Fiscal conservatism in pared LA budget vitally needed

The harshness of the budgetary conditions under which Louisiana must operate for at least the next couple of years illuminates the roadmap of reform of the Gov. Bobby Jindal Administration, as the policy preferences encapsulated in his fiscal year 2009-10 budget show.

Federal dollars once again play a prominent role in interpretation of these. As always, a good chunk – this year nearly half – comes from the federal government, but more than ever now. Until a few years ago, much came from regular federal programs of matching and formulaic grants, but with the hurricane disasters of 2005 a significant portion started coming to the state for that reason. Now for this upcoming year, another specialized portion from the federal government is on its way, the American Recovery and Reinvestment Act funds better known as the deficit spending package, and it creates its own set of solutions and problems.

The impact of federal funds always complicates interpretation, and for Jindal this has led both to overstatement on his part and under-appreciation on the part of others concerning assessments of his fiscal policy. Last year, Jindal took credit for “cutting” the state’s budget which was lower considerably over the previous year’s. But backing out federal monies dedicated to disaster relief showed a small proposed increase in state spending on continuing operations, 3.31 percent or $466.5 million. The area over which Jindal had the most control, the non-dedicated, non-self-generated portion of the general fund, he asked for a 6.19 percent increase or $536.9 million.


No such happenstance was replicated for next year’s. This year the overall state drop was 12.06 percent or $1.752 billion, with the non-dedicated, non-self-generated general fund down 14.7 percent or $1.389.8 billion. Jindal truly cut the budget this year but (among conservatives at least) you get a lot more credit for doing that when not forced to by declining state revenues.

As he did last year, Jindal also cut positions in state government, some 1,035 last year and 1,421 this year (although it must be recognized that well over half each year were vacant at the time so ultimately perhaps only a few hundred filled positions will result in layoffs over the two years). Critics attempt to argue that in a holistic sense state employment numbers have grown during Jindal’s term but a more sophisticated analysis shows a small downward trend in full-time equivalent employees under which the Jindal Administration would have true control concerning staffing levels and this trend will accelerate under this budget.

Some of theses reductions have come as a result of Jindal efficiency efforts, such as in the Louisiana Workforce Commission, Corrections, and Transportation and Development. But others come from real reductions in service, such as in Social Services, Agriculture and Forestry, and, most prominently, Health and Hospitals. The latter, which with higher education consumes nearly two-thirds of the discretionary general funds bucks, clearly is expected under these conditions. Higher education will be much less predictable since the systems and campuses have much more independence in making personnel decisions and, even though a general explanation will be provided next week, the specifics won’t be known for some time.

The cuts to these two areas would have been even more drastic without the federal spending bill’s intervention. Without it, health care would have lost nearly $596 million even as demand for its services grows, and higher education $196 million. Most of the temporary federal funds designed for operating expenses that Jindal used this year he plowed into these two areas, which means only a $413.3 million deficit from the previous year for health care, or 5.06 percent, and an actual slight gain for higher education of $19 million.

But this apparent gain really is not, because of considerable shifting of functions from the individual university systems to the Board of Regents and also the Tuition Opportunity Program for Scholars (estimated to cost about $130 million next year) that pays for moderately-achieving students’ tuition. Disentangling everything, the real cut to higher education is 7.7 percent over the last baseline (note: this understates the cuts to both higher education and health care over the past year because the baseline used was 2/1/09, after the mid-year cuts to both the previous month).

In these responses, we see defined the Jindal policy program. In health care, future projected deficits are to be reduced through cutting rates to Medicaid private providers and through a reutilization strategy of resources. The former creates more incentive to rally around Jindal’s health care reform proposal that introduces more private-sector elements that would create greater efficiencies because they move away from judging outputs (such as does the current indigent health care fee-for-service arrangement that encourages indiscriminate usage) to outcomes (aligning resources to most appropriate and efficient practices). Lower rates could discourage provider participation unless efficiencies trickle down or can be used to boost reimbursement rates later.

As for the latter, changes in utilization patterns are evident. With nursing homes, for example, the cut in reimbursement rates for Medicaid (over three-quarters of all people in nursing homes have their stays paid by Medicaid) with a simultaneous increase in money going to the New Opportunity Waiver program signals a move to try to depopulate the lowest-level care needing patients into community- and home-settings where their care would be cheaper. (The law requires this program’s funding to be increased, but what shows the seriousness of this move is that it is being accomplished through the use of one-time federal dollars.) Jindal seems determined to make a dent in the horrendous warehousing state policy that has existed for decades in the state which has driven indigent care costs far beyond what they should be on a per capita basis.

Regarding higher education, Jindal has placed much stock (perhaps too quickly) in changing the focus of higher education also to move away from evaluation by outputs (like number of students enrolled) to outcomes (number of students graduating). Again, it is a move to encourage efficiency in resource use, directing dollars to do the best job (although the direction must be done right).

Because both of these areas are going to need help in the next couple of years. Jindal wants to utilize a little less than a billion dollars, or less than 30 percent, of the available federal spending bill money, this year, reserving the remainder for FY 2010-11, his third year in office. That’s because economic predictions are even worse for then. Further, he neglected to use any of the Budget Stabilization Fund to cover deficits, which may indicate he wants the third of that he can use for his fourth year in office, after the spending package money runs out by FY 2011-12 which is forecast to see a small recovery. In other words, these are the three cushions that he can use in his transition period of reformist measures, potentially bringing the state a much sounder fiscal structure while maintaining adequate provision of needed services with all of these one-time dollars disappearing – successful implementation of which can’t hurt him in a bid for reelection in the fall of 2011.

Liberals in the Legislature do recognize what is going on already; they know the Jindal budget is using the revenue crisis as a vehicle to introduce government that does more and with less and because they want bigger government they will fight this. Hopefully they fail, for if the philosophy resonating in Jindal’s budget does not survive, the state faces a fiscal catastrophe akin to California’s where that philosophy was ignored.