Any but small spending limit hike reckless

It’s not preferable, but the proposal to bust Louisiana’s spending cap is salvageable from its present imprudent state.

This week, the House Appropriations Committee went along partially with the gargantuan amounts contained in SCR 3 by Republican Pres. Page Cortez. As introduced, it would have raised the cap for this concluding fiscal year by $500 million and for the upcoming year by $1.8 million.

Supporters of the idea – which apparently includes the entire Senate and its Republican supermajority – pledge it all would go to one-time expenses such as transportation infrastructure. That would involve some three-card monte where infrastructure money in a budget not breaching the cap then becomes used for new ongoing commitments of questionable long-term sustainability given the looming disappearance of a sales tax hike in 2016, renewed in 2018, in fiscal year 2025 and an expected slowdown in revenue collection that together will drop incoming monies about $1.5 billion by then.

Shoveling excess dollars towards infrastructure also imperils filling the Budget Stabilization Fund to the brim, which then makes more imperative saving for the long run as doing so would dramatically reduce the corporate franchise tax and to a lesser degree decrease individual income taxes. However, legislation that would do something similar to the franchise tax over a longer period, in exchange for halving the Quality Jobs Program tax credit, stands a good chance of enaction and would moot largely the impact of the BSF funded to its maximum for this year on that tax (as well as would be an overall tax cut, making it even more imperative to minimize new commitments).

While the supporters claim the surplus represents a tremendous chance to eat into a laundry list of capital projects that would be lost if instead the BSF and a similar bank account for infrastructure, the Revenue Stabilization Trust Fund, are fattened and is paid down years early a chunk of unfunded accrued liabilities that constitutionally comes due in six years, in reality pursuing these merely delays gratification. The same two-thirds majority needed to bust the cap applies to withdrawing from the RSTF plus the state saves dollars over the long term by prepaying the UAL (local governments save even more). All this in time can go towards infrastructure, plus whatever left over from topping off and paying off simply can stay in the state’s general fund and be spent on infrastructure without breaching the cap in future years, since revenues will fall anyway thus creating the room to do so.

As long as new commitments are minimized, which the conflict really is about. The higher the caps goes, the more bucks that go to these and the greater the chance eventually of cuts elsewhere and/or tax increases. It’s all about baking in bigger government.

So, it was discouraging not only to see the entire Senate sign on to a higher cap, but then to have House Appropriations almost unanimously approve of a slimmed-down SCR 3. This halved the spending cap increase for FY 2024 and pared it $400 million for FY 2025 (meaning an aggregate $1.65 billion higher next year).

To date, the main driver of spending discipline has come from members of the Louisiana Conservative Caucus, which counts 39 members with only 36 votes needed to deny the supermajority needed to breach the cap. However, nine LCC members sit on Appropriations with seven of them, including LCC Chairman Republican Jack McFarland and Treasurer Republican Debbie Villio, voting in favor of raising it.

That doesn’t necessarily mean that deal is done. It could be a number of LCC members do want to bust the cap but went with that amount as a starting point to get the ball rolling with the regular session clock ticking towards a close later in the week, hoping to push it down later in the process.

As things stand, the $250 million added, with which a little shuffling would permit school employee raises of $2,000 annually for teachers and half that for support staff paid through the state (the alternative being early paydown of the UAL would allow in the aggregate local education agencies to provide the same) plus incentive money for hiring and retention, creates a somewhat risky but perhaps sustainable future commitment. Indeed, a budget proposal by an apparent subset of LCC members, the Louisiana Freedom Caucus, after achieving goals of paying off the UAL and topping off the BSF and RSTF, had $285 million left over that they wanted to go to infrastructure but which could go towards new commitments.

But that’s where the line needs to be held. Simply wipe out the entirety of the FY 2024 increase from SCR 3. If things look better than expected next year revenues versus expenditures, it can be nudged up again then for FY 2025. The banked bucks aren’t going anywhere, and does anybody seriously think the state can force feed $1.4 billion more in cash – or a 232 percent increase in cash already allocated in HB 2, the capital outlay bill – into projects within the next year that at this point barely exist on the drawing board? Most of that money would sit idle regardless.

Good fiscal sense should limit appropriated state general fund, dedications, and fees and self-generated revenues that, with the extra $250 million, will have risen 45 percent since Democrat Gov. John Bel Edwards took office, even as inflation has increased only 27 percent since. Given the financial horizon ahead, splurging any more than hiking the expenditure limit past the proposed FY 2023 level would permit is reckless.