Amendment passages to sow budget chaos, tax hikes

Ever since the hurricane disaster false economic boom has faded from Louisiana, every year dire-sounding stories about the next fiscal year’s budget have circulated, only to have months later a budget produced with the minimum of inconvenience to the state that preserves needed services and levels. And, once again, an alarm has been raised for fiscal year 2016. But this time the outcome could be different – with that and future outcomes directly in the hands of the people.

In past years, comprised of large parts of bookkeeping maneuvers and small parts of gimmickry, any forecast deficit, figured on the basis of subtracting expected expenditures plus an inflation factor from predictable, recurring revenues matched directly to those expenditures, got closed down courtesy of excess revenues culled from dedications and bonus events. The gap needing spanning for FY 2016 is predicted at $1.2 billion. What makes this one more serious is that increasingly bonus funds have gone into filling in the gap that are almost certain not to repeat and it is as cumbersome as ever to steer excess funds away from their assigned uses – a problem voters could exacerbate this fall with encouragement from the Gov. Bobby Jindal Administration and legislators.

During its presentation to the Joint Legislative Committee on the Budget, the Division of Administration indicated how it planned to address the gap, and also issued a statement regarding that. These covered only about half the gap, incorporating an efficiency study contracted out by the state that included $216 million, results of the final year of the state’s three-year tax amnesty program of $145 million, and $240 million from a vaguely described “donation” by nursing homes said to be authorized by recent legislation.

The remainder was left unsaid, but if past years provide guidance, it largely will come from transfers of excess funds courtesy of dedications cemented into law. Again, superior budgeting practice would cause removal of a large number of those dedications, which only go to tie money sometimes far in excess of actual need for some low priority expenditure, freeing the use of these funds and/or allowing tax code changes to have them collected in a more rational way, if they need collecting at all, in order to get money to high priority needs. Absent that, policy-makers get called upon to shift these funds around, creating increased complexity and decreased accountability in budgeting. Yet legislators are loath to correct this, because then they increase the number of discretionary, separate decisions they make in budgeting each year, which may involve cutting in areas and thereby inviting the wrath of special interests that benefit from these. The fewer times you pop up your head, the less the chances are you’ll get shot in it.

Another past tactic has been the similar strategy of draining funds tied to a certain purpose on that purpose. For example, the reserves for state employee and retiree (and certain school board employees) benefits and for paying off institutionalized elderly care from the Medicaid Trust Fund for the Elderly have resulted in a reduction of these to low levels with the outflows of approaching $1 billion.

However, the problem is that there is only so much money eligible to come from these funds. For most, essentially the money that can be transferred out of them can’t exceed money coming in that year. And for the likes of others, by way of example the benefit reserves have been stabilized at an actuarially sound level and have no slack and the MTFE almost will have been emptied by the fiscal year’s end.

Further, bonus funding uncertain. Tax amnesty can be used for this, but that goes away after FY 2016, not repeatable until 2025 unless statute is changed (and any use before then risks creates incentives to depress regular tax collection anyway). A prepayment of nonrecurring funds for debt defeasance to create a like amount for the next fiscal year may not be available for FY 2016 as it was for FY 2015. Lawsuit settlements are entirely unpredictable. With the privatization of operations of most state hospitals, bonus prepayments that helped in FY 2015 will not be available. Another tactic, raising of tuition and fees, which together are among the lowest level of all the states and below the market’s ability to pay, will become less and less useful as this level rises to the point that eliminates the effective subsidy families were getting relative to their ability to pay.

This leaves the spending side, where expenditures outside of dedications, mainly health care and higher education, can be reduced. But this could face a major circumscription in the form of Amendments #1 and #2 on the November ballot, their provisions of which kicking in next fiscal year. These would lock in reimbursement rates for nursing homes and hospitals, respectively, and trigger increases in rates automatically. In essence, this places these areas as off-limits to cuts (except with the consent of two-thirds of the Legislature typically, which politically will be difficult to attain), meaning that a third of the over $4.2 billion spent (FY 2013 data) in Medicaid compensation gets exempt and cuts become 50 percent deeper for all other areas. And that’s the optimistic scenario: with the privatization of state hospital operations and uncompensated care costs included, that could add another $1 billion cordoned off.

This means the bulk of cuts would fall upon home- and community-based waiver programs. But here also the state has limited options, as it is under judicial pressure not to cut but to expand these offerings, even as it continues to prop up an overbuilt nursing home sector that would be more impregnable than ever with passage of Amendment #1. With these kinds of pressures, the only recourse perhaps left would be to raise taxes.

Yet policy-makers, inadvertently or otherwise, may be angling to trigger this, all in the name of avoiding the restructuring of the state’s fiscal structure and the consequent rigorous review of spending needs. Draining the MTFE may have been a way to prod nursing homes to cough up this $240 million in “donations,” by creating a threat of rate cuts now without the fund there as backstop. In other words, no cutting of rates as long as money came back voluntarily. To sweeten the deal, the state in essence freezes rates with the possibility of future increases in exchange for a perpetual stream of payback.

While this might net out, it further constricts the state’s fiscal structure, which is the opposite of what direction to head, or making it more flexible. If this is the strategy, the way to defeat it for the public to defeat Amendments #1 and #2. That could force policy-makers to make the hard cutting decisions if revenues do not turn up in sufficient numbers, rather than allow future policy-makers to complain how their hands were tied that requires them to raise taxes, with those now who hope to be in office for a while yet figuring that there’s less political cost by creating a narrative they are forced into tax increases by the people’s vote than in making cuts that will perturb special interests – especially in the shadow of looming 2015 elections.

As the state’s fiscal straitjacket makes addressing the gap between spending choices and revenues from predictable sources related to those choices more difficult, exactly the wrong course of action pulls it even tighter. Voting against Amendments #1 and #2 helps ameliorate this and reduces the chances of higher taxes for bigger government.