Obama budget blows to LA subvert his fiscal agenda

Louisiana can’t help that Pres. Barack Obama served up a one-two punch to the state’s economy. What can be dealt with is its response, with some clues as to what that might be.

The state’s Revenue Estimating Conference met Tuesday to ratify that in the fewer than 70 days left in this fiscal year the state was short $210.5 million on what it had been budgeted for. Even with that lower baseline, it also said next year’s budget would still have to be constructed with $92.8 million less than even that, compared to the previous forecast.

State budget analysts noted one problem as a lingering national recession. That was the first punch by Obama, whose economic policies have caused this. His follow-up was with the placement of ideology over people with policies designed to slow the extraction of oil in the Gulf of Mexico, in order to throw some red meat (maybe tofu in some cases) to environmentalists and to make a greater case to shift energy production to alternative energies (and all the crony capitalism that involves). While the former has hurt the entire country, the latter additionally persistently has hurt disproportionately Louisiana.

It’s not that the state’s revenues aren’t increasing, it’s just that these effects continue to drag on the state’s economic performance, dampening those revenue increases from their higher forecast. Exacerbating the impact is the state, because of an economy disproportionately weighed towards what may be considered more “traditional” and low value-added sectors that grow more slowly with less in the way of potential productivity gains, tends to enter and exit recessions later. That spells bad news in Louisiana for a recovery that at the national level is the weakest in decades.

For now, Louisianans have to take these hits and its policy-makers have to figure out a way to deal with this unfavorable political environment’s fiscal consequences. In the short run, with Gov. Bobby Jindal and his administration saying they wish to protect the two major areas left without constitutional and legal protection from cuts beyond one or five percent, health care and higher education, by the usual strategies of cost containment (as in last month’s executive order) and hiring freezes (continued from an order of last year, which has dropped full-time equivalent employment of state executive branch workers from about 78,800 in number and $3.9 billion in annual payroll to about 76,600 and $3.8 billion). Whether these can do the trick is another matter, leaving only one other way of making up the difference – yet another fund sweep.

This latter may run into political problems because of the House rule that mandates the extra “one-time” money from the fund sweep could be only $147.5 million without a supermajority – if that much even can be extracted in surplus cash. Again, this points to the need for reforms in ridding the state of its plethora of dedicated funds that hamper the state’s ability to set priorities and fund by genuine need. Whether because of politics or lack of surplus cash, if the combination with spending cutbacks by executive order or by the mid-year deficit reduction process all together doesn’t add up to the desired figure, health care and higher education will get hit again.

Regarding next fiscal year, the results again may play into Jindal’s hands to embolden his inclination for reduction in the size of government. He now can strengthen his cases on retirement changes and prison privatization that, if not otherwise done, could easily double this deficit. He might have to scrap any idea of pay raises this next year for civil servants, which won’t do a lot for morale but would keep the pressure on to continue civil service pay plan reform that in the future will realize savings. Impetus might increase also for the remaking of the state’s indigent health care system that moves away from funding institutions and procedures and towards subsidizing choice and efficiency. The news might discourage the upfront costs associated with an illogical merger of Louisiana State University Shreveport and Louisiana Tech University, but encourage transfer of resources away from a fragmented higher education governance system to a more efficient centralized one.

As a result of this imperative, one even could dream big and hope that Jindal and the Legislature cooperate to get rid of wasteful motion picture corporate welfare that alone could wipe out the fiscal year 2013 additional deficit. Absent this sudden onset of common sense, getting those extra bucks probably can’t happen through a fund sweep for both the political and practical reasons, so additional cuts it will have to be. Whether Jindal can protect further health care and higher education remains to be seen. Perhaps a dip into the Budget Stabilization Fund may have to happen, although legal uncertainty still may cloud that as a solution.

Whatever happens, it means smaller state government, creating a fascinating irony. Obama supporters generally favor his policies of bigger, more intrusive government, but these policies in large part have set the state up to seek smaller, right-sized government. The continuing, beneficial transformation is welcome regardless of its origins and remains the silver lining to stressful budgetary conditions.