By Stephen Winham
Every day we hear the same thing: “If we could just get rid of those dedications, we could fix the budget and not have to always hit higher education and health care so hard when times are tough. There are plenty of things we could cut without hurting anybody or anything.”
It sounds so easy. You hear, in very broad terms, how the budget has grown and how out-of-bounds spending has gotten. Our current budget totals about $25 billion, of which $10 billion is federal. I will focus on state funding in the official revenue forecast – about $10.4 Billion in the current year, with strongest emphasis on the $7.9 Billion in state general fund spending we can most readily control. The official forecast numbers for next year are $10.4 billion and $8.2 billion, respectively.
We hear about $4.3 billion in dedicated funds ($3.5 billion in the currently-proposed FY 2016-2017 budget) that could be eliminated and go a long way toward fixing our budget problems. What we rarely hear about is the additional $4 billion in the state general fund that is allocated and/or protected by the State Constitution.
For starters, almost a half billion dollars comes directly off the top of the general fund, but IS NOT APPROPRIATED. That’s right, you don’t see or hear much about this money because it is not appropriated – rather, it is a direct draw on the state’s general fund.
If you go to page 177 of the FY 2016-2017 Executive Budget, you will find Schedule 22, Non-Appropriated Requirements. This schedule allocates $496.5 million from the state general fund in the treasury, pursuant to the State Constitution, for the following:
$404.8 M – General Obligation Bond Debt Service
[IMPORTANT DIGRESSION: G. O. Debt service is increasing by over $211 million (109%) next year due to one-time savings utilized in the current year from defeasance of debt – In other words, this is part of the one-time “fix” in the current budget that has to be covered next year.]
$90.0 M – General Revenue Sharing – goes to local governments as a partial offset for local property tax revenue lost due to the State Homestead Exemption
$ 1.7 M – The Interim Emergency Board – provides emergency funds during the budget year
Now I ask you, which of these would you be willing to vote out of existence? Eliminating or changing them would require constitutional amendments and a vote of the people.
The one of these three I would not cut, for sure, is our $405 million in debt service. Defaulting on our debt would cause immediate loss of a marketable bond rating and send a message to the rest of the country that we are truly bankrupt.
Cutting the other $91.7 million in non-appropriated items would have very serious implications, particularly for local governments. Even if you think local governments shouldn’t get the revenue sharing, how do you think they would make it up, if they didn’t?
In addition to non-appropriated allocations, the State Constitution also mandates general fund spending for a number of appropriations. The state’s Minimum Foundation Program for public elementary and secondary education is required by the constitution and has a $3.4 Billion state general fund appropriation. You might be inclined to cut administration and other programs in the Department of Education, but are you willing to vote for a constitutional amendment eliminating basic state support for our public schools, or even allowing for substantially reducing it? You may not directly use public education, but you have to agree we absolutely have to have it and it should be funded at no less than its current level. The education provided by our public schools is vital and is finally improving. We can’t afford to lose the ground we’ve gained.
So, between just the General Obligation Bond debt service and the MFP requirements for next year, we have $3.8 Billion of General Fund (46% of the total) expenses it would be simply stupid to cut.
In addition to the MFP, another $600 million of our general fund expenditures are currently required by the State Constitution. State supplemental pay for local law enforcement alone is $124 million of this. Also included are salaries of statewide elected officials and the costs of elections. You might not be happy with the salaries of your statewide elected officials, but we have to pay them and I don’t think you could possibly support not having the money to hold elections. If you think locals ought to fully fund the salaries of law enforcement personnel, where do you think they might get the money to do so?
[Digressing again and focusing on local government funding for a moment, what if we decided to cut it all? Except for capital outlay projects, we indirectly fund recurring local services, so we would, in essence, be shoving our problem down to the local level – and we all live somewhere. If local governments were unable to raise local taxes to support the services, they would be eliminated or significantly degraded. If they were able to raise local taxes to support them, how would the taxpayers see a difference?]
What other general fund expenditures, currently considered mandated should we consider cutting? How about the $130 million in appropriated debt service (in addition to G. O. Debt)? How about the $400 million plus it costs to incarcerate adult inmates in our state prisons? Or, the $157 million we pay local sheriffs to house state inmates? The $27 million we pay in District Attorney and assistants’ salaries? How much of the $73 million legislative and $160 million judicial general fund appropriations are we and the legislature willing to cut? How much of the $848 million in general fund we consider sacrosanct because of federal mandates should we cut and what will happen if we do? How much can we realistically cut from our Medicaid program and still attempt to meet the health care needs of our citizens?
Finally, how about the elephant hiding behind the sofa, our annual payments via the state payroll system toward the Unfunded Accrued Liabilities of our state retirement systems? I’m no actuary, but using the actuarial reports generated by the Legislative Auditor, I estimate annual payments toward this liability, in state funds, is no less than $600 million and growing rapidly because of the way the amortization is structured. The State Constitution requires this debt to be liquidated by 2029.
We often hear that 67% of our general fund budget is non-discretionary. Let’s pretend we don’t have to do a lot of these things and, just for the sake of argument, say only 55% should not be touched. That still leaves only $3.7 billion of state general fund on the table subject to cut and we certainly aren’t going to cut over half of that to solve a projected $2 Billion problem next year. And, by the way, remember that any of the current year deficit not liquidated this fiscal year will, by law, have to be added to that problem.
