Louisiana faced a roughly $1.6 billion dollar budget deficit last spring and this special session, addressed a shortfall of $3 billion dollars. As a result, the state legislature in the special session that ended last week reduced that $3 billion dollar aggregated budget hole to approximately $900M during the twenty-five days of the special session. Today, starts the year’s regular session and no taxes can be raised, thus the focus must be on cuts and right-sizing government.
On Friday, shortly after the closure of the special session, Waguespack and I discussed that session, the reasons the state suffers from budget holes year-to-year and his recommendations for a long-term fix. Here is part I of the interview. The transcript is below but you can watch the video and read the closed caption.
SABLUDOWKY: Hi everybody , Steve Sabludowsky, publisher of BayouBuzz.com and today it is my honor to have Stephen Waguespack, Louisiana Association of Business and Industry. Stephen, good morning, good afternoon to you, I'm sure it's the last thing you want to do after a grueling legislative session, but, the show must go on--how is it going?
WAGUESPACK; It's going well, it's going well. Look, I understand it's been a tough couple of months for those who have been watching at home, reading the papers, there's a lot of interest in this, these are big and important issues so I don't mind at all talking about it..
SABLUDOWSKY: So let's look back for a second and after that, look forward, if you don't mind, in terms of looking back, right now, obviously, there's got to be some disappointment for everybody, I think that whether, putting blame to side, I think generally speaking, we're not able to accomplish what we what we wanted to do--that's my take, your take?
WAGUESPACK: Well I would say this kind of universal disappointment out there but I don't want to say that in a way that's condemning any particular party for that, I think if you talk to those who are worried about business taxes, they're disappointed, if you talk to those who are worried about individual taxes, they're a little disappointed, those worried about funding government, they're disappointed that enough wasn't generated, those who wanted smaller government are disappointed there was too much generated--so everybody walked away a little bit frustrated. And the governor, in his earlier statement, I think maybe in his introductory statement, talked about shared sacrifice and perhaps, this is part of the shared sacrifice feels like. Nobody will really feels content, is what happened. Now, having said that, I do kinda in a way feel bad, there's a number of legislators who put up an intense amount of time and effort into this last session and there's a lot of frustration in the end on that last chaotic day, but I think a lot of people worked pretty hard for a good result, it didn't quite get there at the end,, I do think that there was a lot of disappointment, it is fair at least to say that a number of folks worked really hard last month to try to get to a good conclusion and sometimes you just don't get there in the end.
SABLUDOWSKY: And of course, you can look at it from the other side, from the administration side, and so in terms of with Governor Jindal, and I'm just wondering, obviously, the administration, this is probably one of the most frustrating times for an administration and that is not really being able to achieve what the administration sets out to start the session.
WAGUESPACK: Yeah, just from that type of political perspective, if you will, I was in the last administration and we came in from the election, called a special session shortly there after then--it's not always easy to make all your hires, get all of your new procedures in place and then rolled right into a special session, that's a challenge and on top of that you got new leadership in the legislature, you got a lot of new members. If you look at the Ways and Means, Appropriation committees, there's a lot of new numbers on those committees, there's a learning process that takes place, not just what the budget is and why it may be broken-- but also, these nuance tax code provisions, they're all very complicated, so there's a lot of new faces in these new positions tackling a pretty heavy subject matter and so it provided another stiff headwind to getting a comprehensive result some folks may have wanted.
SABLUDOWSKY: Yes, absolutely, and in terms of what you said, and really putting the government together, now you all had three sessions one right after another, and I correct?
WAGUESPACK: Yeah, that was the ethics special session, and then there was a second session, it was actually something called a surplus back then, I know that's just a memory, but there was a surplus back then where there was some coastal erosion infrastructure in place and then right into the regular session. So there were three consecutive sessions, two special, one regular. So after inauguration day felt like we were in continuous sessions about six months and unfortunately, I think that some of these new folks will feel quite the same way.
SABLUDOWSKY: So, why are we in the situation that were in? i mean, there's got to be a whole bunch of reasons and I just wanted to get your thoughts.
