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It’s great that the Governor’s Office and Division of Administration are holding the line, even finding some savings, to stave off the looming budget disaster for Louisiana beginning in Fiscal Year 2011. The problem is, it’s not nearly enough and they can’t print money.
We won’t know for a couple of more weeks, but come Oct. 1 the Gov. Bobby Jindal Administration may report an actual uptick in state revenues, even those going into the general fund. But too low state-generated revenues up against higher state spending isn’t the main culprit for a budget deficit for the upcoming year estimated at $1.5-2 billion dollars, or roughly 6.5 percent of all current spending. Rather, it’s that a fair portion of federal dollars won’t be coming in next year compared to this one.
While the causes of this are varied – Medicaid formula changes, old bills being collected by the federal government, a reduction in one-time aid given to all states, among others – the practical impact is that the state is going to have to make up for the absence of these funds, unless something unexpected happens and revenues come from somewhere else. Don’t count on that. Jindal is opposed to raising taxes and most legislators will join him in an election year, and with big spending Democrats about to get wiped out in seven weeks time in Washington, a new Congress won’t be in any mood to bail out states.
However, as noted many times in this space, it’s not a revenue problem primarily facing the state, but a spending problem. And part of the reason why overspending occurs is its straitjacketed fiscal structure that essentially mandates spending in lower priority areas in lean times.
To review the current numbers, if backing out the federal dollars required to be spent on mandated activities, dedicated spending (from 35 constitutionally dedicated funds and almost 300 statutorily-dedicated funds where monies collected in certain ways must go), statutorily required expenditures (like debt service), and agency fee collections (which must go to fund their activities), only 12 percent or $3.1 billion of truly discretionary funds are left. From this, if all else stays the same, 55 percent of this will have to be cut.
The agencies mentioned above are part of this discretionary block, but even throwing in the other few discrete agencies that are unconnected to higher education and health care, they comprise only about a third of this amount. The other two-thirds are split equally between health care and higher education. They are the areas really at risk because of the budgeting process and what may happen with projected shortfalls in state-generated revenues year over year.
For those dedicated funds, they only can be cut in small amounts. Worse still, the large bulk of these funds are in the constitutional funds which can only be changed by amendment which could occur only after the next fiscal year goes into affect without a special session. Worst of all, available deficit reduction measures often are tied into only to the state’s general fund while much if not all of the anticipated drop is to come from the removal of federal funds which may not trigger the devices in law to allow money to be taken out of these funds.
Thus, the several aspects of this system that create budgeting problems are (1) dedications that have escaped review for years, even decades, that may be pumping revenues into areas of lower priority than higher education and health care, (2) a system that permits only limited redirection of these funds (in all but the case of the Minimum Foundation Program at one percent, five percent), and (3) redirection occurs only when reduced revenues occur in state-generated money, not from federal dollars. While the first may be altered through a regular legislative session, the others would require a constitutional amendment – which would be passed too late for the fiscal year beginning Jul. 1.
Therefore, Jindal and the Legislature must act now. The Armageddon cut for higher education solicited as the disaster-case scenario by Commissioner of Administration Paul Rainwater of $518 million is more than twice what has been cut from it in less than two years. Combined, those cuts would be close to what already has been whacked from health care, which would suffer a similar amount of paring under this scenario. This doesn’t mean that both can’t be pared some more, but to foist so much onto these areas would be apocalyptic to both which is what the current fiscal mechanisms unchanged would do.
To avoid this runaway lack of prioritization, the following need to occur:
- Wider implementation of Commission on Streamlining Government recommendations. This won’t generate more revenues, but it will leave more dollars to plug into the discretionary areas.
- Change the law dealing with statutory fund protection. By increasing the current percentage that can be transferred out to other uses, reductions are more equally shared and better prioritization may occur.
- Eliminate unneeded dedications. Efficiency gains and greater flexibility will create more funds available for the discretionary areas.
- Have a special session of the legislature called early next year to propose some constitutional amendments to permit more flexibility in the budget compilation process. Then a statewide vote would have to occur on the April election date to ratify it in time for it to be useful in this budgeting cycle (assuming it passes voter muster). Specifically, amendments would have to allow dedicated fund redirection in the case of federal revenue reduction and of greater than the current five percent for a forecasted one percent deficit and including both state and federal dollars.
The clock is ticking, and unless these kinds of things are done, at the stroke of the new fiscal year Louisiana is going to be stuck with some very undesirable policy outcomes.
It’s a tale of two Northwest Louisiana legislators who pursued similar ends during this year's legisaltive session but whose reactions to it ended very differently.
Former state Rep. Wayne Waddell, among other things, pushed for three pieces of legislation that he claimed would force the governor’s office to open more records without adverse consequences. Opposed by the governor and eventually a majority of his colleagues (at least at the committee level), by contrast one of his successes was passing a resolution commending former legislator Forrest Dunn on his retirement from leading the Louisiana State Exhibit Museum in Shreveport.
Less than a month later, at session’s end Waddell was Dunn’s replacement, chosen by Secretary of State Jay Dardenne for the post. Giving up his seat for this in a way provided tardy justice. As the 2007 election approached, the Louisiana Supreme Court ruled that Waddell had exceeded term limitation requirements, but he could take office because he had no opponent and no challenge had been filed against him within the legally prescribed time.
At this point, the honorable thing would have been for Waddell to resign prior to the organizational session in early 2008 but he did not. Now, better late than never.
His colleague state Sen. Robert Adley was equally as ineffective in pushing similar legislation (rejected by a Senate committee) this year, but rather than accept quietly the decision of his colleagues he became especially riled when he argued that Gov. Bobby Jindal exerted payback for his failed efforts.
