Yesterday, Today and Tomorrow from a State Budget Standpoint

The biggest issue facing Governor Jindal and the Legislature in 2010 will be the state budget. No other issue will come remotely close to capturing the same amount of attention and scrutiny in the run-up to the legislative session next March. Considering the fact that the governor must submit an executive budget outline in February, the countdown is on.

The budgeting process is going to be anything but fun in 2010. Soaring revenues fueled by incredibly high oil and gas prices and billions of dollars of hurricane recovery money are a thing of the past. Slower revenue growth is likely to meet a huge loss of federal Medicaid money in the budgeting process next year, and the result will not be pleasant.

To better understand the future direction of the state budget, a look at the two most recent budgets helps to put things in perspective.

In 2008 when the governor and the Legislature fashioned the 2008-2009 budget, state government was still rolling in high cotton. Money was pouring into the treasury so fast it was hard to spend it all—but Lord knows we tried. The total state budget increased by $1 billion and the state general fund portion of it (the part funded only by state generated revenue) went up by a whopping $1.24 billion. That budget also contained an increase of 1,000 state job positions. This significant expansion of the state budget came after a similar sizeable increase in the 2007-2008 budget fashioned in the last year of the Blanco administration. But what goes up must come down—and our governor and Legislature began to learn that lesson last spring when they wrote the 2009-2010 budget.

The budget debate last spring and early summer contained a lot of wailing and gnashing of teeth. The House members wanted to bring spending back in line with existing revenues. A majority of the Senate wanted to increase taxes and lessen the amount of cuts.

Governor Jindal did not support tax increases, so the House version of the budget became the basic blueprint. The result was that the total state budget decreased by $1.5 billion from the previous year and the state general fund portion dropped by $1.21 billion.

That budget also called for a reduction of 1,200 authorized (but probably not filled) job positions in state government. In essence, the governor and the Legislature simply reverted back to 2007-2008 spending levels when they crafted the current budget. But remember, those spending levels were a huge increase in and of themselves due to higher oil and gas prices and hurricane recovery money.

Now the road gets bumpier for the governor and the Legislature. Unless the federal government changes the formula for determining the state match for Medicaid funding (or carves out a temporary exemption for Louisiana), there will be $1 billion less revenue to use to come up with the same spending levels as exists in the current budget.

Several cost savings panels are meeting to come up with recommendations for reducing expenditures and identifying efficiencies in state government operations. Unfortunately, most of the potentially low hanging fruit in the cost savings arena has already been harvested.

To come up with a billion dollars of spending reductions, some sacred cows are going to have to be sacrificed—things like the multiplicity of institutions in post-secondary education and the large amount of state funding provided for local government services and construction projects.
How the governor and Legislature handle the budget next spring will impact the fiscal future of Louisiana for years to come. Let’s hope they do better than Congress.