PAR Wraps Up the 2010 Legislative Session

The oil spill and the revenue shortfall dominated discussions during the 2010 legislative session. Yet, those discussions yielded little more than hand wringing and vented frustration. Louisiana remains on a collision course with economic hazards on both fronts.

The session did bring a few hard-won reforms to the state’s education systems, both at the K-12 and post-secondary levels. However, promising reforms in governmental ethics and transparency were avoided, and little was done either to implement or to develop solutions to widely acknowledged problems in the state’s public health care system.

Postponing Progress on the Budget

After a slow start and a few surprisingly public showdowns leading to prolonged gridlock, budget makers finally broke their stalemate behind closed doors and passed a set of state budget bills for the rest of this year and next. The budgets are precariously balanced using a patchwork of one-time revenue sources, including $198 million from the Rainy Day fund, $242 million of tax amnesty proceeds, more than $1 billion of federal economic stimulus aid, and millions more from other reserve funds. The total operating budget finally passed for FY 2011 is $26 billion, compared to $29 billion for FY 2010.

In addition to concerns raised by the unusually high level of non-recurring revenues supporting basic operating expenses in these budgets, other problems point to a disregard for fiscal responsibility. Within hours of adjournment on the final day of session, after the Legislature had been widely praised for ending its practice of adding so-called pork to the operating budget, a separate ancillary funding bill was amended to tap into an emergency fund to add around $30 million of expenditures for hundreds of non-state entities in the home districts of the most powerful legislators.

With all the talk of an approaching budgetary “cliff,” Louisiana’s structural deficit persists despite the time and money spent over the past year developing recommendations to streamline government. Recurring revenues are simply insufficient to cover the cost of recurring expenses. Revenues are projected to drop off severely in FY 2012 when federal stimulus funds run out. For the past two years, budget planners have apologetically increased the level of non-recurring revenues in the budget while insisting that another year is needed to plan for a better balance of income and expenses. Even as tax cuts were passed, officials argued that spending cuts could not be made without more time to plan for them. With the passage of the FY 2011 budget, budget makers have exhausted their last chance to delay those decisions. Louisiana will fall off the cliff next year – if not sooner – and the implications of that for higher education and health care services are dire.

In an unusual development, the Revenue Estimating Conference met late in the session and discussed new projections that showed budget shortfalls were even greater than the initially recognized levels. While negotiations had focused on dealing with a $319 million shortfall for the current year and a $245 million shortfall for the coming year, the new projections brought those totals closer to $600 million and $300 million, respectively. Tax cuts granted in the past two years left a deeper impact on the state’s coffers than had been envisioned, and with no one proposing significant service cuts or closures of facilities that left the patchwork of one-time funds as the only viable choice to make up the deficit.

Prior to the final days of the session, House and Senate leaders had been far apart on their approaches to deal with the current year deficit and the coming year shortfall. The disagreements centered on a number of questions. If we spend the Rainy Day fund reserves this year, can we delay for a few years the required payback to replenish the fund? Which other trust funds have balances that can be shifted to the general fund for operating expenses? Should we allow the current year to end with a deficit or should we curtail spending now? How can we preserve our current systems of higher education campuses and charity hospitals? Eventually, the House yielded to the Senate approach after the governor intervened.

Although the budgets are balanced on non-recurring revenues and still include legislators’ pet projects, two positive developments deserve recognition:

• A variety of state services were considered for privatization. While outsourcing is no panacea, opportunities to conduct the business of government in more efficient and effective ways should be carefully considered and scrutinized on an ongoing basis.
• The state’s retirement plans were also closely scrutinized and incremental improvements were made with HB 1337, which creates a new, less generous retirement plan for new hires, among other things. This change does not do anything to address the state’s existing retirement debt, but it is a step in the right direction to rein in the rising costs of public employment. In addition, HB 229 proposes a constitutional amendment to make it more difficult for legislators to increase retirement benefits for public employees in the future. It will be presented to voters on the Nov. 2 ballot.