When Jindal issued his line item vetoes on members’ amendments, or state tax dollars steered to specific local projects and uses both inside and outside of local government in a legislator’s district commonly referred to as “slush funds,” Adley’s prominently were excised, prompting the one-time minor candidate for governor to remark about the action of the current occupant, “It’s one thing to veto my bill. It’s another thing to veto worthy causes, to hurt other people because you’re mad at me.” Adley got it again when four of his capital budget items also got removed, leading him to whine, “The projects are things people need. They paid their tax money for it.”
These vetoes especially hurt Adley politically because he’s very much a proponent of bringing home the bacon regardless of the good (or lack of) it will do the state as a whole, in part to distract local voters from his penchant from talking out of both sides of his mouth. And his comments go to show how little Adley understands philosophically about these funds and the political process.
It’s not that these vetoes aren’t deserved; one could make a great case every single request should have been. In the case of local governments, Jindal has made the point that by having local governments do the spending themselves improved accountability as citizens could more easily understand where they tax dollars were going and make better judgments on policy. For example, one veto that vexed Adley axed a police car for Sarepta (population under 1,000). If the town so badly needs a police car, why must it go to the state? How much would it cost the citizenry for an installment loan on it? And if the municipality is so broke that it can’t even afford a note of a few hundred bucks a month, doesn’t that beg the question about whether a combination of tax increases or reduction in services should be implemented instead of making taxpayers statewide pay for it? In fact, if this item is too expensive for the town to support, why doesn’t it just disband its police force and depend upon Webster Parish sheriff’s deputies for protection? And why should state taxpayers foot the bill for Plain Dealing's water system?
It’s these hard questions that end up getting avoided. Adley’s reaction shows he has every intention of dodging them. Even so, Jindal’s criteria for member's amendments offer – as either a “state agency need” or as having “substantial regional impact” – a chance to spare some spending. But at the same time, judgment calls left discretionary room that is part of the political process – an aspect Adley is free to lobby to change through constitutional amendment wiping out the line item veto power.
Further, Adley has a solution under this process if he wishes to counter Jindal’s agenda provided for in the Louisiana Constitution: he can urge his colleagues to call a veto override session, and then successfully undo the vetoes (a solution he made half-hearted mention of and really did nothing about). It’s all part of a separation of powers, checks and balances arrangement to maximize the chances of good policy-making at the statewide level. If Adley truly believes that this “worthy cause” is in the best interest of all his constituents and state taxpayers, he would call for this session and welcome the opportunity to argue this position in front of his colleagues and citizens.
Otherwise, he’s just bloviating a lot of hot air And his dyspepsia isn’t even logical as by his worldview it’s his own actions, not the Jindal Administration’s, that “hurt other people.” Being of long tenure in the Legislature and being as suspicious of gubernatorial power as he lets on, he should have known there was a good risk that (if it’s true) his bill would trigger the reaction, then he must blame himself and his own lack of prudence in recklessly pursuing the bill if shoveling money for police cars, tourism efforts, water systems, courthouse annexes, and even no-strings-use of it to towns are so important for the state. After all, if you choose not to get out of the way, leading is more productive than whining.
The one running for office, Rep. Charlie Melancon, has not let his trailing massively in polls to incumbent Republican Sen. David Vitter get in the way of keep digging his hole deeper. While Republicans and Vitter have argued that tax cuts pushed through by former Pres. George W. Bush and the GOP but which will expire by the end of the year should be renewed – a view increasing supported by Democrats – Melancon wants taxes to increase in line with Pres. Barack Obama’s view for those single filers making more than $200,000 and for those married filing jointly of more than $250,000.
Melancon says so because – get this – otherwise the federal budget deficit will increase more. This is the same Melancon who hadn’t cared at all about deficits during Obama’s term, voting for record budget-busting spending throughout, most prominently for the early-term spending bill that has managed to increase unemployment and the number of federal government jobs simultaneously while producing nonexistent economic growth. That bill’s bite looks to be settling in around the $800 billion range; Obama Administration officials predict an extra $35-40 billion would be raised by this tax hike. And if Melancon were a genuine deficit hawk, he’d be against renewing cuts for any income earners.
What this hypocrite doesn’t seem to understand is the tax hike he backs has the greatest potential to choke off any potential economic recovery. Democrats in trying to sell this idea fixate on the “97 percent fallacy,” that only three percent of household filers report any business income and therefore it won’t be very burdensome on small business. This is to divert attention from the fact that, in reality, almost half of net income attributable to small business activity went to households above the $200,000 level. In other words, just about half of all small business activity will be subject to these tax increases, so they would gut recovery chances as proprietors reduce activity or, as studies have shown, entrepreneurs are significantly less likely to try to start small businesses as rates increase.
He’s not the only one trying to demagogue this issue. His co-partisan Sen. Mary Landrieu, also takes the Obama position and rationale, proving you don’t have to be running for election to be similarly disingenuous and a sudden convert to reducing deficits, she also having voted for the spending bill. And both claim they want to help small business when in fact the Obama legislation they support would bring more government control over the financial sector where it doesn’t destabilize it further.
This legislation, which claims $12 billion in tax credits, would help few businesses and what few can use it can only do so for the next two months to two years (depending on the kind of credit). Worse, the $30 billion asserted to lend to business contains qualifications that would lower credit lending standards and give the government some ownership in the accepting lending institutions. Raising this money, which runs afoul of Melancon oft-stated but seldom followed pledge to pay-as-you-go in government, he conjures up from “waste” in the Department of Defense.
If Melancon and Landrieu, who actually is chairwoman of the Senate’s Small Business and Entrepreneurship Committee, really preferred helping small business, they’d back extending the Bush tax cuts in their totality. Instead, they’d rather support an agenda featuring more government spending and control that slowly but surely is bringing ruin to America’s economy.