Louisiana’s Revenue Estimating Conference has coughed up the final set of numbers that will define Louisiana’s budgeting process going forward – reemphasizing the need to use the money prudently even as it is uncertain whether Gov. Kathleen Blanco and the Legislature will do so.
Roughly, the state’s budget surplus is $3.5 billion. Of that, $827 million must be spent on non-recurring items such as capital items, debt reduction, or on unfunded accrued liabilities in pensions systems. The remainder may be spent for any purpose, split almost equally what can be applied this ending year and next, but “spend” in this context includes also reductions in revenues in the short term from actions such as tax cuts.
Significantly, the four-member panel certifying these numbers acknowledged the assumption made by the Legislative Fiscal Office that revenue growth would be sparse over the near term. Translation: the big boost by federal government spending for disaster recovery has leveled off and will no longer provide a safety net in case energy prices, the main cog in the latest small revision upwards, fail to remain at peak levels.
Of course, these projections must be taken with a grain of salt. Throughout most of the 1980s and 1990s and until this year in the 21st century, more often than not projections proved to be on the high side, causing mid-year retrenchments by state government. Particularly now this warning applies as the bubble economy created from recovery dollars needs to come in for a soft landing.
The low growth confirms the wisest course for elected officials would be to be a shrewd investor in the long term, not a foolish, recurring spender. An example of the former would be to put money into the greatest growth engine the state possesses – its own people whose money it is in the first place. Tax cuts to return their dollars to them will create an economic boom that will fill in the unstable foundation built on federal largesse and uncertain higher energy prices.
Another would be using the occasion to bring sanity to transportation spending by diverting all taxes and fees on items dealing with transportation to transportation which is not done at present, to tackle the $14 billion roads backlog, for instance. Still another would be making down payments on the almost-as-large unfunded accrued liabilities in state retirement funds.
(An example of the latter would be giving pay raises to public school teachers without demanding accountability from them. But by putting an evaluative system in place that pays teachers on the basis of demonstrated merit, including tests of knowledge, that makes it more of an investment. Giving blanket raises beyond cost of living – which they already automatically get – keeps signing away money on the basis of a promise, improving educational attainment, that continues not to get fulfilled.)
Let’s make it simple – throw the entire $827 million into roads and the unfunded accrued liability. Carve out $300 million this year and next to get the tax and fee diversion programs for roads going. Add about $100 million in recurring spending for some worthy items each year, and create a billion dollars or so of tax cuts with the rest. In two years, the unleashed economic activity in this state from the cuts will generate enough revenue to continue to finance the extra $400 million annually in spending from the new recurring commitments and diversion. It’s that simple.
But simplicity often has a hard time subduing politics, especially with spend-happy liberal Democrats like Blanco and the Legislature controlled by that party. If it does not triumph, Louisiana will have missed a glorious chance to undo 80 years of disastrous populism and to better itself and its citizens in the process.
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