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PAR Says Budget Needs Reality Check

The proposed state spending plan for FY 2003-04, at best, technically met the legal requirement that the governor submit a balanced budget 45 days in advance of the regular session. While the deadline was met, the balance was artificially achieved by including “contingent” revenues that are highly speculative, omitting obligations that should be met, cutting items that are expected to be restored and increasing spending in other areas. In short, the proposal was not a “true” budget but more of a placeholder cobbled together to meet the submission deadline.

The state still needs to develop a realistic budget for the coming year. The question now is whether the administration is going to fix the plan or leave the job to the Legislature. Either way, the process will be painful, but it might be less chaotic if the administration takes the lead.

Although not dealing with a crisis of the proportion facing many other states, Louisiana is in a financial bind. General fund revenues (taxes, fees and licenses) are not growing; federal aid is tightening, and the economy is uncertain. At the same time, costs continue to rise and demands for more spending on health, education and other services continue unabated. As proposed, next year’s $16 billion total budget would be about $530 million below the expected current year spending but nearly $450 million above the actual spending for the last fiscal year (2001-02). This would be a two-year increase in total spending of only 2.9%.

Unfortunately, most of the two-year increase is funded by $344 million in “contingent” revenues that have been included in the proposed budget for next year. This includes $200 million that a yet-to-be-hired consultantmight locate in federal payments for which the state might be eligible and $74 million in additional aid that mightbe provided by acts congress has yet to approve.

Other funding strategies being proposed include another round of debt defeasance, to free up funds that would otherwise go to paying off bonds next year and attempts to postpone various obligations. Payment of judgments against the state again would be deferred leaving successful litigants unpaid and piling up interest payments. Another plan is to spread over several years the extra payments on unfunded accrued liability (UAL) in the retirement systems required due to poor investment returns.

Among the proposed cuts, the budget would close developmental centers, which raises the level of public concern, but to what end? Speculation ranges from promoting tax increases to eliciting other legislative concessions. If there is no game plan, the current budget proposal is even more inexplicable.

This is not a time for budget games or gimmickry. The state needs a “true” budget that realistically projects revenues, includes all of the state’s obligations and, if cuts are required, cuts lower priority items first and then makes an effort to equitably allocate the reductions. The proposed executive budget does not currently meet these requirements. It is unlikely that this budget will go unnoticed by the bond rating agencies the state has been trying so hard to impress. It will hardly inspire a great deal of confidence.

As a starting point, there is a need to quickly get a handle on the size of the budget problem by:

  1. Including the cost of omitted expenditures (e.g. retirement UAL, legal judgments, etc.);
  2. Stripping out the speculative sources of funding;
  3. Removing the budget enhancements that are not constitutionally required, and
  4. Making cuts in other, lower priority, areas of spending.

If the administration feels additional funding is required, it has an obligation to suggest how those revenues might be raised and how they might be spent. However, those supplemental funding plans should be kept separate from the operating budget.

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