Surplus start for Landry to dodge poison pills

The gift for incoming governor Republican Atty. Gen. Jeff Landry is both not enough to help much with the trap set by spendthrifts leaving office in two months and a way to kickstart Louisiana towards better economic development possibilities, if Landry and new GOP legislative leaders plan well.

Last month, the required report seeking to close the books on the previous fiscal year showed a surplus for fiscal year 2023 of $330 million. That amount will be fine-tuned before the end of the year, and available for action by the new Legislature next year.

Sort of. Constitutionally, any surplus not in the current year can go only a half-dozen uses, and a portion gets taken right off the top mandatorily. A quarter goes to the Budget Stabilization Fund while a tenth goes towards paying off unfunded accrued liabilities in pension funds (this will increase to a quarter courtesy of a constitutional amendment passed last month, but starting with FY 2025).

There’s not a lot the sum can do to stave off damage done in past years that rocketed state spending up 72 percent since FY 2016. This past year alone, hundreds of millions of dollars in new commitments were plugged in, which makes a challenge managing that in FY 2026 and FY 2027 budgeting as migration of vehicle fees into capital outlay and rolling off the 2016/18 sales tax hike of 0.45 will reduce incoming revenues by hundreds of millions of dollars.

But, and apparently by accident rather than by design, citizens caught a break when an anticipated $200 million pay raise for educators turned out to be in the form of a one-year bonus instead. Unfortunately, Democrat outgoing Gov. John Bel Edwards did the general public no favors by reversing a $100 million cut (hardly worth a mention when the entirety in state dollars is $4.5 billion) in the Department of Health allocation and in part to balance that removed $125 million from paying down the UAL.

Here's where Landry and GOP leaders can use the surplus to be declared to offset and put the state on more solid footing. With a potential $247.5 million available for this purpose, they could assign it all to reduce the Teachers Retirement System of Louisiana UAL. In turn, this would generate enough money saved by local government by reducing their allotments that they otherwise would have to forward to pay off the TRSL UAL by an average of $1,150 per teacher, enabling them to use that amount for a permanent raise.

And that $82.5 million should have an additional salutary impact complementing the impending sales tax increase reduction. Sent to the Budget Stabilization Fund, that should trigger a mechanism in state law that lowers income taxes. This additional tax relief should multiply the freeing of the state’s economy that continues to score lowly on several indicators of economic health.

Yet looming deficits over a half a billion dollars in both FY 2026 and FY 2027 mean the spending side as well must be tackled. One area that could provide relief is in Medicaid disenrollment to compensate for policy that allowed ordinarily ineligible recipients to continue receiving those services, that will wrap up the middle of next year. One of the slowest starters, Louisiana still hasn’t reviewed over three-quarters of cases and is removing a below-average proportion of individuals. Upon taking office, Landry could ramp up the speed and increase the scrutiny of cases to ensure only individuals truly needy and qualifying remain on the health care dole, saving the state more money.

Most revolutionary, Landry (with legislative approval if necessary) could move the state in part or wholly out of Medicaid expansion, where many of its recipients today with characteristics similar to those previous to expansion paid for their own insurance. This costs Louisiana taxpayers – not counting the portion they pay in their federal taxes – about $450 million annually.

Big spenders of both parties enthralled with traditional populism infused into Louisiana’s political culture have rigged a budget trying to lock in as much spending as possible before limited government advocates like Landry took office. It will be a challenge for them to combat these poison pills that attempt to thwart their mission, but they have some means by which to succeed despite that.