Republican Gov. Jeff Landry produced a solid budget request for Louisiana, in a refreshing change of pace one designed to live within the state’s means rather than as an instrument to grow government.
Overall, the budget envisions slightly lower spending, although about two-thirds of that fall is driven by reductions in federal dollars as the debt binge used to hose down states with money dries up. Much of the rest comes from a decline in statutory dedication receipts, with very nominal decreases in the general fund and self-generated funds. In these cases, the revenue sources that fell largely are tied into economic activity at first overstimulated by the enormous increase in federal spending then sapped by the resulting sagging economy slowly slipping into recession.
Thus, Landry and budget architect Commissioner of Administration Taylor Barras concentrated on slicing spending tied to temporary initiatives or bonuses. For example, higher education received about a $100 million cut, but that mostly came from non-recurring spending outside of the funding formula disappearing. In almost all instances spending will continue at around standstill levels.
The budget also carves out new money for certain initiatives. Perhaps principally, even as most parts of state government will see pullbacks in spending, more dollars will go to corrections, likely in anticipation of swinging back the pendulum in punishment from policy changes starting with a special session on justice matters commencing next week for the next two that look to increase costs through sentencing that requires more jail time and reduced reliance on alternatives like parole. Of course, health care received the biggest absolute increase, largely because state spending in that category is held hostage to federal programmatic rules, with this reliance increasing substantially under Landry’s predecessor Democrat Gov. John Bel Edwards.
That’s the problem Landry faces. Edwards, perhaps understanding the flukish nature of his governorship that pitted his considerably leftist ideology against the center-right preferences of the population and Legislature, tried to bake in as much government spending as possible when in office, designing things to make it difficult to rein in spending and where any economic downturn or amelioration of federal dollars flowing into the state would produce revenue crunches that discouraged any kind of tax relief.
This has left a poison pill for Landry, particularly beginning in fiscal year 2026 staring next year when around $477 million in sales tax receipts roll off the books. Even as other revenues as of now seem likely to creep higher, that tax relief by cutting sales taxes by about a tenth creates a budgetary headache for at least a couple of years.
It’s not like insufficient revenues have been the problem in the past two decades leading to this budget year. Rather, spending has continued higher with general fund outlays averaging almost three percent a year growth in that interval, outstripping inflation over that time span by about 15 percentage points – while the state’s population increased exactly 0.5 percent. Less discretionary expenditures through self-generated and statutory dedication funding grew even higher, while federal funds leapt upwards at a rate over double that of general fund dollars.
Landry’s task has been to corral higher spending in order to induce the right-sizing of government dependent upon less revenues. And the FY 2025 budget along with his handling of surpluses from previous years give clues as to how he will approach that.
For starters, the state has a $91 million surplus this current year that could be appropriated for any purpose. Landry wants to have it go to justice measures, to backstop future emergency or disaster spending, and to resolve the contentious issue of updating two-decade-old voting machines.
With the $325 million from the previous fiscal year, except for constitutional requirements steering money to the Budget Stabilization Fund and to pay down unfunded accrued liabilities in pension funds, he wants all of it to go to capital projects involving transportation, coastal restoration, and deferred maintenance of state buildings. This explains why the general fund contribution to capital outlay will drop 60 percent in the upcoming budget, freeing up $100 million.
One alternative would have put as much as possible into paying down the Teachers Retirement System of Louisiana UAL, which would have freed considerable dollars for local education agencies to provide educator pay raises on their own. Last year, the Minimum Foundation Program had included these at a cost of $198 million, but the Legislature didn’t accept that because at the last minute it wanted to change allocations within it. The rules such as they are, legislators had to budget with the FY 2023 formula that didn’t include the raise.
This facilitated a happy accident where instead of a permanent raise a stipend was given by the state. Landry again chose this route rather than the paydown, as it provided more flexibility to fulfill state priorities, even if outside the current MFP formula, which the Board of Elementary and Secondary Education could alter to reflect, that would promote performance pay and target high-need subjects. It gives him the option to scale back next year and/or for BESE to adjust the formula next year to account for fewer, but more efficiently spent, dollars.
In short, the effort wisely recognizes that the state must live within its means that concomitantly acknowledges it has tried to take too much from its people at the expense of economic development, and sets up a good structure initially to achieve goals of right-sized government at an appropriate taxing level. As well, it leaves open the opportunity of future fiscal reform by not locking in new permanent programmatic commitments. The day/night contrast to the previous eight years is stunning and welcome.
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