Louisiana’s Once-in-a-Generation Opportunity to Ensure Prosperity
Louisiana lawmakers face an unusual challenge: what to do with a glut of taxpayer money sitting in the state’s bank account. Not only did taxpayers send more than $3 billion extra to Baton Rouge than was originally projected last fiscal year, but taxes are coming in at a faster clip this fiscal year, too. That doesn’t even account for the money coming from our federal tax dollars returned to the state.
The temptation for lawmakers is to spend that extra money, but they need to keep in mind that it does not belong to them—and that there are more responsible ways to manage the unexpected surplus. Specifically, they can save for the future, pay down debt, and make necessary structural budgetary changes that set Louisiana up for long-term fiscal stability.
The budget has grown dramatically in the last several years not only in size but complexity – without improved services. Get up to speed on all things related to the state budget using these resources developed by my Pelican Institute colleagues:
- Citizens’ Guide to the Louisiana Budget
- Establishing and Adhering to a Responsible Louisiana Budget
- Overview of Record-Setting Revenues
- How $1.7 Billion in Excess Revenue from FY22 Has Been Spent
It’s grown so much, in fact, that state spending is actually approaching the weak constitutional expenditure limit, which is usually highly ineffective and is in need of strengthening. But when it does work (like it is this time around), then it ensures state budgets don’t soar higher like we’ve seen in the past. When lawmakers overspend in times of plenty, it leads to tax increases or spending cuts later.
No doubt it’s tempting – especially in an election year – to spend “extra” taxpayer dollars on projects and pork, but that’s the very behavior that’s gotten us into costly budget debacles. Not to mention, that’s the reason the expenditure limit exists.
So, how should lawmakers think about the $1.9 billion that makes up the previous year surplus and current year excess revenue (so far!)?
Let’s start with several core principles:
- Adding resources to the Rainy Day Fund should be the highest priority.
- Paying down long-term debt will help with the state’s large and growing unfunded pension debt.
- Busting the spending cap should be a nonstarter, and absolutely don’t increase future-year spending cap calculations.
- Ensure any spending above the base budget is genuinely on one-time, significant transportation projects. Ongoing commitments should be avoided.
Adding money to the Rainy Day Fund is critical for two reasons. First, it ensures the state has ample financial reserves to weather economic downturns and be fiscally responsible to tackle big, fundamental reform of the state’s tax code. A robust Rainy Day Fund gives lawmakers flexibility for reform, is sound fiscal policy, and provides stability and security to the state budget. Second, adding more to the Rainy Day Fund ensures every taxpayer in Louisiana will get tax relief right now by fulfilling the final measure to meet tax rate reduction triggers. (more on this soon!)
Lawmakers and citizens should not buy into the scare tactics of so-called “fiscal cliffs” proffered by those with an interest in maintaining the status quo. The only way to grow the economy, increase opportunity for everyone, and get us on the pathway to bringing our kids and grandkids back to Louisiana is to reform a complex tax code and reduce the tax burden on our workers and job creators alike.
Further, tackling debt will reduce future interest payments, set up the state for a stronger tomorrow, and free up resources for later priorities, rather than weighing down the state with the consequences of costly past decisions.
Lawmakers have a unique and significant opportunity to make a real difference for the future of Louisiana. Will we do things the way they’ve always been done, or will we turn the corner, embrace meaningful fiscal responsibility, and begin to write Louisiana’s comeback story?
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