Louisiana's budget is a fiscal mess: How did we get here?
When state lawmakers were asked what they will focus on in the legislative session that starts Monday (April 13), some answered with just one word: money.
Louisiana is facing a $1.6 billion budget shortfall. The funding gap is so large that state officials have warned they won't be able to conduct their usual Advanced Placement tests and other types of assessments in schools next year. Some public colleges and universities might have to close and, until recently, the secretary of state's office was saying it wouldn't have enough money to run the presidential primary next spring.
Things have gotten so dire, lawmakers said, that Gov. Bobby Jindal has proposed rolling back some tax credits he refused to touch three years ago, when some legislators broached the topic to address a more modest fiscal crisis.
With the exception of his first year in office, 2008, Jindal has constantly faced state financial shortfalls. Of course, falling energy prices certainly haven't helped recently and account for a large portion -- $400 million -- of the shortfall.
But tracing the origins of Louisiana's budget crisis is complicated. Lawmakers and economists agree that Louisiana's finances face a "structural" budget problem that has nothing to do with the energy market. The state simply isn't set up to collect enough revenue to cover its expenses, even during oil and natural gas booms.
Here's what that means.
First, more money than the state could spend
During the last two years of Gov. Kathleen Blanco's administration, the state budget reached record heights. In the 2007-2008 fiscal cycle, Louisiana had a spending plan of $28.6 billion. That was a major increase from the year before Hurricane Katrina, when total spending was only $16.5 billion, according to the Louisiana Legislative Fiscal Office. And it's nearly $3 billion more than the estimates for state spending in the current budget cycle.
"In 2007-2008, we were really rolling in money," said Jim Richardson, a Louisiana State University economist who sits on a panel that oversees state revenue.
Louisiana was benefitting, in large part, from recovery dollars related to hurricanes Katrina and Rita that poured into the state. Direct federal aid to the state shot up -- from $6.3 billion in 2005-2006 to $12.8 billion in 2007-2008. But also, people moved to Louisiana just to help with the rebuild, and some had more money to spend than usual. Sales tax and gambling proceeds were high at that time, said Greg Albrecht, the legislature's chief economist.
Storm recovery efforts coincided with an energy boom. Natural gas and oil prices peaked in 2008, bringing more revenue into Louisiana through mineral taxes.
"Energy prices were going up like crazy," Albrecht said.
The result: Tax breaks critics say haunt the state budget now
The healthy financial balance led Blanco to increase ongoing state costs -- including giving state employees pay raises -- and to sign off on tax cuts. Jindal, who came into office in 2008, approved more tax breaks the following year.
First, Blanco and the Louisiana Legislature moved forward with repealing the first portion of what's called the Stelly Plan -- a tax program approved statewide by voters in 2002. Jindal and lawmakers then fully trashed the initiative in 2008, during the governor's first year in office.
Named for former Lake Charles lawmaker Vic Stelly, the plan put income taxes on mostly moderate-to-wealthy people and did away with a sales tax on food and utilities that disproportionately affected poor people. It was passed and supported by Republican Gov. Mike Foster, but it became a target for conservative talk radio by 2007, when lawmakers and Blanco passed the first portion of the repeal.
Jindal never really sought the second half of the Stelly Plan repeal in 2008, but he didn't have much choice -- from a political standpoint -- once it passed out of a committee and made it onto the Senate floor. The Louisiana Legislature unanimously approved both parts of the repeal, with only a few members absent for the vote each time.
With large budget surpluses, this appeared to be the right thing to do. Was it?
Critics point out that since the Stelly repeal, Louisiana has dealt with ongoing budget crises. If the plan were still in place, the state would have as much as $800 million more in revenue right now, according to Albrecht.
"The decision to repeal Stelly is, undoubtedly, a root cause of this current budget dilemma," said Jan Moller, head of the left-leaning think tank, Louisiana Budget Project, that monitors the state's fiscal matters.
Blanco, Jindal and the legislators might have guessed that the Louisiana budget would probably level off or even dip, Albrecht and Moller say. The increased revenue and federal funding attributed to hurricanes Katrina and Rita would taper off at some point. Energy prices were also bound to fall.
"I thought they would probably have some long-term problems," Foster said about the Stelly repeal.
But most state lawmakers -- including those still in the Legislature grappling with the current fiscal crisis -- say repealing Stelly was the right decision. It helped middle-class people and made the state more attractive to businesses. They say it was unfair to blame the decision for the state's current fiscal problems, particularly when Louisiana is prone to going through boom-and-bust economic cycles.
