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Budget hole: What would Gov. Edwards know? Interview with Louisiana Chief Economist, Albrecht
Written by  // Monday, 01 February 2016 16:22 // News//
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vitter edwardsEver since December 2015, when the Jon Bel Edwards transition team first reported it had a serious budget hole in both the current and the next fiscal years, the drums began to beat to a crescendo-- blaming the incoming governor. 

As reported before by this space, many of the governor’s opponents (and others) have claimed that Edwards knew the extent of the budget problems which he is now reporting--$750 million for the current fiscal year and $1.9 million dollars for next fiscal year starting July 1.  Since, his focus is upon raising taxes and cutting, their argument is, he is trying to scare the voters by inflating the budget woes.  Even Republican Treasurer John Kennedy, now running for US Senate,  has scoffed at the Edwards administration numbers and have discounted the budget threats. 

Many of them are claiming that his plan all along was to raise taxes and that he hid his knowledge of the budget hole from the voters. 

Even respected writers have jumped on the bandwagon with the expected criticisms of the conservative bloggers to question Edwards’ credibility such as JR Ball of the Times Picayune, who has written in disbelief, questioning Edwards’ acclaimed actual knowledge of the horrible budget scenario. 

According to Ball, “Of course he campaigned on the claim he could fix the fiscal fiasco without raising taxes, but post-election Edwards says the problem in January is far worse than he ever imagined in November.

If that's your story, Mr. Governor, go for it. “

In a prior piece, Ball questioned Edwards’ knowledge and that of Senate leader John Alario and went on a rampage against the two, ultimately stating, "The situation is more dire than we thought it was," said Lt. Gov. Jay Dardenne, who is set to become commissioner of the Edwards administration.

Seriously, is anyone really buying this state of disbelief?”

Even WAFB recently, in a station editorial challenged Edwards, alluding to the notion that he was lying and breaking a campaign promise, just like all politicians do.

The media reports have played into the mantra by Edwards’s opponents and the Louisiana Republican Party, who slapped at his promise “not to lie” to the Louisiana voters.  

Worst for Edwards, a few news articles and editorials have pointed out that Edwards seemed to claim he would not follow the Jindal-way and pay “exhorbitant” salaries to staff, when, as it turns out, he is paying at least, the same salaries.  His staff claims Edwards will be more productive while spending less money on salaries.

Regardless, when you add alleged-broken promises and alleged lies to alleged salary commitments plus, when you throw in the horrors of a Democrat governor in a raw-red state raising taxes to fix severe budget holes, you need a governor to be above reproach if he expects to voters to trust him with the numbers and with their tax dollars.

So, I wondered, how can there be so much debate over this issue of what Edwards and others, including David Vitter, knew or should have known?  

Thus, I personally wrote an email to Greg Albrecht, the Chief Economist, Louisiana Legislative Fiscal Office, to provide background information and details about the budget and knowledge of those involved.  My thinking was, if anybody would know the details about what occurred, he would.

In my email, I told him that I wanted to get the facts--what would Jon Bel Edwards and others have known during the campaign and prior to the election.  My goal was to lay the issue to rest, one way or another so, hopefully, we could focus on the real problems-fixing the budget, not blaming.

Albrecht has absolutely no ax-to grind.  He is an economist and  not an elected official.  

After discussing the details with him via phone and drafting a detailed summary, I then emailed Albrecht asking him to approve the below, which he has done.

Edwards knew about the full budget problems yet told us he was not going to raise taxes.  Now, that Edwards is claiming the budget problem is much worst, even by a factor of two times worst than originally anticipated, when campaigning,

How bad is the upcoming Louisiana budget for the remainder of the 2016 fiscal year?  What about the year 2017, which the legislature and Governor Jon Bel Edwards will be addressing for the next five months, starting when a special session begins in mid-February? 

Below is the narrative, again, approved for publishing:

Going into November, Louisiana knew it would have a shortfall.  For one, there was a $117 million dollar obligation from the prior year, Fiscal Year 2015, that was still owing.  It was uncertain how much the balance of the fiscal year obligation would be and the 2017 budget was also an uncertainty. 

When they were campaigning, there was no talk of 750 million current year problem.  

We knew we had an oil price problem and other revenue weaknesses as well.  We came along in November at an REC (revenue estimating conference) meeting on November 16 (one week before the elections) the revenue estimate was a reduction $370 million lower than the amount projected for the current revenue fiscal (2016 fiscal year) whole year.   

After the November meeting, the Jindal administration then combined the 370 with the prior fiscal year, 2015 deficit which was $117 million. And they put those two together and they said we have a 487 million-dollars problem for the current fiscal year (2016).  We have to resolve it.   And they presented a plan to the December joint legislative committee to resolve that 487, which included the $370 million REC drop (revenue drop) determined at the November REC meeting.   

The Jindal administration combined the $370 million dollar shortfall and now it is a $487 million problem.  They then presented a resolution to the problem plan to the legislative budget committee in December 2015, which the committee approved.   

We took some rainy day money,  $28 million and we cut 23 million in appropriations (yielding roughly 51 million).  The rest was various funds sweeps.  And ad hoc resources, including deferral of the Medicaid Payment, etc.  This means, the last Medicaid payment that would have been due for payment for FY 2016 was pushed into fiscal year 2017. 

