Later this week, Republican Gov. Jeff Landry will present his first budget to the Legislature, in an environment of future looming deficits that needs to recognize that spending, not revenues, are the problem.
Earlier this month, the Joint Legislative Committee on the Budget received a forecast of revenues and expenditures for the current and next three budget years, assuming continued trends in revenue and spending, adjusted by known changes in each. It predicts this fiscal year will produce a $91 million surplus, but then next year will see a $64 million deficit, followed by much larger ones of $559 million, $614 million, and $773 million.
In response to this data, Landry issued an executive order to take immediate action to reduce spending where possible. It certainly was a refreshing change from his predecessor Democrat Gov. John Bel Edwards, who in similar circumstances would jawbone for more revenues.
But revenues never have been the problem. State tax collections increased 60 percent from the time of Edwards’ first budget to his last, in part driven higher by a sales tax increase, slightly lowered on renewal. That renewed rate will roll off the books for fiscal year 2026 which is when the deficit is expected to exceed half a billion dollars.
That’s irrelevant. The real problem is spending, which rose almost 90 percent in the same time period (state-sourced spending being about half that rise), or more than three times the rate of inflation. In fact, in reviewing the major variances over the coming years, almost the entirety of the projected deficit comes from increases in Medicaid spending, in large part from taking on the burden of needless expansion of Medicaid that is ripe for reform (much of the higher costs come from replacing temporary federal dollars).
Fortunately, that excess spending may come down, as Medicaid disenrollment from the pandemic period has exceeded expectations (and would have done even better had Edwards not slow-walked the process). Unfortunately, Landry’s transition team that reviewed this policy didn’t offer suggestions, along the lines of reforms pursued in Georgia, that would ensure coverage goes to eligible and deserving individuals at less cost. Even taking advantage of what federal law allows regarding co-payments and the like would save only something like $175 million annually, which should be pursued regardless.
Still, while altogether these changes could lop off half the presumed FY 2026 deficit, they won’t cut expenses enough to offset all of it and beyond. That’s where more rapid defeasance of the state’s unfunded accrued liabilities can come in, which automatically will take a quarter of any future declared surplus from a past budget cycle.
There exists such a surplus on the books, but only a tenth of that must go to pay down the UAL because the constitutional amendment increasing the proportion, broadening its application, and eliminating a 2029 deadline won’t go into effect until FY 2025. It will take a legislative act to pump more into the effort.
But the payoff would be well worth it. The Teachers Retirement System of Louisiana has a UAL of about $8.5 billion. Plowing that FY 2023 surplus into reducing TRSL UAL would enable school systems to make permanent more than half of the bonus the state tacked onto educator paychecks for this year, and removing that from the forecast (which assumed the bonuses would become permanent) would save $200 million more a year on out.
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