Then there are national factors, such as the recession that started in 2008, which very few predicted. Health care
expenses are eating more and more of state budgets across the country, including Louisiana's, regardless of any attempt to try and control costs.
"Budget shortfalls have always come and gone in Louisiana," said U.S. Rep. Steve Scalise, R-La. who served in the Legislature at the time and voted for the repeal.
Jindal, too, now says it was the right thing to do. It lowered taxes and forced government to get smaller, according to Jindal's staff.
Some say you can't draw a direct line from the Stelly rollback to the current budget crisis. If the tax breaks were still in place, perhaps Louisiana would have held off on cutting state spending - and ended up in the same financial crisis it has now.
"The revenue might be higher, but the spending might be higher too," Albrecht said.
However, the way Jindal and the Legislature choose to handle the budget might have made a bad situation worse, according to critics.
One-time revenue, ongoing expenses
The key: Jindal committed to not raising taxes. So as state revenue began to crater, he looked to other means to fill in the gaps. Along with cutting the budget, the governor and the Legislature relied on ephemeral pools of money -- state property sales, lawsuit settlements and the like -- to help cover costs for expenses that would continue over several years.
The tactic contributed to the budget crisis, according to economists. Many of these sources of revenue have now dried up, but the expenses they were covering remain.
"We probably should have been a little bit more careful about how we used the money for recurring purposes," Richardson said.
Taking just one example, the Medicaid Trust Fund for the Elderly -- once flush with $800 million in cash -- has been almost entirely depleted to stitch up Louisiana's health care budget. When the fund was created, lawmakers thought the state would mostly use the interest off the $800 million and leave that main pot of money untouched. That way, it would be a revenue source for years to come.
There is no mechanism in place to replace this funding, even though the expenses it covered -- nursing home payments for Medicaid patients -- will still have to be met once it is gone.
As another example, the governor has proposed selling off state vehicles -- a limited source of cash -- to bring in more revenue this year. The Jindal administration expects this move to generate as much as $1.4 million.
"You can't touch this," budget-style
Part of the problem is that some budgets can't be touched - and some taxpayers have been protected.
Lawmakers, governors and the voters have constitutionally shielded large swaths of Louisiana spending. Much of the state's primary and secondary education funding automatically increases -- and can't be cut -- if more students enroll. This past fall, voters adopted ballot measures that make it difficult to cut the Medicaid budget.
There are also tax credits that entitle business and individuals to a portion of the state funding pie, or at least make it likely Louisiana won't collect as much in revenue. Some have grown astronomically. Most prominent is the film tax credit, which requires the state to reimburse certain film and television production costs. Last year, the state paid out around $250 million in film tax credits alone.
This year, Jindal has tried to rein in some tax credits, though he's left the film credit untouched. However, lawmakers are balking at parts of the proposal - notably cutting the $450 million business inventory tax credit -- so it's unclear if these expenses will remain on the books.
State Sen. Robert Adley, R-Benton, and state Rep. Julie Stokes, R-Kenner, believe some corporate entities in Louisiana aren't paying their fair share in taxes. Though Louisiana has attracted a lot of new business activity to the state in recent years, government hasn't necessarily seen a corresponding boon in corporate tax collections.
Of the 87 largest companies in Louisiana that filed taxes in 2012, only 22 paid corporate income taxes, Louisiana Revenue Secretary Tim Barfield told The Associated Press. And only about 42 of these companies paid corporate franchise taxes, he said.
"The way we structured our tax collections is a big part of the problem," Adley said. He and Stokes are among those legislators who have filed the most bills to address these structural budget problems.
Despite the magnitude of those problems, and all the attention they're getting, many observers think real solutions won't come this session. They say lawmakers won't have the stomach to make big changes in an election year, and might wait until the winter - when a new governor is in place and their fall campaigns are behind them - to make long-term fixes.
And Jindal, with eyes on the presidential scene, won't consider certain proposals because he signed a "no tax" pledge with a national anti-tax group.
Adley, however, is optimistic the Legislature will act now.
"It is going to be a session where the legislators are going to show some independence," he said. "The governor is a lame duck and out of the state more than he is here."
Julia O'Donoghue is a state politics reporter based in Baton Rouge . She can be reached at email@example.com or on Twitter at @jsodonoghue . Please consider following us on Facebook at NOLA.com and NOLA.com-Baton Rouge.Source: www.nola.com