K-12 Education

On balance, it was a mixed session for K-12 education in the state. The state’s accountability system was strengthened with the passage of HB 1033, the Value-Added Teacher Assessment Act, which is expected to change significantly the way public school teachers in Louisiana are evaluated. The specific assessment criteria have yet to be developed, but beginning with the 2011-2012 school year, 50 percent of a teacher’s performance evaluation will be based on evidence of student progress. In addition, teachers will be subject to annual evaluations instead of every three years as happens under the current system. Pay for performance is something PAR research has recommended in the past, and this is a good first step toward that goal. The legislation drew vehement opposition from the state’s teachers unions and from individual teachers even though at least 50 percent of the members of the Educator Evaluation Advisory Committee that will determine the assessment criteria will consist of practicing educators.

Another major education bill — HB 1368, the Red Tape Education and Local Empowerment Waiver Program —passed despite more fierce opposition from the state’s two largest teachers unions. The program is expected to offer school districts more flexibility in working with low-performing schools by allowing them to seek waivers of various rules and regulations in exchange for meeting specific performance goals. Union opposition revolved in large part around provisions that would allow districts to seek waivers from rules governing instructional time, curriculum, funding, personnel, student-to-teacher ratios and student support. However, while the bill was approved, an amendment mandating that a majority of teachers at a school agree to any waiver requests could blunt its impact.

For the second year in a row, bills aimed at reforming school board operations across the state were introduced. This time, proponents focused their efforts in two areas — micromanagement and term limits. HB 942, which will limit the ability of local school boards to micromanage their superintendents, passed after a great deal of debate. The bill’s author significantly rewrote the measure after it failed last year to take into account suggestions and complaints from superintendents and school board members. HB 410, which would have allowed voters in each district to decide whether to establish term limits for their school boards, failed, however, even though the bill had been rewritten from last year to permit the local option rather than the state mandate.

Charter schools fared relatively well in the session, as efforts to compel charter school teachers to join the Teachers Retirement System of Louisiana (HB 658 and SB 694) and to require attendance zones for charter schools (SB 66) failed. HB 1154, which would have established an independent Louisiana Charter Schools Commission to authorize charter schools, also failed. Two of the most important charter school bills to pass were HB 962 and SB 344, both of which establish a uniform application and review process and timeline for potential operators.

Local school districts were left with a standstill budget for 2010-2011 as the Board of Elementary and Secondary Education (BESE) failed in its attempt to increase the Minimum Foundation Program funding by 2.75 percent. BESE’s initial budget proposal was rejected by legislators, and board members had to call a special meeting to reduce the funding request. Even without the increase, overall MFP funding will go up next year because the number of students enrolled in public schools across the state has increased.

Higher Education

Although lawmakers made some important strides, that progress was overshadowed somewhat by the budget cuts approved for higher education. The reductions follow some $250 million in cuts to the state’s colleges and universities over the past 18 months.

HB 1171, the Louisiana Granting Resources and Autonomy for Diplomas Act (LA GRAD), was one of the major pieces of higher education legislation to be approved this session. In an effort to give the state’s higher education institutions some financial relief, the act will allow them to increase tuition up to 10 percent each year until they reach the Southern Regional Education Board average for peer institutions. In exchange, the institutions will have to sign a performance contract with the Board of Regents and meet specific goals focused on such things as graduation rates, student retention, program completion and workforce needs. Those contracts will be reviewed every year by Regents to make certain the universities are adhering to the performance requirements. The legislation mirrored recommendations developed by PAR in a 2007 report on higher education tuition and fees.

Steps also were taken to strengthen the Board of Regents’ powers with the passage of  SB 538. The measure, which will revise state statutes to give Regents clear authority to set policy for higher education in Louisiana, is based in large part on recommendations made in a 2009 PAR research report that examined higher education governance in Louisiana. HB 1492 was another bill designed to clarify Regents’ powers by resolving an existing conflict in the Constitution. It would have asked voters to amend language in the state Constitution to match the statutory changes called for in SB 538. HB 1492 was approved by the House Education Committee, but the legislative session ended before it was heard on the House floor. The failure of HB 1492 could be problematic for the successful implementation of SB 538, because it means the conflicting language in the Constitution remains.

A separate proposal called for more drastic changes to higher education governance. HB 996 called for the elimination of the Board of Regents and the consolidation of the management boards of the Louisiana State University System, the University of Louisiana System and the Southern University System into one governing board that would oversee the state’s four-year institutions. The bill, which was a constitutional amendment, failed to gain approval from the House Education Committee despite the fact that it was sponsored by the Speaker of the House, supported by the governor and based on a recommendation of the much-praised Postsecondary Education Review Commission.