Take a look at John Bel Edwards’ first Executive Budget. It is balanced to the official revenue forecast of general fund revenue. Look at what is cut and where. Look closely.
http://www.doa.la.gov/opb/pub/FY17/FY17_Executive_Budget.pdf
For more details, look at the supporting document:
http://www.doa.la.gov/Pages/opb/pub/FY17/FY17ExecBudget.aspx
Now, finally, let’s get back to those dedicated funds. The Legislative Auditor has just released a comprehensive document detailing these dedications. He points out there were 370 dedicated funds in Fiscal Year 2013-2014 (the last year for which complete documentation is available), 344 statutory and 26 constitutional. Let’s see which ones of these we want to eliminate.
How about the $1.4 Billion Transportation Trust Fund? Our roads are in great shape, right? Plus, we blow part of this on public safety rather than roads and public safety certainly isn’t important, is it?
How about the $159 million in Lottery proceeds? Surely we can find a better use than education for that money. The $184 million in the Medicaid Trust Fund for the Elderly? We only have to change a statute to cut the old folks off. The Oil Spill Contingency Fund at $52.7 million? We never have oil spills, do we? And, why should we share $39 million of our severance taxes with the parishes where the minerals are severed? TOPS is draining us dry, so let’s free up that money and spend it elsewhere.
I’m being facetious, but, seriously, don’t you think there is a constituency for every one of those 370 dedications (except maybe the 21 that have no revenue or expenditures)? How many times have dedications been studied and how many have been eliminated so far? The Joint Legislative Committee on the Budget has reviewed 25% of these dedications every other year since 2009, but has made no recommendations for modifying or eliminating any of them.
Whatever we do with dedicated funds can’t and shouldn’t be done overnight. Many of them support local governments, but the Transportation Trust Fund is the largest of them all and, in addition to the Department of Transportation, other state departments and agencies derive substantial operating funds from dedications, most notably the Public Service Commission, the departments of Environmental Quality, Wildlife and Fisheries, Economic Development, Agriculture and Forestry, Natural Resources and Public Safety Services.
Shouldn’t we look at each dedicated fund in depth to determine it source, its purpose, and the extent to which collections exceed needs? Isn’t this just what the Joint Legislative Committee on the Budget should have done? Wouldn’t it have made a lot more sense to examine the historical inflows and outflows of each of these dedicated funds before creating a $442 million Overcollections Fund from their balances in FY 2014? This was yet another statutory dedication and a big reason statutory dedications spending rose so much. Worse, we then used the Overcollections Fund to pay for recurring expenses elsewhere – a significant part of why we are in our current mess.
Obviously, some collections in excess of needs should revert to the general fund. Others, justifiably, should not. In many cases, these funds are created from fees people pay for which they expect certain services. Some dedications to locals are used to service bonds.
Should we continue to look at potential modifications or eliminations of statutory dedication as a partial solution to our problems? Absolutely, but given our history and the realities of today, should we place an inordinate amount of blame for our current problems on them, or expect a miraculous cure to emerge from further study? I frankly don’t see why we would.
I urge you to look at the Legislative Auditor’s report here:
http://app.lla.state.la.us/PublicReports.nsf/0/13D9277344A19B9086257F560076E83A/$FILE/0000CAA1.pdf
It will give you a much better understanding of the dedications and is formatted in such a way as to drill down from a relatively high level to a very detailed level, so you can stop where you’d like and still gain valuable insight.
Let’s face it, as Gov. Edwards has said, if it is so easy to cut the budget, why has it not been cut to size long before now? This is particularly true in light of the fact we had a governor who travelled the United States for the past 8 years professing to be a budget cutter extraordinaire. If he actually cut expenditures to meet revenues and wrought such an economic miracle why do we find ourselves so out of whack? No, Virginia, it’s not just oil prices.
State Treasurer John Kennedy and others point to things the administration should do to eliminate fraud, abuse, and waste in state government. Who can disagree? To the extent these occur, we are all losers – the biggest are the intended beneficiaries of the services.
It is important that citizens believe their tax dollars and fees are being spent as wisely as possible or, at the minimum, that somebody is consistently and comprehensively trying to ensure this is the case. In my opinion, the accountability for this lies with the administration, not the legislative auditor or anybody else.
The administration has not yet provided specifics or even examples of what it plans to do about specific contracts that make no sense, bureaucratic structures that may be bloated, and more effective and efficient delivery of health care services. Gov. Edwards has said he will do something about these things, but he is yet to provide even anecdotal evidence like Kennedy and others to support his claim.
The executive branch needs to hold its appointed officials to the highest standards and demand they investigate dedications and everything else in the departments they are paid well to manage toward doing everything they possibly can to make our government as efficient and responsive as it can be. The public needs to know this is being done. They should not have to see an increasing succession of negative findings by the Legislative Auditor or, worse, disturbing reports of mismanagement and abuse in the media and elsewhere that go largely unanswered.
But, all that said, can these efforts bear fruit overnight? Can they come close to eliminating the gap? Look deeper than the rhetoric and you have to answer “no” and “no.”
One more link is below – an excellent presentation by the Louisiana House Fiscal Division done just a month ago. Check it out:
http://house.louisiana.gov/housefiscal/0112_16_OS_FiscalBriefing2.pdf
There is a lot of really good information out there from a variety of sources inside and outside government. Our decision-makers need to use it.
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