Note: This is the third installment in a series of posts regarding the budget.

The Louisiana Legislature has approved the Fiscal Year (FY) 2025 budget, totaling $47.2 billion, reflecting a $2.2 billion decrease from the current FY 2024 budget, which is primarily due to a reduction in federal funding from pandemic- and natural disaster-related spending. The new budget aims to address the state’s needs while beginning to prepare for an anticipated deficit in FY 2026. The governor and legislature worked to spend one-time money on one-time items. The budget also sought to move money from the Revenue Stabilization Fund (RSF), which is a constitutional savings account that can only be used for emergencies.

Budget Breakdown and Key Changes

The FY 2025 State General Fund Budget is set at $12.06 billion, which is $161 million less than the FY 2024 budget but $177 million more than was spent in FY 2023. This reduction is largely due to a decrease in anticipated state taxpayer dollars, a reduction in pandemic related federal funds flowing in, and tepid growth of the Louisiana economy at a time when other southern states are experiencing healthy economic growth. The legislature’s approach includes reallocating state general fund dollars for new or expanded programs that were previously paid for with federal funds during COVID because a large portion of those federal dollars are going away.

Revenue Stabilization Fund Utilization

A critical aspect of the FY 2025 budget is the substantial use of the Revenue Stabilization Fund (RSF), the state’s major savings account set aside for emergencies. $717 million has been moved from this savings account for a gubernatorial proclaimed criminal justice and public safety emergency. To spend these funds, they were allocated to four dedicated funds, three of which were created just for this purpose.

The RSF is intended to provide a financial cushion during economic downturns and emergencies like natural disasters. It contains funds from the state’s corporate income and franchise tax that are collected in any year above a $600 million threshold. This reduces the volatility that is often found in corporate collections. The balance of the fund reached $2.2 billion in the current fiscal year. The amount of money allocated from the fund represents the amount that is otherwise expected to be deposited into the RSF at the end of this year after all tax collections have been accounted for.

To spend this money, the legislature created three new dedicated funds and allocated it for the following purposes:

  1. Louisiana Transportation Infrastructure Fund:
    • $390.1 million, or 54%, is appropriated for various road resurfacing projects, local road transfers, capital outlay projects, bridge maintenance, and DOTD acquisitions.
  2. Higher Education Campus Revitalization Fund:
    • $94.3 million, or 15%, is allocated for capital outlay projects among the 42 various institutions of higher learning. Specifically, funding was allocated to LSU, Southern University, and other higher education institutions, including technology upgrades and accreditation-related expenses.
  3. Criminal Justice and Emergency Responder Fund:
    • $157.6 million, or 22%, directed towards repairing and replacing equipment at the Jetson Center for Youth, advanced forensic equipment for Jefferson Coroner’s office, new training facilities for Kenner Police Department, and various other law enforcement and emergency response projects. At least $100 million of the funds remain unappropriated at this time.
  4. Water Sector Fund:
    • $75 million, or 10%, has been allocated to the Water Sector Fund, which was created to hold Federal COVID relief dollars to be used to renovate and build water and sewer systems in Louisiana.

Budget changes from the current year

Many state agencies will experience budget reductions, primarily from the loss of federal funding, in FY 2025. There are several agencies that will have increases in their state-funded operating budgets. Specifically, state operating budgets are increasing in areas related to health care, public safety, and natural resources.  Additionally, the Judicial and Legislative branches will also receive a state taxpayer funded budget increase over the current year. The new budget adds 273 net new employees to the state government payroll, bringing the total number of state employees to 34,815, not including employees of public higher education institutions. Over $400 million of the line items added during the budgeting process are considered recurring expenses, meaning they will need to be funded again in FY 26 and beyond.

  • Health Care
    • $285 million increase in Medicaid spending because the federal match rates were temporarily increased during the pandemic
    • $28 million in payments to the federal government for improper/fraudulent payments by the state
    • $34.5 million to increase the contractual payments to nursing homes.
    • $18 million to increase reimbursement rates for other providers and a settlement payment with the federal Department of Justice
  • Children and Families
    • $14.5 million for increased reimbursements and increasing the capacity of foster care
    • $4 million for the Alternatives to Abortion program
  • Public Safety and Corrections
    • $20.5 million for increased operating costs in the Department of Corrections
    • $32.4 million to implement Troop NOLA, including 43 new troopers and cadet classes to recruit new troopers
    • $9 million for a pay raise for state police
    • $13.5 million for the Judiciary to fund additional drug and specialty courts, more funding for the CASA and Families in Need of Services programs, and the protective order registry
    • $9.6 million to the Office of Juvenile Justice for increased reimbursements for contract care providers and 70 additional employees to open a re-built facility in Monroe
    • $3.9 million for the Attorney General’s Office to hire 9 new employees to investigate and prosecute cases related to Troop NOLA
  • Education
    • Funded a teacher stipend consistent with last year’s funding level of $198 million.
    • $40 million additional funding to higher education institutions for employee costs, various scholarship and tuition programs not related to TOPS, additional graduate assistantship funding, Pennington, the LSU and Southern AgCenters, and the Shreveport and NOLA medical schools
  • Miscellaneous funding
    • $122 million in one-time expenses for equipment and repairs to facilities, including 238 new state police vehicles, repairing equipment at the Department of Agriculture and Forestry, and repairs to correctional facilities
    • $88.6 million for statewide employee-related expenses
    • $1.7 million for Veterans Affairs
    • $2.5 million additional funding for local Councils on Aging
    • $4 million for a 13.7% raise for Wildlife and Fisheries agents
    • $16.5 million for 33 separate legislative projects for local governments and non-governmental organizations (NGOs). Recipients of this funding include The Endowment for the Humanities, Gretna Heritage Festival, French Quarter Management District, Catholic Charities, and the Opportunity Industrialization Center of Ouachita.

The Need for Responsible Budgeting

While this budget appears to be “responsible” when compared to Pelican’s proposed Louisiana Responsible Budget, it is much less responsible than the budget that was introduced by the governor and initially passed by the House. The total budget for next year is 5% less than the current operating budget. However, looking only at the use of state taxpayer dollars, no federal money included, the final budget is 2.5% higher than the current budget.

The budget also remains far higher over the last decade than it should have been if its growth had been restrained to that of Louisiana’s population growth (which is negative) and the inflation rate. Additionally, the budget remains artificially high from the post-pandemic spending spree.

 

With a potential deficit of nearly $500 million looming in FY 2026, and in the years after, the reliance on the RSF this year may limit the state’s ability to respond to future fiscal emergencies effectively.

Legislative Insights and Economic Implications

The legislature’s budget choices prioritize short-term fiscal responsibility by using one-time resources on one-time spending items. Very little new spending can be considered re-occurring. However, the use of Revenue Stabilization Fund as part of long-term economic planning could harm the state’s financial stability down the road.

The budget includes significant measures to support law enforcement and public safety, which are critical areas. However, this spending represents less than one quarter of funds diverted from the savings account. Additionally, the extensive use of the one-time money from the RSF for other purposes, instead of preserving it for unforeseen economic downturns, raises concerns about Louisiana’s future fiscal resilience.

Louisiana’s FY 2025 budget, as passed by the legislature, represents a complex balancing act. While it aims to reduce overall recurring expenditures, reallocate resources to essential services, and prepare for future fiscal challenges, the substantial use of the Revenue Stabilization Fund poses significant risks. As the state navigates a reduced federal funding landscape and an impending deficit, the reliance on the RSF highlights the need for more sustainable financial strategies.