Higher education in general found itself the target of much legislative wrath this session, as lawmakers complained loudly about what they characterized as a lack of information from university officials over specific cuts that will have to be made in light of the budget crisis. Lawmakers were further incensed when they learned that the commissioner of higher education had retired and been immediately rehired last year, thereby increasing her compensation package significantly for this year. The commissioner resigned from her position shortly before the legislative session ended. Ultimately, lawmakers vented some of their frustrations by sharply cutting the Board of Regents’ budget for next year.

Health Care

Budget priorities dominated legislative activity on health care, with important strategic planning issues often taking a back seat in the debate over the fine points of where and how to impose budget cuts. The legislative session ended without a final determination of how much more will likely need to be cut from health care spending in FY 2011 in light of new projections that worsened the revenue shortfall and the ongoing uncertainty about the level of Medicaid relief Congress will grant states this year.

Overall, the state’s health care budget for FY 2011 is significantly lower than the FY 2010 level and will probably have to be reduced even further over the course of the year. The Department of Health and Hospitals (DHH) budget is balanced on significant savings projected to be realized through various privatization efforts that would outsource a range of services and establish a new model of care for much of the Medicaid population. Legislators were successful in their efforts to gain ongoing review and approval authority as contracts for the privatization plans emerge. SCR 75 and HB 1443 require legislative committee approval of DHH contracts that are intended to privatize activities performed by state programs. DHH would have to include certain requirements and performance factors in the contract evaluation process. HB 1443 also requires that potential contractors be evaluated according to their capacity to hire displaced state workers.

Institutional vs. In-Home Care

The budget for long-term care for the elderly reduces funding for in-home services and increases funding for nursing home care, which threatens to undo recent progress in providing alternatives to institutionalization. PAR had proposed that the Legislature require DHH to closely monitor and report the status of elderly clients receiving in-home care to determine how many would have to be shifted to nursing homes because of the drop in services. Legislation to do so was not proposed.

Charity Hospitals

The LSU charity hospital system finds itself at the mercy of several factors that may soon affect the sustainability of operations for some of its 10 facilities. Federal health care reform mandates, overall state revenue shortfalls and federal revenue reductions in Medicaid cost sharing will all have a significant impact on the state-run system.

As the session progressed and the level of budget cuts for FY 2011 was increased, LSU officials lamented that funding at the proposed level would result in closure of four of the smaller charity hospitals. Although much of the funding was restored to avert closures for the coming fiscal year, the issue remains unresolved because future years will bring more severe budgetary challenges for state public hospitals.

In 2007, PAR recommended a major reorganization of the system that would evaluate regional needs and create public/private partnerships to provide ongoing care for the uninsured. However, careful planning would be required and should have started years ago. Once again, the Legislature has failed to order DHH and LSU to jointly develop a strategic plan outlining possible scenarios and solutions on how to reorganize the charity hospital system to deal with the inevitability of future changes. One effort to get that planning underway was averted with the removal of an amendment to HB 1 that would have directed DHH and LSU to develop a plan by Jan. 10, 2011, to transition LSU-operated public hospitals to a role that reduces reliance on federal funds, utilizes existing capacity available in private community hospitals, protects major teaching hospitals and improves primary care access wherever possible.

Back-Stepping on Access to Primary Care

Funding of about $30 million to ensure continued operation of primary care clinics that meet “medical home” standards in the New Orleans region was requested by DHH but was not included in HB 1. Instead an authorization has been added to enable DHH to spend federal funds for that purpose, if and when they are made available – which is uncertain. Failure to provide these funds would likely result in closure of a number of clinics that had opened after Hurricane Katrina to improve basic access to medical care while avoiding routine but costly treatment in hospitals. The New Orleans area has made substantial progress since Katrina and currently ranks high compared to other U.S. cities in terms of numbers of nationally certified medical homes, considered the pinnacle of primary care clinic performance.

National Health Care Reform

National health care reform is now the law of the land and most states are busy preparing for an orderly transition to a new delivery system. Louisiana instead has joined 20 other states with litigation that tries to stop the federal government from implementing reform. Legislators initially tried to prohibit the state from participating in federal health care reform with HB 1474, but the bill was watered down in the Senate with an amendment that prohibits the bill from being interpreted to supersede any provision of the federal reform act (the Patient Protection and Affordable Care Act of 2010). Louisiana would be better served if state agencies redirected their efforts toward the establishment of a health care reform commission to conduct on open planning process as PAR research has recommended. No legislation was proposed to establish such a commission.

