Tackle looming LA deficit with nearly painless policy shifts

Discouragingly, the preliminary budget numbers for Louisiana point to anear billion-dollar deficit for the upcoming fiscal year. Had different spending and revenue-exempting choices been made the problem would be far less severe. But the good news is, many of them still can be made in next year’s regular legislative session.

The projected level invites another roughly 4 percent drop in state government spending. No doubt when the Revenue Estimating Conference coughs up its next set of numbers as early as the middle of next month, these will show slack revenue growth behind the rate of increase in predicted spending. This stems from problems faced by practically every state, a national economy with the faintest of recoveries ready to slip back into recession held hostage by national government policy that relies on government by continuing resolution at levels locking in too high wasteful and counterproductive spending.

Understand that this is by design, courtesy of 2009-10 unified national rule by Democrats who still hold veto power to change it. Beggaring of the states is part of the long-term strategy of Pres. Barack Obama in his quest to transform the culture from an opportunity to entitlement mentality. One of the effects of the deliberate debasement of a private sector-led economy is to dampen state revenues, and since all but Vermont must operate balanced budgets, the left’s goal is to force them into tax increases and thereby the acceptance of larger government in a way to make this increase nearly permanent (as it is trying to do at the federal level), or to have them beg for bailouts that increases federal power over them. Either way, the aim is to defeat, at least temporarily if not permanently, conservatism, fiscal rectitude, and alternative power centers.

Gov. Bobby Jindal need not take the bait. Instead, he can use this looming difficulty as a chance to demonstrate that a few measures he and others have proposed during his term would have been and continue to be the solutions. This is done by figuring out the actual baseline deficit, and then figuring out the reforms to close the gap.

Starting with the $964 million predicted shortfall, if forgoing inflationary kinds of increases, that amount can be lowered to $800 million. These include things such as the “merit” civil service increases and legally required but that can be waived education funding automatic increases. Given vagaries of promotions, insurance payments, etc. the entire amount may not be realized, but for purposes of illustration let’s say that it will be.

Next is around $250 million worth in the form of so-called “one-time” money. Most of this comes from “funds sweeps,” which means these dollars were dedicated to a certain purpose and freed from that purpose. They are surplus as the current fiscal system, which contains in the neighborhood of 300 dedicated funds, shunts money to specific purposes for which it never will get used because it steers too much of it to fill legitimately those purposes. Likely at least that amount of excess will have flowed into state coffers over the past year and would be made available again and should be used, rather than sit never to be used, and certainly not as for as important a reason. That closes the shortfall to $550 million.

Then comes contributions from an array of poor policy choices that, in some cases, have faced multiple attempts in recent years to change if not eliminate them, which cost the people hundreds of millions of dollars. Facing notable defeats in the past couple of years has been statutory changes that would have state employees pay more into supporting their gravy train of retirement benefits. The proposed increase of this past legislative session of an additional three percent paid in by them would pump in by the latest figures an extra $114 million that would not have had to be taken from taxpayers.

Also resisting multiple reform attempts and including just months ago was the Taylor Opportunity Program for Scholars that pays for tuition essentially for in-state college students who achieve modestly or less in high school. While many changes would make it into a true scholarship program that would more efficiently use resources, just changing the maximum award level as proposed last session would have saved $56 million.

Perhaps the most wasteful use of state money on a single program are the motion picture tax credits, which for every seven dollars declined in tax revenues produces one accepted. The amount of forgone revenue varies yearly depending on movie-making activity, but $200 million this year is a good ballpark guess. Since about three-quarters of the credits actually are sold to Louisiana taxpayers by the studios, if we adhere to the wild supposition that no movies at all would be shot in the state without them, then this is forgone revenue of $150 million.

A mistake several years ago was to create an earned income tax credit for state filers. It has the effect of suppressing economic activity and misallocating resources, estimated to cost the state $48 million in the upcoming fiscal year.

Finally, Louisiana taxpayers continue to pay for thousands of empty beds in nursing homes as the state moves away from its money-goes-to-the-institution policy of caring for the elderly and disabled and more towards, as the law dictates, home- and community-based solutions. Unfortunately, some years ago, after the nursing home industry bet wrong and over-expanded, it got the previous compliant governor and the Legislature at the time to build in this handout, costing the state about $20 million a year. Repeal of this law is long overdue.

Add these up and back them out of the deficit adjusted for no inflationary spending and the use of one-time money, and it’s now down to $182 million. This reduction causes no pain to the vast majority of the citizenry, goring only a small coterie of special interests that have enjoyed significant taxpayer subsidization of their choices. And of what’s left, perhaps the Revenue Study Commission can go beyond elimination of the film credit and EITC to wipe that out.

These are sensible ideas for right-sizing government and Jindal and the Legislature would be wise to employ them to resist the squeeze designed for them by liberal federal powerbrokers.