Money Money Money
Money is always a problem for state governments. Too little of it makes it challenging to meet the state’s obligations, but too much of it can lead to waste, fraud, and abuse. If legislative spending this year becomes a repeat of the last two years, when large excesses were available, there will be no shortage of funding to local governments and non-profits for projects like ballparks, splash pads, festivals, and parade floats.
On December 15, the state’s Revenue Estimating Conference, the committee that oversees the forecast of state tax revenue for the next five fiscal years, met for its quarterly meeting to approve the latest revenue forecast. Usually, in December or January of each fiscal year, the committee gathers to approve an updated forecast for the current year and the following year.
The forecast for the current year, Fiscal Year (FY) 2023, is used to measure whether the state government will have a surplus or a deficit of funds to pay for the activities the legislature appropriated in the last session. The forecast for the next year, FY 2024, will be used by the governor to build his proposed budget for the upcoming legislative session. Since Louisiana is required to have a balanced budget, proposed expenditures cannot exceed the amount of revenue that is projected by this conference.
In FY 2022, which ended in June, the forecast was significantly lower than the revenue that was collected. As we noted in a recent article, the state government is poised to have $727 million left unspent now that the year is over, called a surplus. The legislature is constitutionally bound to spend the 2022 surplus on six items: the rainy day fund, public employee retirement debt, capital expenditures, highway construction, debt payments, and the Coastal Protection and Restoration Fund.
Similarly, FY 2023 is poised to have an excess of nearly $900 million, which the committee deemed in its entirety to be recurring. This means the funds are expected to be available in future years. Therefore, the legislature has no limits on how the funds can be spent and can increase the regular expenditures of the state government. Any expansion of government will require that those funds be available for expenditure next year and beyond.
However, there is some pessimism among the state’s economists that this level of revenue growth is sustainable. This is shown in their forecast for FY 2024, which is $500 million less than FY 2023, with future years decreasing by a bit more each year. While neither of the economists is predicting a doomsday scenario, revenue does appear to have hit its peak–for now.
There is a way to spark another boom, though, and that’s through tax reform. As we mentioned in a previous article, flattening income taxes provides more opportunities for people to flourish, but eliminating them is best to provide even more prosperity and individual liberty to allow Louisianans to keep the fruits of their labor. These tax reforms start with spending restraint.
So how should legislators spend all this temporary taxpayer largesse? By using it responsibly, of course, with an eye toward long-term budget stability. They can put more of it aside for a rainy day, given that this hurricane-prone state has plenty of them. Legislators can deposit more than is required in the Budget Stabilization Fund and pay down the debt of the state’s retirement system. Combined, the state’s major retirement systems for teachers and state employees have a total debt of nearly $18 billion.
The state also has an estimated $14 billion backlog of transportation projects. It would seem silly to increase spending on pet projects and on items that need to be funded year after year. Instead, lawmakers should use this one-time funding for one-time expenses that will help make the state better in the future and avoid a fiscal cliff. Let’s act responsibly and not repeat the same mistakes of the past.