Shortfall doesn't need revenue for revenue's sake approach

Such are the fortunes of politics when sometimes you get lucky in the budgeting process, and other times you don’t. As previously noted, in order for Louisiana to receive big backing for conservation and transportation, it had to sacrifice bonus payments into its Medicaid system that unfortunately have an immediate impact on this fiscal year. Suggestions for a special session of the Legislature to deal with that, if done correctly, can help with the sudden crisis.

The $651 million lost as a result of the change in federal law cannot be solved entirely with infusions of additional revenues, for both reasons practical and philosophical. Principally, while the panoply of various credits and exemptions create a patchwork of inefficiency in promoting economic development, they still manage to achieve it with its benefits exceeding costs. Therefore, the primary goal of strategy dealing with these exceptions must be with an eye towards flattening and lowering overall tax rates.

Nor is it necessary, for the notion of eliminating breaks and subsidies just to capture revenue flies in the face of the reality that Louisiana, even after some contractions, continues to have a spending, not revenue, problem. Thus, any additional revenue brought in from the expunging of these must be only at the expense of programs that cost the state greatly with little in the way of benefits concentrated among individuals or corporations.

Perhaps the best example of a credit that needs excising is the motion picture tax credit from which few benefit and costs the state almost $7.50 for every dollar in benefits, extirpation of which would save likely over $100 million alone next year. Another special treatment if eliminated, and directly related to health care, which could save tens of millions is the subsidy to nursing homes that pay for empty beds.

Still, getting rid of these slam dunks in special session won’t make up all of the difference. Yet if one positive thing has come from the several recent rounds of reimbursement cuts to providers through Medicaid is that it has exposed and solved partially inefficiencies that had become embedded into the delivery system. Despite these, few providers have closed their doors to the program and few clients have suffered real hardship as both the providers and the state have responded to this cash-flow diminishment incentive to become more efficient by doing exactly that.

At some point diminishing returns set in but surely the state can wring out more efficiency in this area. Years ago, it was common in the state’s Medicaid waiver program to have some individuals with less severe needs receive a large amount of services and more than others with more severe disabilities. Slowly that has been sorted out with better alignment of services to needs, but more can be done here to save money, to use this as an example of this approach. Nor can this happen with a meat cleaver approach; officials must exercise great care in choosing the areas of reductions that really merit them.

A final piece of the puzzle to eliminate the new shortfall is a stopgap measure that also would need Legislative approval, the ability to draw yet more idle funds from various dedications, including ones cordoned off for health care purposes. Like with the controversial “funds sweep” concept, certain matters of statute limit the state’s ability to dip into some of these, and they would have to be altered temporarily to free those monies for use to fund Medicaid (and a small amount from the Budget Stabilization Fund could be withdrawn, but most of what was eligible to be used got siphoned to close last fiscal year’s budget deficit).

So, the Legislature would need to get rid of the most counterproductive and sufficiently large exceptions to the tax code and find ways to retrieve more idle funds, while the executive would have to continue to wring out even more savings. If the latter was successful without significant reductions in service quality and quantity, then the former even could wait until next year’s regular session to tackle and accomplish tax simplification. Even if the short term could be finessed to satisfaction, the disappearance of this federal aid going forward warns that more changes must come for the state not to allow Medicaid to bankrupt it or to be unable to help the truly and genuinely needy in the long term. But trying to capture revenue for revenue's sake is not the answer.