Governmental Ethics

PAR released a report in January 2010 that analyzed changes made to the state’s ethics code in 2008 and found that a weaker ethics enforcement system had been created. Regrettably, recommendations to correct those problems were largely ignored this session. Legislators failed to make meaningful change and instead offered only minor tweaks to the current ethics system. SB 418 cures a current source of confusion in the law by clarifying that the ethics board has only one year (from receiving a complaint or voting to consider an issue) to issue formal charges for wrongdoing. SB 310 provides that administrative law judges (ALJs) who adjudicate ethics cases will serve three-year, instead of one-year, terms. In the end, the Legislature’s minor tweaking in this area continues to allow a substandard ethics administration system to exist and to allow the governor far too much power in the process.

In addition to failing to fix the problems in ethics administration, legislators tried to backpedal on reforms passed in 2008. Currently, public servants are prohibited from receiving gifts from certain persons and gifts that are given because of the public servant’s position. HB 296 would have allowed public servants to accept gifts valued up to $15 from any person. Although the measure ultimately failed to pass, it is disturbing to note how far the bill progressed through the process − completely through the House and onto the Senate floor − before it was defeated.

Another disturbing measure is HB 758, which would require the ethics board to make public the names of people who file ethics complaints. Names of complainants currently are confidential. The Legislature finally passed the bill, but the governor has promised to veto this measure because of its possible chilling effect on ethics complaints. Widespread legislative support of these bills suggests a profound disconnect between citizens and their representatives when it comes to ethics reform.

Transparency

In what has become an annual showdown, legislators once again debated the openness of records that relate to the work of the governor, but almost all efforts at achieving greater transparency failed. A wide range of records are off-limits to the public, including records relating to the governor’s deliberative process; pre-decisional advice and recommendations made to the governor concerning budgeting; communications with the governor’s internal staff; and the security and schedule of the governor and his family. Four bills (HB 307, HB 499, HB 501 and SB 593) attempted to set reasonable limits on these broad exceptions by maximizing public access while continuing to protect the most sensitive documents. However, all four measures were withdrawn or defeated. In the final days of the session an amendment was added to another bill (HB 37) that would make public and require the archiving of all records − even those held by the governor − related to the Deepwater Horizon oil spill. Although the bill was finally passed, the governor could still veto it.

In 2009, PAR released a report on economic development that recommended ways to increase transparency and better control spending in relation to economic development projects. Closely in line with PAR’s recommendations, three bills (HB 559, HB 553 and HB 406) were passed this session that will provide new parameters for economic development agreements with private corporations and give the public some additional perspective on what the state is getting for its money.

Constitutional Amendments

Eighty-eight constitutional amendments were proposed this session, and six were passed by the Legislature. The issues they address are: public retirement (HB 229), disabled veterans and ad valorem taxes (HB 246), sale of expropriated property (HB 276), criminal defendants’ rights to waive trial by jury (HB 940), workers’ compensation judgments (SB 42) and homestead exemption following a disaster (SB 21). These six amendments will be presented to voters in the fall of 2010, along with six amendments passed during the 2009 session.

Conclusion

Unresolved issues with the Gulf oil spill and the state budget shortfall – both of which continue to grow − leave this Legislature’s work largely unfinished upon adjournment. Either issue may require legislators to return to the Capitol for a special session in the coming months. At the very least, the Joint Legislative Budget Committee will have to play an unusually active role in maintaining the budget’s precarious balance until next spring when the full Legislature will finally have to figure out a way down the long-discussed “cliff” of 2012. The Legislature and the administration demonstrated an ongoing lack of vision and an unwillingness to propose solutions to the compounding economic hardships overshadowing Louisiana’s fiscal future. Moreover, although some notable progress was made with education reforms, reforms in other areas begging for improvement – health care, ethics and transparency – were set aside. At best, this session can be deemed a triage in preparation for the long-anticipated fiscal crisis when the state’s political leadership will be forced by drained reserve funds and dwindling revenues to evolve their philosophies beyond rhetoric into executable solutions to deal with the Louisiana’s structural deficit.