Is Louisiana’s Coming Fiscal Cliff a Fiscal Farce?
On January 20th, Louisiana’s Joint Legislative Committee on the Budget approved the continuation budget for fiscal years 2024 to 2027 without a single question or comment. The continuation budget is a legally required reference document used for budget planning. It shows how much funding would be needed to carry on all programs and activities in the current year’s budget, plus the cost to provide those same expenditures in the next fiscal year, given anticipated personnel costs and inflation.
The latest approved continuation budget shows that the state will have deficits beginning as early as next year.
But will we really? No! Here’s why.
The budget deficit for next year, the fiscal year 2024, is projected to be $174 million. The main driver behind this deficit is a projected decrease in tax revenues from a slowing economy, and an increase in expenditures, primarily for Medicaid and early childhood education. These activities have been funded in the last several years with additional federal funding from COVID-19-related relief packages.
However, those funding sources are ending, but the expenses have already been created. Therefore, if lawmakers want to continue providing those services, additional state general funds would be needed to cover those expenses in the future.
Over the next four years, the continuation budget shows that the state’s budget deficit will increase by nearly one billion dollars just to continue the current services–and without adding any new or expanded government services. This is on top of prior increases in the budget over the last seven years that will be unsustainable in the future.
However, in the last several years, inclusion of the continuation budget in official documents has allowed some to magnify the size and scope of the gap between revenues and projected expenditures by hundreds of millions of dollars. While it shows growth for the entire budget, another budget tool is prepared at the same time, which shows growth in only non-discretionary spending, called a standstill budget. Non-discretionary means that this spending is required, usually due to provisions in the constitution, federal mandate, or by court order or other legal matters.
The non-discretionary standstill budget shows that, while there is still significant growth in expenditures for next year, there is not going to be a deficit. This budget method shows that there will be $254 million less in needed spending than the continuation budget, resulting in an $80 million excess.
This means additional spending in the continuation budget is unnecessary, and any claims of a budget deficit just aren’t true.
While both presented budgets are used as guides, they’re not the actual operating budget. The governor will still propose a budget to lawmakers in February for consideration and mark-up in the upcoming legislative session.
The governor will have to budget funds to pay for most of the items in the standstill budget because they’re required. Still, he has wide discretion over the other non-mandated expenses included in the continuation budget. The state has a constitutional requirement to enact a balanced budget, so we will begin to hear about “cuts” that will have to be made to balance the budget in future years.
How did we get here?
Revenues are projected to decrease in the coming years. There are predictions of a slowing economy, plus, beginning this year, sales tax paid when purchasing a vehicle will no longer go to the general fund. Instead, they’ll be dedicated to future transportation projects.
In the fiscal year 2025, the state’s increased sales tax of 45 cents will expire, further reducing projected revenue. This sales tax increase was added in 2018 to avoid a deficit then. Since then, the state has had six years to plan for the expiration of the additional sales tax. Instead, the budget has continued to grow, and new programming has been added such that the budget appears permanently dependent on that increase.
Here is where some of the most significant increases in state general fund are occurring:
- General Increases:
- $84 million for employee pay raises and the increased cost of benefits.
- $36 million for inflation.
- $7 million increase for the MFP K-12 funding formula to local school boards.
- Replacement of federal COVID-19 funding that is expiring to continue current services:
- $511 million for the Department of Health for replacement of federal funds that are expiring to maintain current funding levels.
- $68 million for early childhood and K-12 education for replacement of federal funds that are expiring.
- Using state general fund for budget increases in departments that are typically funded by fees for their services, but are unable to maintain expenditures to that level:
- $22 million for State Police, which is typically funded through fees paid to the Office of Motor Vehicles.
- $2.7 million for the Department of Environmental Quality, which is typically funded through fees for its services.
The continuation and standstill budgets can be found under agenda item number two of the Joint Legislative Committee on the Budget website.