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Budget can kicking sets up day of reckoning

It’s a legally dubious effort which will draw a bipartisan blind eye allowing a traditional kicking of the can down the road in Louisiana budgeting.

This describes state policy-maker response to using federal CARES Act dollars in supplementing the fiscal year 2020 budget and the upcoming FY 2021 budget. The Legislature appears poised to approve within the week legislation affecting the former and to do the same with the latter in a special session in June.

The state has received $1.802 billion designed to offset costs at the state and local level for expenses related to combatting the Wuhan coronavirus pandemic over the last four months of FY 2020 and first six months of FY 2021. At the same time the associated economic shutdown, prompted by a series of Democrat Gov. John Bel Edwards proclamations as part of the response, prompted the state’s Revenue Estimating Conference to forecast of a loss of just over $1 billion in general fund revenue in this span.

Essentially, it diverts $421 million to FY 2020 and shunts the remaining $1.381 million to FY 2021. Further, $800 million of the latter figure will go to local needs, with $600 million set aside for governments (whose fiscal years match calendar years) and $200 million set up in a grant program for businesses. The Act technically doesn’t require that (since the state has no local jurisdictions with at least 500,000 people), but Edwards committed to Louisiana’s congressional delegation use of this money for local needs.

The upcoming budget, which also requires use of two-thirds of the legal limit of the Budget Stabilization Fund, basically has no cuts. Even as legislators and Commissioner of Administration referred to “cuts,” in reality these changes came against the backdrop of a budget proposal with increases meaning a standstill. In fact, the overall budget increases substantially in terms of state sources of revenue, by nearly $600 million.

The budget also doesn’t include off-budget items for this year that boosted principally higher education and hospitals not included in the CARES Act. For example, this caused a $70 million stealth increase this year $23 million above supposedly additional virus-related costs for FY 2020.

Whether this money allocated represents such costs is debatable. In the case of higher education, on-campus instruction shut down halfway through the spring and will continue during the summer. As a result, it requires some fancy footwork, shoveling nearly $100 million of CARES Act dollars into higher education this year freeing up a like amount of general fund money kicked into next year.

Undoubtedly, a move to entire online instruction for a semester and a half raises expenses. But other costs will go down by not utilizing vast swaths of campuses, and as wrenching as the change were, it seems unlikely that these would total over $96 million. Plus, physical infrastructure adjustments that could cost millions that qualify for Act funds will occur next fiscal year – after Act monies were spent this fiscal year.

As such, FY 2021 budgeting relies upon an incredibly expansive reading of how CARES Act money may be spent, which in the operating expense arena mainly means personnel costs. Further, all the spending must occur prior to the end of the calendar year, so that would mean covering only half of annual eligible personnel costs.

So, for example, Act money fills half of personnel costs for corrections for next year. Yet it’s quite a stretch to assume every single department employee qualifies given the federal government guidance on the matter, despite Dardenne’s cheerleading on this account.

No matter. The same guidance makes clear the federal government won’t check on these expenses, so practically anything will go. Nor do fiscal conservatives in the Legislature have an appetite to restrain this spending, given the severity of the money and time crunch, in making politically-unpopular cuts now.

Because the bill from this use of one-time money for continuing expenses will come due. By the FY 2022 budget, the extra 6.2 percent federal match on Medicaid expenses, worth $255 million, will have expired six months prior (likely when the federal government ends its health care emergency declaration, but it actually could happen sooner) and virus expenditures will linger into it (although normally ineligible recipients allowed to stay on the rolls finally will not have rolled off). And, in what in historical context appears as optimistic, state revenues are predicted to fall over $300 million short from FY 2019 actual collections.

Thus, the shoehorning in these budgets, despite its dubiousness, will go unchallenged and cause no short-term fiscal pain. But, absent a remarkable economic comeback, the day of reckoning will come a year from now.

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