WAGUESPACK: Yeah, and you're right, there's a whole bunch of reasons and I think there's a lot of different ways to look at it--one, you can go all the way back to 1987 even, Buddy Roemer came in so many challenges, you go in and pull some of those PAR reports, they talk about some of those things we talk about now, so some of our issues are systemic issues that we've had for generations here. That's one piece. The second piece is, we've got an economy that is struggling right now, and a ton of our members, especially in the Bayou areas, in Southwest Louisiana, obviously lost 11,000 jobs in the last year, 10,000 in the energy industry, it's is a big challenge, no doubt. It when it comes to the budget structure itself-- in our opinion, it's a three prong problem--why were in these chronic deficit problems. It's a spending problem, it's a budget structure problem and it's a revenue problem--all three of those. We've spent the last month and a half, really focused upon the revenue piece and there's some solution that came out of that and there's still a gap to go, and it is our assertion that the next month and a half, two months into the general session should really be focused upon those other two legs of the stool--the spending issue and the budget structure issue--and hopefully, collectively, in the beginning of process, we'll have some revenue alterations, some budget structural alterations and some spending alterations and maybe will be a little closer to be at the end of the process than people think at this point.
SABLUDOWSKY: Now obviously, we have an obstacle to overcome and that is, we're going into a non-fiscal session, so how much of that we going to be able to do in terms of long term fix or over again have to deal with the spending part in this regular session and then and then obviously, a special session afterwards?
WAGUESPACK: Yeah, well going into this general session, the special session we just came out of, the call set the terms of that and was specific to different tax revenues, so that was the pure focus. But there's other reasons why we're in deficit besides revenues. So I think what you'll see in the next session, a couple things, one, I think on the spending side--I think that every agency needs to have tremendous oversight into it, we can find some efficiency every way we can--if they cut is put on DHH, and they offer up a now waiver program, that needs to be immediately rejected and say don't give us that type of cut and give us something else and keep pushing back until you get other inefficiencies--there that's one piece. Every agency has to have that type of scrub.
Also on other efficiencies, you have boards and commissions, you have so many boards and commissions in the state, I think we need to eliminate and consolidate as much as they possibly can on that front. Same thing with contracts. Same thing with dedicated funds. As has been well spoken about, 400 dedicated funds gobbling up almost 3 1/2 billion dollars--not one of those issues will solve the problem, not at all, but collectively we start doing some of that spending structure side, I really think that we can start putting some building blocks together to make our government more efficient. The other side of the coin is not just how we spend on those agencies, but we've got some growing, I would say, entitlement costs, if you will, that have been left unchecked for a while. A couple of examples, our pension program--we've got four state pensions, nine local pensions, collectively those 13 pensions are backed by the state. What happens is, over the years, the cost share costs on those pension programs, put a big strain on every dollar that we've spent. So when we give a dollar to K-12 schools, or when we give a dollar to higher Ed, more and more of those dollars have to go to those type of costs instead of the classroom. That's a problem. Smart on crime--we have a high incarceration rate in the state, it's very expensive to lock someone up as compared to giving them treatment and training putting them back into the workforce. We've got to embrace smart on crime. Medicaid. our Medicaid expenses have gone up $1.2 billion in the last decade. We talked about expansion-not expansion-that's one debate--the other debate, how to control costs in the current program--we haven't done that robustly enough. And so, I think there's been some big cost drivers in the entitlement side, there's some cost drivers how we can be more efficient like in boards and commissions contracts and things like that. And then the other piece is some good old-fashioned oversight of agencies and try to consolidate as much as that in efficiencies and spending, as we can.
SABLUDOWSKY: So let me ask ask you, putting all that together, assuming that were successful on all three prongs, and I know it's almost impossible to get a dollar figure, but is there a range? We have an $800 million deficit coming up for July and so, we hear "cuts, cuts, cuts "and maybe we can do cuts--certainly I think that just about everybody would like to have cuts, but what are we talking about--200 million, 300 million, 500 million?
WAGUESPACK: I think it's hard to say, if you point to anyone, for instance, let's say you unlock a lot fo the dedicated funds and let's say that you free up $2 billion in doing so, obviously, the $2 billion cash is not just cash you can spend wherever you want. Some of the spending dollars are still spending on priority items. So, let's say, you may have something on dedicated funds, spending 500 grand a year so, on something, if you undedicated the fund, you may still want to embrace a program but it may only need $400,000 instead of the 500. So you have to go program by program to see where you can still deliver that service efficiently, but maybe the dedicated fund has allowed more dollars that might be necessary on that. That's one piece. The other side is, what your question brings up to me is--one of the challenges that were facing is on these fiscal notes--the reality is, and this has nothing to bad to say the legislative fiscal office, I think they're working the tail off and they did the entire session, the reality is it was a big challenge during the sessionin order to see muchhow bills cost, how much are they going to do to the state, a lot of the fiscal notes had zero with some type of speculation in their--so, in fact we passed almost 48 hours ago in the last session, some of those big bills, don't have fiscal notes, we still don't know exactly how much money was raised. So that is a challenge for legislators and the administration, because, you put a budget together, you've got to put it on firm dollars, you can't just put it on speculative language on a fiscal note, and that's a challenge to know how much we actually save do things like that.
