Across the country, states face similar challenges. Economic recovery is sluggish, deficits persist, and costs are on the rise, particularly in health care and entitlement spending. Annual deficits persist in Louisiana because of three major factors: revenue, spending and the budget structure.
Similarities exist between both the origins and short-term solutions to the state’s current budget challenges to those of the late 1980s. The problems were not created overnight – they are a product of fiscal policies enacted over many years.
At the Louisiana Association of Business and Industry (LABI), we embarked on a budget research series to help stimulate dialogue and inform policymakers and the public on how our tax dollars are collected, reviewed and spent.
The second installment of this research series, “Budget Basics No. 2 – A Closer Look at ‘Locked-Up’ Spending,” consists of 16 easy-to-understand charts accompanied by facts, data and brief findings, and is available at labi.org/budget-basics. It follows “Budget Basics No. 1 – Understanding the State Budget Deficit,” released in October, which helps explain the state budget and why the deficit persists.
Jargon like “non-discretionary” funding, “self-generated” revenue and “stat deds” make for an overly complex budget picture that guarantees spending for specific functions, whether it is a statewide priority or not. In short, Louisiana has too many lock boxes and dedicated funds in the state budget that annually spend billions of taxpayer dollars on cruise control without sufficient oversight and accountability.
The Advocate succinctly stated in a recent editorial that, “We agree with critics of today’s budget that there are too many dedicated funds, small to medium-size chunks of the general fund that are on budget autopilot, generating money year after year for specific purposes.”
Despite state law that requires it, there is a remarkable dearth of recommendations for consolidation or elimination of dedications resulting from regular mandated legislative reviews. Nearly 400 dedications of state tax revenue exist in law and the Constitution. These “stat deds” make up $3.8 billion in fiscal year 2016.
Constitutional and statutory dedications fall into three main categories:
- Diversions of tax revenue that would otherwise flow into the State General Fund total $1.6 billion in Fiscal Year 2016 in 117 funds, including various local government subsidies.
- Fees and assessments are appropriated to 105 funds totaling $975 million in Fiscal Year 2016, including a number of sources of gaming revenue dedicated to programs or expenditures largely unrelated to the fee, fine or revenue source.
- “Other” legislative appropriations, grants or other revenue sources total $1.3 billion in Fiscal Year 2016 in 68 funds.
About 40 dedications are constitutional, with Fiscal Year 2016 appropriations totaling more than $2 billion – slightly more than half of the dollar amount in dedications that would require a vote of the people to unlock.
More than 250 dedications exist in Louisiana law only (not the Constitution) with Fiscal Year 2016 appropriations totaling $1.7 billion that can be re-prioritized by a vote of the Legislature.
In Fiscal Year 2016, roughly $4 billion dollars in State General Fund (of a total of $9 billion) directly financed local governmental entities and an estimated $300 million in statutory dedications are appropriated exclusively to various forms of local government. With regard to capital expenditures, nearly half of all state bond proceeds have been used to fund non-state projects (46 percent). Locked-up funding mechanisms mean dollars like these are rarely reviewed or reduced.
In fact, we have to go back decades to find a significant example. To help address the significant deficits of the late 1980s, the Roemer administration and the Legislature abolished more than 100 statutory dedications in one bill, unlocking hundreds of millions of dollars for general use – including sacred cows for stakeholders and local government. However, since then, the number of actual funds has increased from 78 to 393. The dollar amount of statutory dedications is also on the rise.
The effort to balance our budget will be complicated and messy. To do it right and to get out of the chronic deficit game we have played for years, it will take a comprehensive approach. Simply raising new tax revenue from a weak economy and throwing those dollars into an unreformed governmental budget will do nothing to solve our annual flirtations with deficits. All spending must be brought into the daylight and removed from the shadows of the budget. Every spending program at the state and local level deserve equal attention and how we prioritize going forward is key.
In the third and final installment of Budget Basics, LABI will offer research-based solutions to the state’s budget challenges for the new Legislature and governor to consider in 2016 that will encourage both smarter government and a stronger economy.
Fiscal reform will not be easy, but it can be done. Regaining our rightful perch atop the SEC will not be easy for LSU, but it can be done. Both will just take a new game plan, teamwork and smart execution.