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Better for state to pay now than to pay more later

By Saturday, the state brought itself from $305 million to only $117 million in the hole with budget maneuvering. By Sunday, more of the same brought the total down to $94 million. The problem is, to plug the hole this way the price down the road might be higher.

In essence, in a move described as possible only because of the timing involved, the budget got an infusion of $188 million extra because on Oct. 28 the Revenue Estimating Conference bumped down expected revenues and bumped up estimates of nonrecurring revenues. Since the Budget Stabilization Fund receives for disbursement non-recurring funds and as state revenues go down the proportion of nonrecurring funds which may be utilized grows larger, the money has become available.

Instead of chunking a quarter, as has been traditional, of the derived $252 million 2004-05 surplus into the fund, all of it went in. With the $303 million in nonrecurring revenues dumped into the Fund, this had the effect of pushing past the 4 percent limit of total state revenues now derived for 2005-06 by that “extra” (so to speak) 75 percent of the surplus which normally would have been spent on capital projects. But it’s the operating budget now that’s the priority.

The remaining funds that may be cut are found in HB 156 by state Rep. John Alario which in large part contains objects (give state priorities and predicted reductions state spending needs and of matching federal funds from grants) worth slashing. These cuts come with Alario’s ally Gov. Kathleen Blanco’s blessings, if not outright authorship.

But the problem here is that the bad news isn’t all in to the state in terms of just how big the deficit is. Nobody knows what the ultimate impact of the loss of generated fees and federal grants will be. And if you can shut your eyes and hope that comes out all right, you can’t ignore the fact that the same Conference meeting that gave the green light for Blanco to juggle accounts also threw up a huge yellow light with its 2006-07 projections in the neighborhood of (averaging executive and legislative branch projections) of being another $700 million in the red.

Even if the Conference at this point would recognize in 2006-07 nonrecurring revenues of around $400 million, with the one-third depletion of the previous balance of the fund for this year (about $154 million), the same trick applied next year would generate only about $155 million. In short, even at a standstill budget for next year (meaning Blanco’s cuts stand and any increased expenses from resuming operations are offset by increased fees generated and federal grants money coming in), almost another $50 million must be found.

Note that these are very generous assumptions to make given past spending practices. In the past decade the budget has about doubled and has consistently risen faster than the rate of inflation. Even if it rose at a predicted 4 percent rate of inflation this year, that’s an extra $700 million to be found at the current, not budgeted, revenue level. And there is a question of the federal government bailout bill to the state of $3.7 billion.

So why not beat the Christmas rush? The state should commit to no more than a 2 percent rise in the budget next year and bank the “extra” $188 million now. In essence, that would balance the budget for the next two years under this sketchy projection. By 2007-08, perhaps the state will be enough on its feet again that deficits at this level of revenue expenditure will have disappeared. These frugal actions also may make the federal government smile upon the idea of forgiving a good chunk, perhaps all, of the $3.7 billion bill.

(In fact, with some amendments, Alario’s otherwise-bad HB 151 and HB 152 could prove a good way to secure the savings. They call for raising the percentage the Fund can bank to 7 percent. Get rid of their provisions allowing the Fund to be raided as much as three-quarters, and Alario’s efforts here will have done perhaps the greatest service ever to the state in his very undistinguished career.)

If cuts have to come, better now than next year. If you’ll find you may have to do without something next year, why must you have it this year? Spreading the pain out and less of it is the preferable solution.

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