Edwards proposes good budget, but trouble looms

With the exception of mentioning his name and West Point’s honor code together, Democrat Gov. John Bel Edwards over the past couple of years most often is heard saying “this not the budget proposal I want to present.” But in this case, it turns out to be the one Louisiana should want, for now.

The day after the Legislature wrapped up the First Extraordinary Session of 2017, its Joint Legislative Committee on the Budget went back to work by hearing a presentation of Edwards’ budget submission for fiscal year 2018. Increased by $1.5 billion to $29.7 billion over last year’s, in terms of its general fund next year’s budget falls $440 million under what the governor would like, according to revenue estimates at present.

Edwards graciously provided a list of items to add in with more funding; i.e. tax increases: paying for all of Taylor Opportunity Program for Students awards instead of only about 70 percent; increasing the Minimum Foundation Program that funds schools 2.75 percent, giving performance raises for state employees; restoring old rates for charity hospital providers and privatized prisons; matching funds for transportation that unless provided could lose federal funds; and making a small two percent reduction from last year’s totals to many agencies, among others. The roster did not include deferred maintenance at higher education institutions – about $1.75 billion worth – nor additional waiver slots to allow home- and community-based services for people with disabilities.

Well done. With the exception of not wanting to miss a chance a federal matching transportation funds (and bonus dollars from other states that don’t meet all of their matches, which the state can get only by fully matching its own allotment), none of these represent crucial priorities for Louisiana. And even if desired to incorporate some of these into next year’s spending plan, in some instances better resource utilization can accomplish this without tax increases; for example, lowering the federal poverty limit to allow free care in charity hospitals from 200 to 138 percent, or changing the case mix methodology to steer money going to nursing homes for empty beds to cover waiver slots.

Thus, the Legislature should take up Edwards on this offer and pass the budget pretty much as he sends it over. It really only needs some adjustment to make the full $43.2 million match for roads.

If only that were the end of it, for the problem is at the end of next fiscal year something like $1.5 billion falls out of the revenue column. That comes courtesy of temporary taxes expiring, the vast majority of that total coming from an extra penny in sales tax still unbale to keep up with spending that left Louisiana ranked 22^nd among states in per capita expenditures estimated for FY 2016. And keep in mind that even with the roll off of these taxes, ones enacted two years ago still added nearly $1 billion more in overall burden.

Ideally, tax demands would revert to pre-2015 levels, but even discarding the 2016 taxes would leave the state almost $2 billion below where Edwards wants it if extending his preferences to FY 2019. He plans to roll out fiscal reform measures heavy on income tax increases, either rate adjustments and curtailment of exceptions, to make up the difference, but did not include any information on that to the JLCB, leaving some members of it to complain about the omission.

However, increased taxation tends to have a lagging impact, pumping in revenues at the start but as time passes extra revenues erode as private sector activity diminishes as a result of taking money out of the hands of the people. Thus, the fiscal cliff starting in FY 2019 likely will exceed the current estimate.

Yet Louisiana, as well as the country as a whole, caught a break with the election of Republican Pres. Donald Trump to go along with renewed Republican majorities in Congress. Just as an overregulated, overspending, an overtaxed eight years of Democrat Pres. Barack Obama brought sub-par economic performance, near-stagnant incomes and declining workforce participation, the Republican majority’s pledges to slash destructive regulations, to reshape suffocating programs like health insurance provision, and to eliminate stifling taxes promise to reverse those trends, the positive impact of which will help pull upwards Louisiana’s economy and thus government revenues.

But with that not set in stone and possibly counteracted by tax increases in the state, Louisiana must look to cut spending further. By way of reference, if the state just spent at the national per capita amount, it would have a budget smaller by more than $2 billion, although state dollars comprise only a portion of that. The task, which Edwards clearly seems reluctant to undertake and therefore the Republican legislative leadership must assume, is to find the combination of programmatic reductions and tax exception excising necessary to close the forecasted gap.