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Sensible changes resolve Jindal/House budget dispute

Given the complexity and intricacy of dealing with the Louisiana state budget, it’s easy to get lost in the policy debate between the Gov. Bobby Jindal Administration, which favors using $420.1 million in surplus revenues to fund recurring programs, and House leaders, who are angling to reduce that figure. Sorting it all out gives a better idea of how to proceed.

First, there is a bit of conceptual confusion involved. When the Administration speaks of using “one-time” revenues, it’s not the same thing as “non-recurring” revenues which in fact can be used constitutionally for just a few purposes. The revenues referred to in this debate are those declared surplus over previous projections before the fiscal year is over, meaning they can be used for any purpose. Because they are unexpected, they might be temporary in that similar amounts might not be forthcoming in future years, and projections suggest that they won’t be. Thus, we don’t really know whether that level of revenue will be sustained, so the argument is over, whether to be on the safe side, if these “excess” revenues be committed to recurring expenses.

In reality, after the second special session, about $900 million was left of this recurring surplus, of which the $420.1 million will go to recurring spending. The rest is for what is considered non-recurring expenditures, on a variety of things the House is looking critically on including $307.1 million for an economic development “megafund” to attract large employers. But is also in interested in paring down other “new” spending it sees elsewhere in the budget besides that directly tied by the Administration to this surplus.

Second, the $420.1 million that is directly tied goes into one area – health care spending. In contrast, the House when it declared it wanted to look at the possibility of 5 percent cuts across the board in discretionary general spending of the state general fund – which exempts almost three-quarters of spending (including that by the Executive Department as most of its funds, even if not legally or constitutionally protected, are passing through from the federal government for recovery purposes) – it included every agency. While health care takes up the vast bulk of this amount, higher education at around a tenth of it could be disproportionately affected. So if the House wanted to make cuts, some might come not from the area that is getting all of the “one-time” money for recurring purposes.

Third, the House points out other new commitments are in the budget not tied to the surplus, which the Administration disputes only in terms of the amounts. These it has declared also may become targets of its cutting. Finally, to add to the fun, momentum is growing to pass an income tax cut that could remove, in the short term, $302 million in revenues, which actually creates an additional issue since it can be like declaring that amount of money itself is now “one-time.”

Even as the Administration has reduced use of surplus revenues by almost half over last year, given looming budget deficits probably it is a good idea to reduce them further, not by some arbitrary amount, but by excising items that, in policy terms, have a low or negative return. As it is, it doesn’t total the $420.1 million, but it’s a beginning.

This figure should not include the tax cut because it is conceptually erroneous to define that forgone revenue as “lost” and therefore “one-time.” In reality, history shows a tax cut of that magnitude within one or two years should begin to restore revenues from increased economic productivity that will close the hole within a few years. Thus, like the megafund, it really is a one-time “expense” and, as suggested elsewhere, therefore should be pursued instead of the addition to the fund.

Several other items stand out in the budget that should not require new commitments, also mentioned elsewhere. One is continuing to give pay raises to public school teachers who have yet to show their existing salaries match student achievement and who refuse to accept individual accountability measures tied into their abilities which could save $56 million.

Another is reducing outlays to higher education. My colleagues will be miffed by my pointing this out, but almost every school in the state got a big increase last year and unless a school’s administration was entirely reckless in utilizing it, a five percent cut would at best mildly impair operations and leave schools well above their level of two years ago. And there may be relief on the way in the form of governing boards being allowed to raise the lowest average tuition in the South courtesy of legislation making its way through the chambers (even if it gets diluted by the fact that roughly half of Louisiana in-state college students have their tuitions paid through the TOPS program). This would save (if across the board) $71 million – but tuition increases of 3 percent would capture back roughly $13 million.

Finally, there are additional monies for nursing homes, whose share and dollar amounts in the budget ought to be declining as the state moves more towards community-based case. This is a consequence of the Barthelemy case brought a decade ago mandating that the state spend more for that type of care, which is why the Administration budgeted $169 million in new commitments. The problem is, there are no offsetting cuts to nursing homes which are already among the most over-utilized and over-bedded in the country. The $60 million increase here should scrapped; if necessary, by changing the law passed a couple of years ago which encourages over-utilization.

This totals $186 million – a good start. The rest may be made up in future years by realigning indigent health care to emphasize money following the person rather than going to institutions that will reduce expenses, and with new revenues generated from the tax cuts. Such reconfiguration of the budget will put Louisiana on its best financial footing in decades.

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