And speaking of that, I was watching one of the hearings, and one of the legislators, one of the representatives actually notice that and said, well, this is a problem that we have with government. If we talk about cutting, these economists are almost overtaxed in terms of trying to get this information out. It's an imperfect science, but you need more people to do it, and to be involved, so is that one of the issues that we have? Me right now, and I'm just throwing this out for discussion, like right now, we have all these flooding going on in North Louisiana and mid-Louisiana and obviously, it's going to cost us some pretty pennies, bridges out and so on, we need government to take care of these kind of situations. These are very real type situations, where it's really hard to say that we'll just scrub it.
SABLUDOWSKY: Sure I will agree with you, again, I've been on the inside with the government responding to emergencies, Gustav and Ike, I can remember sitting up to 2 o'clock in the morning being on phone calls with nursing homes trying to ask where they thought they could shelter in place and then there H back went out and so all of a sudden they need to be in a evacuated--those are tough times. In those moments, you don't want to be saying well, let me get back to you after I ferret how much it costs--you just do it, you just act. So in those moments, I couldn't agree more especially with the flooding going on in northern Louisiana especially, a lot of tragic stories already heard, you can't just be sitting there trying to cut a good deal, you just have to respond and be quick on your feet on that--so I couldn't agree more.
SABLUDOWSKY: Okay in terms of the economist, the number of employees,I heard this representative again, was bemoaning over the fact that the economist like i said just didn't have enough staff, that they were overwhelmed. I think that Greg Albrecht had mentioned, well you saw it, they just couldn't get the work out, and I'm just saying, is this just kind of problem that were having, and it's systemic in that in areas where we really need a lot of money and effort, etc., we can't get it, and that just gonna be a real problem we have, going forward?
WAGUESPACK: Well I haven't heard the fiscal office say that the challenges they need more money and staff. Maybe that is the argument, while I was in the session, hearing, is that they are dependent on--upon getting information from agencies, what these dollars would be, getting that information, scrubbing it internally, talking with outside stakeholders, it just takes a lot of time, anytime you have a new session coming in with over 200+ tax bills dealing with complicated provisions, especially when you're getting like exemptions and credits, the exemptions are one piece, you got to plug a model then, you pretty much know what you are gonna get a sales tax, when you get on personal income, corporate income, business income, exemptions and credits, it's very challenging to put the fiscal office and say, what's that going to bring in--will it going to bring in immediately, will there be a year lag and that is a challenge I think they face on a lot of those issues
SABLUDOWSKY: In terms of the cuts, obviously, that's going to be the focus on in this legislative session, are we going to able to do the structural things, the third leg that you were referring to--are we going to be able to do that? The real structural things that will take us forward? Not revenue,but in terms of but in terms of the budget?
WAGUESPACK: I hope so, I hope-having a feel like, would be in crisis mode for so long, we can't feel like that's the only way to budget and every year we come up short, every year we look for either a quick fix or a new tax and at some point, was going to have to make some reforms that may not reap immediate benefits but we know overtime will save the state some dollars. Because if had done some years ago on some of these issues, we wouldn't have had that cost creep that we're seeing in parts of our budget, so I hope that some of these big items that are soaking up some of those dollars, pension reform, being one of them, Medicaid cost control--I'm not really getting into whether we expand or not, more of the cost control component, there's got to be ways to do that, some of the smart on crime bills--it may not give direct dollars overnight but I think we'll see as years go by it will start to pale some of those costs--and if you talk to a K-12 principle or school board person, and if you talk to even a higher Ed president, they'll talk to you about the budget challenge, but the next thing you asked them, if you say every dollar we give you is more and more getting out of the class room and towards the overhead, they'll tell you absolutely. The MFP is going up $962M in the last 10 years. But if you ask local schools they feel like they've been cut. That's because more and more of their dollars each year, have to go to these overhead costs as compared to the classroom. And so, from a taxpayer perspective, it gets frustrating--" now wait a minute, it's inflated every year, why are you saying you have no dollars" well part of it is because these big entitlement costs is soaking up more and more of their budgets each year.Louisiana Budget Project's Jan Moller cites legislative failures, severe budget challenges