How federal mandates and non-discretionary spending prevent Louisiana legislators from making more effective budget cuts

In the wake of the Great Recession, Louisiana has faced many of the same fiscal issues faced by other states. However, Louisiana’s problems have been compounded by the fact that it has an appropriations process that is particularly inflexible.

This problem is two-fold – unlike most states, most appropriations decisions for Louisiana are made in advance by the state constitution, in which a number of state budget areas have mandated spending levels; additionally, Louisiana derives significantly more of its revenue from the federal government than do most states.

While some programs such as the Supplemental Nutrition Assistance Program are paid for in full with federal funds (with the exception of administrative costs, which are split between states and the federal government), many other programs such as Medicaid are paid for jointly by the states and the federal government, and come with many federal regulations and requirements attached.

For instance, while states assume responsibility for the day-to-day operation of Medicaid, in order to make even the most minor changes, a State Plan Amendment must be filed with the Centers for Medicaid and Medicare Services. States have limited discretion over who, or what, to cover. Fortunately, the Supreme Court has permitted states to decline to participate in the expansion of Medicaid to everyone making less than 133% of the poverty line.

Though Louisiana’s income limits for participating in Medicaid are quite strict, the state has difficulty funding the program. Even with the federal government paying 90% of the costs instead of 70%, it is not difficult to imagine what would happen to the state budget if the income cap for Medicaid eligibility were raised from an annual income of $2,872 per person (24% of the poverty line) to $15,281 per person (133% of the poverty line).

Despite the strings tied to federal funds, policymakers are incentivized to accept them. Aside from the fact that these funds are “free money” in that the stipulations which accompany accepting the federal aid are often not burdensome enough to justify declining the aid, these programs are paid for by tax dollars from Louisianians – federal money offers a chance to recoup at least a portion of taxes paid.

Often times, federal regulation goes beyond forcing states to adhere to program participation requirements. For instance, the National Minimum Drinking Age Act of 1984 required states to bar those under the age of 21 from purchasing alcohol. A related provision in the Federal Highway Improvement Act of 1984 intended to enforce the NMDA stripped non-compliant states of 10% of their highway funding each year.

In an inspiring example of the protection of state legislative priorities, Louisiana complied by banning the sale of alcohol to those under the age of 21 but failed to set any penalties for selling alcohol to them, thus skirting the new federal requirements, a loophole which remained in existence for a decade.

Less exciting but no less significant in their effects on state independence were the Intermodal Surface Transportation Efficiency Act which burdened states with new federal standards and greatly-expanded requirements for cooperating with the federal government in construction of highways, as well as the SAFETEA act which, among other things, diverted funding from highways to the New Starts and Small Starts programs, both of which were designed to offer incentives to state and local governments to extend mass transit. While “offering incentives” sounds innocuous, as if it might be a minor intrusion at worst, the fact of the matter is that these incentives were designed to increase state and local dependency on the federal government by inducing them to design and build unsustainable public transit programs.

In Louisiana, each of the past several years has seen budget cuts. These have fallen almost entirely on health care and higher education. More than a few people have accused Governor Jindal and the Louisiana legislature of some hidden animus toward poor people or universities. However, the truth is a bit different: In Louisiana, because the funding of many programs is constitutionally mandated, the vast majority of money has already been appropriated before a budget is even created. In 2009, discretionary spending made up only 45% of the budget. By 2012, discretionary spending had fallen to a mere 28% of the budget.

One of the effects of enshrining much of the state’s budget in the constitution is ensuring that while some programs are cut to the bone, most programs successfully escape any real pressure to operate efficiently or produce results. While significant cuts to the size of government are an admirable goal, given that the government of Louisiana spends more per capita than most other states, these cuts should be broad-based and targeted at inefficiency and waste rather than centered on two or three areas and undertaken out of desperation.

Louisiana faces ongoing challenges in creating an environment where all citizens can thrive, challenges which are only magnified by ongoing difficulties with crime, poverty, and poor education. Ensuring that legislators’ hands are tied from the beginning of the process does nothing to assist the state in adopting sustainable levels of spending and rational spending priorities.

Louisiana has suffered for far too long from a bloated government which often seems to do as much, or more, to serve as a vehicle for rent-seeking as it does to serve its citizens. Not only can we no longer tolerate that, we can no longer afford it.

For more information on discretionary and non-discretionary spending in the Louisiana state budget, take a look at pages 17-22 of the 2009-2010 budget and pages 15-20 of the 2012-2013 budget.

For an interesting overview of the budget process, take a look at this, courtesy of the Town Talk.