Strangling Medicaid costs threaten to derail Republican Gov. Jeff Landry’s desire to right-size Louisiana’s budget, data behind his latest budget proposal for fiscal year 2027 revealed.
Last week, the Landry Administration submitted its FY 2027 budget to the Joint Legislative Committee of the Budget, in preparation for legislative deliberation in the upcoming 2026 Regular Session. This document must adhere to the state’s Revenue Estimating Conference, which last month disgorged the latest estimates over the next few years, and covered the source that the Legislature can utilize in appropriations bills, the general fund.
The end product was essentially standstill according to the general fund (aided by significant efficiency cuts in the neighborhood of $300 million), but incorporated a noticeable reduction of $3.5 billion overall, split fairly evenly between declines in statutory dedications and federal funds (more of the former than latter). The main factor behind the federal funds decreases is as a result of turning off the debt-fueled/inflation-triggering spigots from the Democrat Pres. Joe Biden era and Republican Pres. Donald Trump Administration programmatic changes plus some disaster-related expenditures, while for dedications that dropped mainly because the Revenue Stabilization Trust Fund was tapped so heavily for projects the previous year.
The projected general fund with this budget begins a flat period of projected revenues, partly as result of the final implementation of tax cuts and partly as a result of shifting hundreds of millions of dollars from motor vehicle sales taxes from going into operating expenditures – a temporary concession of the last couple of years to smooth out the beginning of tax cuts – and returning to roads infrastructure. For FY 2027, the general fund fell $62 million from the existing FY 2026 budget.
So, for the upcoming year, what changes were made largely were zero-sum. Most controversially, Landry wants to double spending on the state’s educational savings account program that expanded by only a few hundred slots last year. An increase of $44.2 million would add at least 4,000 seats, about a tenth of the demand, weighed toward lower-income households.
The biggest increase requested would add $75 million to throw at to entice them to come or expand businesses with jobs likely to pay above a parish’s average wage. Some of this would be at the expense of other scaled-down incentive programs. At almost $35 million are additions to corrections, with about half going to a $3 per diem increase to local jailers, which makes sense as Landry and the GOP Legislature shut the doors again on convicts after these being flung open for several years, so an increase in cells is necessary.
The past fiscal year surplus, after its half that must got to paying down pension liabilities and the Budget Stabilization Fund, is intended to go to capital projects. Note that all this could change substantially should voters approve a constitutional amendment in May that would combine the BSF and RTSF.
The most intriguing cuts from the general fund come to the lieutenant governor’s office, about two-thirds of it cut where previously it comprised one-third of all revenues. About a third of the cut came from disappearance of one-time money, but the rest comes from axing state subsidies to two local entities and state parks. The Department of Environmental Quality also takes a large proportional reduction, but it’s a drop in the bucket compared to its other sources of funds. That’s also true for the Department of Education which falls $125 million, with the main reason for that is the roll-off of and educator stipend, done now for the past two years, of around $200 million – but, again, the amendments if approved could engineer missing teacher stipends and turn them into permanent pay raises without use of extra general fund dollars.
All in all, the budget works well – this year. However, part of the presented material noted general fund deficits ahead for the next three years, for as revenues would remain flat as the impact of tax cuts was offset by additional economic growth from those changes, and potentially the impact of the amendment could boost revenues further, expenses, primarily tied to Medicaid, would continue to soar. As well, an outside ratings agency essentially predicts flat population and job growth for those years, capping potential revenue gains. (Although this could be an underestimation, given the surge in business investment sweeping the state in Landry’s two years in office, but at the same time efficiency savings should be much lower.)
Possibly increases in other funding sources – self-generated, statutory dedications, and federal funds – could make up some of the gap outside of the general fund and clever redirections to it could ensue, but realistically only federal funds increases could make a dent in projected deficits that stretch to nearly $1 billion by fiscal year 2030. Only state policy changes or fiscal changes can bridge this should it manifest.
And it can’t hurt to start now. One adjustment that could help is instead of spending from this year’s surplus almost $290 million on capital outlay would be shunt some or all of that into pension fund liability reduction. If Amendment #3 passes, that already would free up some money from forgone reduction payments, but adding more would provide an opportunity for greater future revenue leverage, such as paying down debt early to release principal and interest in future years.
Overall, Landry continues to practice far better budgeting and spending decisions than did his predecessor, but he and the Legislature in the face of discouraging expenditure forecasts can do more.
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