them deserve to be untouched when compared in a comprehensive fashion to the kinds of things government should be doing.

1 comment:

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