Bad budget consequences await with meat cleaver approach

As stated previously, the good news concerning the Louisiana House of Representatives decision, in its iteration of next fiscal year’s budget, to dump out all of the “one-time” money is that, in doing so, it began to take a little more responsibility in setting priorities and thereby inviting consequences for its actions, establishing minimally increased accountability on its part. But the bad news is that this is not going to work as planned and thereby will create major policy problems that negate this approach’s usefulness in this instance.

To reiterate, the state’s fiscal structure, because well over half of its revenues from its own resources are dedicated in some fashion, creates a financial straitjacket that poorly matches money to priority – low priority items get over-funded and create unused pots of money, while especially the areas of higher education and health care get squeezed in terms of dollars available. The typical solution has been to sweep idle funds out of those over-funded areas – most of what is termed in total as “one-time money” – to approximate reallocation on the basis of genuine need.

However, many self-proclaimed fiscal hawks, rather than fix the system that would fix the allocation problem, want to prohibit the correction method in an attempt to force smaller, more efficient government onto the state, which by any metric does need right-sizing. Yet in doing so, they foist an unhealthy starvation diet in those two areas because their replacement strategy is incomplete and unworkable.

For one thing, tactics of targeted reductions in various areas across all agencies and programs using general fund proceeds, not just health care and higher education, simply cannot produce the nearly $268 million in savings envisioned as requested in the general appropriations bill HB 1. For example, reducing funding for vacant positions in state government and reducing service contracts funding of vacant positions already largely had been eliminated in the budget, and that the contract cut represented 80 percent of those funded through the general fund, likely taking out some contracted functions of high necessity instead of those of low necessity funded by dedications outside of the general fund. If it even is possible mathematically, this meat cleaver approach would end up slicing out areas of relatively great need while those of lesser import remain funded.

For another thing, the bill already has a provision in it that follows the prior method of inducing cuts before last week’s excursion into actually designating general program activities to slash, a statement leaving it up to the Commissioner of Administration to hack off $43 million in spending, meaning that both areas will see further cuts of at least $20 million each. Even if the pie-in-the-sky savings orders issued to the commissioner in the bill somehow can be made to work without sacrificing high priority items and leaving lower priority ones untouched, this provision still will hit important functions hard.

For example, in the past three years because of other cuts forced by revenue declines or slow growth in them, one of the triad in providing health care to the elderly and disabled in the state, home-based, has had its reimbursement rate cut 22 percent. Of the other two, community homes’ rates have been held stable and nursing homes’ rates – with an occupancy rate of only 75 percent statewide – have had an increase of 7.5 percent (and this doesn’t even include those going to empty beds). Home-based providers have suffered this even though they are at capacity and then some – the waiting lists for the programs they service now has 19,000 individuals on them.

This spiral downwards has caused over 20 percent of in-home providers to go out of business. While this is not necessarily bad, flushing out weaker performers and closing out those that didn’t follow the law while other agencies take up the slack, agencies have had to respond by keeping salaries low (which legally can be below minimum wage for the direct support workers) and forgoing pay raises, if not cutting wage rates. The latest enforced cut proposed in HB 1 will put even greater pressure on contracting the available labor force for in-home care, as 85 percent of agency expenditures are on direct support workers who are the ones providing the care directly in homes.

Besides crimping needed service delivery, this creates a future potential legal problem for the state. Federal law, backed by federal and Louisiana state court decisions, mandates that services be provided in the least restrictive setting. The state already has had to settle suits because of earlier efficiency measures not well-implemented, and potentially more would occur if, as is becoming increasingly obvious, that further rate cuts create such a supply crunch that provision in the least restrictive setting may become impossible to achieve.

This is one example of the real consequences of the Legislature’s careless appropriations-by-autopilot approach and willingness to fob off responsibility on the executive branch to deviate from that. The laudable goal of right-sizing government must happen in the context of smart dieting, not starvation, the poster child for which is the $43 million punt, which needs elimination. This year, using one-time money that was misallocated on the basis of real need to begin with, money from the Budget Stabilization Fund, and the workable instructions in HB 1 to the commissioner can make for the desired smarter budgeting. System reform must proceed starting with the next year to rid the state of this inefficient budgeting mechanism, and if fiscal hawks wish to pay more than lip service to their assumed label, then they will summon courage they previously have not demonstrated to champion sound budget practices that actually fund on the basis of actual priority.