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Bank, don't spend, LA's stagflation largesse

It’s another chance for Louisiana to show some fiscal sanity, an opportunity it often misses and only partially took advantage of last year.

Although the country is wracked by stagflation caused by massive government borrowing and spending by Washington Democrats, state and local governments benefit from direct payments and by pushing larger tax collections off that into their pockets as well. That has added up to a budget surplus for Louisiana for the past fiscal year concluded and promise of surplus for this one, the state’s Revenue Estimating Conference ruled last week. It predicts the final FY 2022 numbers will come in $727 million extra and forecasts an increase of about $900 million over the last estimate for FY 2023.

The former figure is spoken for constitutionally by a half-dozen nonrecurring potential uses, but the latter is wide open for exploitation into making new recurring commitments. Faced with a similar situation last year, lawmakers blew part of it on new but mostly unneeded new commitments such as educator pay raises. That occurred recklessly as the state not only faces some daunting long-term commitments but also a major, if perhaps temporary, revenue reduction starting in 2025 with the temporary 0.45 percent sales tax increase of 2018 rolling off the books that will send lower sales tax collections by an estimated almost $300 million.

How to deal with the latter figure in a responsible manner depends upon choices made with the former. Pressure will mount to deploy it on capital items, which for transportation alone the list tickles $15 billion, but better uses exist. Constitutionally, a quarter must go to the Budget Stabilization Fund and another tenth to pay off the initial unfunded accrued liabilities of the Teachers Retirement System of Louisiana and Louisiana State Employees Retirement System, a deficit which according to the Constitution must disappear by 2029.

That leaves over about $473 million, which may be around $50 million smaller because of the statute-based Revenue Trust Fund for future capital expenditures that captures corporate income and franchise taxes above $600 million and minerals revenue above $660 million. Since the latest forced deposit will drive the BSF to over $900 million, no more can go there voluntarily because statute sets a ceiling of four percent of the state’s previous year tax receipts for that.

Instead, that remainder should also go to paying down the IUAL by about a third. Not only would that reduce considerably a major concern, it also would help out education (TRSL receives just over two-thirds of money apportioned constitutionally to pay down the UAL). In order to close this gap, local education agencies must make up the difference, which last year cost local schools altogether $853 million. That would leave local governments room to increase salaries on their own rather than depend on state taxpayers. And with that concern relaxed, this eases the fiscal pressure to come from the tax cut.

As for the money available for recurring expenses, none should go for that. The state remains on the hook for $300 million due to the federal government for flood protection that needs paying by Sep. 30. This leaves $600 million that could go into a special fund created to wean the state though the first years of the sales tax cut until the increased revenue from the higher level of economic activity induced by it kicks in.

Even though it carries the high cost to households of stagflation caused by the policies producing another Louisiana surplus, this repeat chance legislators shouldn’t fumble away. Bank it all in one form or another to buffer against a known choppy fiscal future ahead.

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