By Stephen Winham (Special to LouisianaVoice)
I became the state budget director in 1988. Because we had consistently spent more than we had taken in since 1984, we faced a $1 Billion dollar budget and cash flow hole in a budget less than half the size of today’s. We literally did not have the money to pay our day-to-day bills and, like too many of our citizens, had to hold off paying them until we had the cash. We were flat busted.
In an effort to ensure this never happened again, we enacted a comprehensive package of budget reforms, including establishing an official revenue forecast; prohibiting the use of one-time money for recurring expenses; requiring a balanced budget from initial presentation through enactment and to be maintained throughout the year; providing that any interfund borrowing (the mechanism that enabled us to go totally broke in 1988) had to be repaid by the end of the year in which it was borrowed, and many others.
To address the immediate emergency, we took the unprecedented step of creating a special taxing district that issued bonds we paid back over 10 years by dedicating one cent of our sales tax to debt service.
We began to diversify our economic revenue base. For example, we went from a 40% reliance on mineral revenues to a less than 10% reliance on them today. We raised other taxes, including, most notably, sales taxes.
We took full advantage of a federal Medicaid program paying high rates to facilities serving a disproportionate share of poor people (we made an annual “profit” of $700 million from this program during its peak).
We enacted the lottery, riverboat, and land-based casino gambling.
All of these kept us going until 1995 when our economy finally began to perform really well and did so through 1998. Our economy slowed down in 1999 and it was necessary to pass more taxes.
In 2002, the legislature passed, and the state’s voters approved a plan by Representative Vic Stelly that substituted increases in income taxes for 4 cents of sales taxes on food and utilities and placed these exemptions, along with those on pharmaceuticals, in the state constitution. The reason: Because sales taxes are regressive and because income taxes generally respond better to our economy than sales taxes. In my opinion, and that of many others, the Stelly Plan was the best fiscal legislation passed in our history.
We were doing pretty well until 2005 when Katrina struck. Ironically, recovery from Katrina fueled our economy to the point that by the time Governor Jindal took office in 2007, we had a $1.1 Billion surplus. Governor Blanco’s last proposed budget was $29.2 billion, of which over $8.0 billion was disaster relief money. The legislature enacted a $32 Billion budget that year, including the $8.0 billion in non-recurring money.
So, what happened?
Well, remember those laws we passed to ensure we engaged in sound budgetary practices? We began to ignore them and we spent the $1.1 Billion surplus and every other pot of one-time money we could find. We repealed HALF, NOT ALL, of Stelly – the income tax increases that would be generating about what we lose in the sales tax exemptions still on the books today -about $700 million.
We cut corporate taxes in half – by a cool Billion.
We pretended we had a balanced budget every year, but using common sense and the letter of the laws we enacted, it is clear we, in fact, DID NOT. And, although cuts were made – state funding to higher education, as one example, has been cut by $500 million – we NEVER made the cuts necessary to balance recurring spending with recurring revenue. Why? According to Kristy Nichols, Commissioner of Administration, as quoted in 2013, doing so would result in “needless reductions to critical services.” WHAT? Are you saying you didn’t cut the budget because you couldn’t? Or, are you for cutting the budget, but you really don’t want to do so?
Governor Jindal continues to be widely quoted, to this day, saying we need to live within our means. If that is true, why does he not present budgets that do so? As long as projected revenues from reliable, stable sources do not equal projected necessary expenditures, we will NEVER have a balanced budget.
Could anything possibly be simpler, or make more sense, than balancing what you plan to spend with what is coming in so you don’t dig a hole for yourself?
It is certainly easy to understand why it is difficult to make hard cuts when cash is, or even may be available, but willfully allowing gross fiscal instability to continue indefinitely is a violation of the public trust and ultimately leads to wasteful spending and the inability to see true inefficiencies because the fiscal house is always on fire. It is beyond time we were presented with an honest budget on which to make honest decisions.
So, you might rightly ask, “How would you fill the $1.6 Billion hole we read about every day in the papers?”
There are an almost infinite number of ways to do so. Here’s one:
$1.600 reported gap
($0.160): Don’t Fund Inflation and other continuation costs. We rarely do, anyhow.
($0.180): Make cuts pursuant to consultant “efficiency” recommendations. We ought to get something for the $7 million we blew on this contract.
($0.100): Increase tobacco tax to the southern average
($0.700): Restore the income tax provisions of the Stelly Plan
($0.149): Eliminate the refundable tax credits proposed by the governor, except the inventory credit.
($0.100): Cap film tax credits at $150 million
($0.200): Eliminate exemption from severance taxes on horizontal wells. This was new technology when the exemption was granted. It certainly isn’t now, so no incentive is needed.
