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PAR Says Keep Cuts, Save Reserves

The state has found a way to meet the nearly $1 billion shortfall and balance its budget with a combination of cuts and tapped reserves. However, the cuts go deeper than some legislators would like, so they are proposing a budget gimmick to shrink the state’s Rainy Day Fund. SB 105, which would lower the cap on the Rainy Day Fund, should be rejected. Efforts should focus on reducing the budget to prepare for the lean years ahead rather than devising ways to deplete the state’s reserves in order to avoid an inevitable government downsizing.

The bill would enable legislators to restore $194 million in cuts, likely including slush funds and special projects, and balance this year’s budget with mineral revenues it cannot now access. The bill was passed out of the Senate Finance Committee on Wednesday without dissent and with little discussion.

Lowering the cap on the Rainy Day Fund would increase the state’s dependence on unstable mineral revenues and reduce the amount available to access in case of the next emergency. Because the fund has been allowed to grow to its current level, the Constitution allows $154 million – one-third – to be tapped this year. In addition, a separate plan to deposit the state’s entire prior-year surplus into the fund would divert $188 million to help meet the shortfall. Budget cuts and a spending and hiring freeze would resolve the remainder of the immediate shortfall.

The state’s revenue picture could worsen over the remaining seven months of the fiscal year, and next year’s budget will have to be developed to reflect Louisiana’s lower population and employment levels. Further meddling with the Rainy Day Fund in order to avoid immediate cuts is a business-as-usual approach and should be stopped. This is a multi-year budget crisis. Legislators should accept the post-disaster economic reality.

The proposal may also be unconstitutional. The Constitution sets the Rainy Day Fund cap at a percentage of the previous year’s “total state revenue receipts,” which is not explicitly defined in the Constitution or by statute but has been interpreted to include federal funds. SB 105 would redefine that term by statute to exclude federal funds and other revenue sources. That term, however, is used elsewhere in the Constitution, so changing the definition by statute raises constitutional questions.

Louisiana needs to develop a leaner government now to prepare for the challenges ahead. The budget cuts being made this session will set a new baseline for government services in Louisiana. Cuts may even have to go deeper before the year is done. Postponing tough decisions by setting a new minimum for the state’s savings account is reckless procrastination.

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