But part of the resolving of the 487 million was to take some resources that DHH had accumulated that they were going to use to resolve the outstanding budget problem that existed for the current fiscal year.  

They had developed a plan to fix that (the future Medicaid obligation for 2016 fiscal year) but that fix was taken to help fix the $487 million in the general operating budget (which included the $117 million from the year before (2015 fiscal year).  The money that was allocated by DHH to fix the 2016 fiscal year Medicaid hole, was spent to pay the past obligations from the prior fiscal year.  Therefore, the current Medicaid hole for FY 2016 is not fixed anymore.    

"That's (the 2016 Medicaid obligation) is now part of the 750, It is now $250 million of the 750.  The 750 is a whole brand new problem.  That wasn't going to exist at that level If things had worked out.  The 750 Is a brand-new problem, but part of its existence at 750 is the fact that we use the DHH resources to resolve the $487 million dollar problem. 

“Edwards would not have known that until it was presented to the budget committee in December.  And in fact, it takes some time to have someone walk you through and explain.  But he would not have known this in the campaign.”

“So the other part of the $750 million (minus the $250 million for Medicaid for fiscal year 2016) are the MFP's.  We now have an official number, a shortfall in the $30 million range, local housing of state parish prisoners about 3 million,  and the TOPS program, which we’re talking about 19 Million and “we're Now up to 20, 21 or 22 million" 

At this point, Edwards nor anybody else knew how the current administration would be resolving the FY 16 shortfall.   

ESTIMATING REVENUES 

Then, after the November meeting, the other big part of the $750 million is within the DOA of the Jindal administration, my counterpart was asked to give us a worse case scenario--  how bad you think this could possibly get in the current fiscal year. And at the time, he gave a $400-$450 million number. This is when this number appeared and it was after the elections.  That combined with the 250 for Medicaid shortfall now for the 2016 fiscal year, the MFP shortfall, the TOPS shortfall, and more which is, again, how we have gotten to the $750 shortage 

When they were campaigning, there was no talk of 750 million current year problem.  We knew we had an oil price problem and other revenue weaknesses as well.  Almost all of which no one would have been aware during the campaign. 

Now the coming up with the 750 and is composed of a  chunk of 400-450 new revenue worse-case-guess.   Much of which is Medicaid that was not known until you found out in December, again, that the Jindal administration was going to use some DHH resources that would have otherwise covered that shortfall which they use for the operating budget. 

Now I would have to say that he did not know much of this. 

Now the 400 to 450 worst-case revenue (I'm just going to use this terminology, we don't know how bad it can get)”.  We’re going to nail that down in terms of an official REC adoption on February 10.  And some number will be adopted by the REC.  That reflects their official decision, Whether that's 450, 400, 300, 500, I don't know yet.  But that piece of the 750 is going to get fixed or designated.” 

SPENDING SIDE FOR THE 750 MILLION DOLLAR SHORTFALL

And then the spending side, Medicaid shortfall, MFP’s.  Those are all fairly well established now  And so will probably have something different from the 750, But it's in that ballpark.  What were guessing at right now.  We know the spending side numbers right now, We’ve got a worse case, we hope it's a worst-case.  On the revenue side,  much of which no one was aware of in a campaign and going into when we got into December and January.  And the solution or resolution of the REC drop and last year's deficit, was presented to the budget committee.  To be fair, I think that most of this was unexpected. 

“These expenditures are real, not growth nor inflation. “ 

THE 1.9 BILLION HOLE 

The 1.9 is a similar situation.  We knew that next year's budget construction was going to be 500+ million dollars in the hole to begin with because that's how much ad hoc resources we started off with building the current year budget,  So right off the bat, you got to replace that for next year. Then a big portion of the 487 Million dollar for the current fiscal year, problem was simply fund sweep, ad hoc, payment deferrals, for Medicaid check writes.  The rainy day money--you have to come up with it again.  And that adds to that 500 million. So we’re actually close to $1 billion at the December Joint legislative budget committee meeting.  For next year's projected deficit. It was $1.037 billion, In December. Actually in the January budget committee, that we had last Friday , They presented and they got 1.4 billion.  On there and I think that putting all the rest of the ad hoc resources, that their use in the current year, They're saying now we've got to replace all this or cut. Somebody's going had to resolve that problem. And then my counterpart was asked give me a worse case not just for the current year, The worst-case for next year too he gave them $600 million. That's all on the presentation sheet in the budget committee.   

Again, during the campaign, no one would have any inkling of this because nobody sat around and said let's give them a worse case scenario.  For next year in revenue side. The spending side issues are largely determined by how we budgeted the current fiscal year at the beginning and how we budget the resolution of the 487 problem halfway through the year, 

For the December period, and those are the big brush strokes of what makes up those numbers, much of which the the current year is not really known.  Everybody knew, we were starting off with a minimum of 500 million and then by the time you got into December, depending upon how we fix the current year (2016) problem, you're just adding to next year's problem. 

In part of next year's problem is that one of the fixes in the current year we deferred.  The Medicaid check write Into next year,  So unless you going to cut that check write--right now, we have 13 check rights in the fiscal year instead of 12.  All of this starts to add up and that's how you get to the 1.9.

 

Last modified on Wednesday, 03 February 2016 17:38

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