($0.011): A rounding figure, based on the Executive Budget. Or do $11 million of the $415 million in strategic cuts recommended by the governor – or, dozens of other possibilities.
$0.000 Remaining Problem.
Too simple, right? And, perhaps, other holes could be poked in my scenario as well, but it proves it is possible to take a pragmatic approach, combining cuts with a limited number of revenue measures for a relatively simple solution. We often make things a lot more complicated than they are. I am convinced our government leaders often make simple things complicated in hope citizens won’t know and question what’s going on.
Regardless of what happens we must have an honest budget. If balancing recurring expenses with recurring revenues means making draconian cuts, so be it. Because they have been misled repeatedly, the bulk of our citizens will never believe we have a problem (or one that can’t simply be solved with cuts) until they experience the reality of a true “reform” budget that raises no revenues and cuts services to achieve balance. I sincerely hope it doesn’t come to that, but it may be the only path to real reform.
Louisiana Voice 
Excellent post Stephen! You show that it can be done!
Coming from someone with the credentials of Mr. Winham, it is clear that we can not SAVE our way to fiscal soundness. It will take a combination of savings and revenue (tax) enhancements. Thank you Mr. Winham for laying down the gauntlet to the Administration and the Legislature. Now their mettle will be tested.
I really enjoyed this read.
It is a fantastic and simple plan that will never come to fruition because the people that are in office care only for themselves and getting reelected by the know-nothings of the state and not about what will be good for the state.
Their behavior is just shameful.
Two additional steps should be taken. First, cancel the amendments that protect everything but education and hospitals. Spread any deficit equally across the budget. Second, cancel all the consulting projects and refer them to our Universities. Profs and grad students would love the research.
Mr. Winham, I hope you will come out of retirement to consult with the next governor (who, we hope, will NOT be a “fiscal conservative”), the next commissioner of administration, members of the legislature and anyone else who touches revenue matters, to help get our state back on track.
I am old enough to remember the economic debacle you described. If memory serves, it was set in motion with the election Dave Treen, R, who burned through a sizable surplus while lowering taxes. To paraphrase Georges Santayana, those who forget the lessons of history are doomed to repeat them.
I agree in spirit but take some issue with one of your comments-for the first time in over a year of agreeing with them. Fiscal conservatism, which I think of as being usually the same as responsible stewardship of pubic funds, is often a good thing and something we sure don’t have now anymore than we have free markets that corporate right wingers claim to advocate for (they want massive subsidies and tax breaks and govt that aggressively and often ruthlessly promotes their interests over all else-thats the furthest thing from free markets). No, we have corporate owned liars and hypocrites in power who espouse “fiscal conservatism” when attacking the powerless and cutting important things but blow obscene sums of tax dollars on wasteful nonsense from way excessive film credits to ridiculous raises for state cops-primarily glorified interstate Nazis-to the ever growing hordes of inept unclassified overpaid political appointees that have proliferated under Jindal to now plague most state agencies, the Russian factory deal that became a dud and countless other examples TA has reported on. These guys are fiscal conservatives only sometimes and usually ruthless tax thieves when it benefits them and their corporate masters.
Restoring the income tax provisions of Stelly, or eliminating its sales tax exemptions, is a must. I don’t know what Jindal and those lawmakers thought was going to happen when they repealed the income tax hike but left the sales tax cut in place. Did they even care? Rhetorical question. We all know the answer.
A current insider, who asked to remain anonymous, after reading my column sent me the following synopsis of how we have eased into a position to enact a 6 month budget for FY 2015-16, immediately dumping the problem on whoever is unlucky enough to be elected governor when s/he takes office in January 2016. Since most of the current candidates have at least hinted at an immediate special session of the legislature to deal with the fiscal crisis, it’s almost like they are begging the legislature and current governor to simply pass the whole thing on to them. Anyhow, here’s how somebody in the know puts it:
“I know we have always had annual and biannual budgets cycles in the public sector. But I think we have invented a new cycle in Louisiana, the semiannual budget. This where you appropriate a full 12 months of spending authority fully knowing you only have enough money to last 6 months with the intention of returning half way through the fiscal year to figure out what to do. We have been gradually developing this technique over the last several years by appropriating a full 12 months of spending authority but with only enough cash to support 11 or 11.5 months thus leading to recurring current year budget reductions where we reduce the spending authority into line with cash availability. Now we have gone full blown with everyone (both executive and legislative branches) planning a January session to figure out what to do when we run out of cash after 6 months. The disadvantage of this technique is it is politically practical only in elections years which means only once in a 4 year cycle.”