I’ve been seeing numerous vitriolic statements from various folks recently assigning blame to each other over Louisiana’s budget crisis. For those of you who don’t know, Louisiana is short approximately one billion dollars of general funding revenue. We have to make that deficit up over the next 4 months or we will start defaulting on our financial obligations. Next fiscal year, starting July 1st, we are looking at a 2 billion dollar deficit.
Our entire general fund is roughly 9 billion dollars. One outspoken critic, who has little room to talk, is our State Treasurer, John Kennedy. Kennedy should have been warning us before things got as bad as they are. Kennedy has been issuing numerous proposals to fix the current crisis, however many of the proposals from our Treasurer are based on misappropriating federal funds – like those allocated to welfare and food stamp recipients by the federal government, or involve inconsequential amounts that will take years of investigations to realize.
The idea that “we should take care of our children before we take care of able bodied, childless adults” is a great philosophy and hard to argue with from an ethical standpoint. It also makes great talking points for Kennedy’s recently announced Senate campaign. However it’s an unworkable solution in that the money is not fungible (that money came with strings attached and it can’t simply be re-appropriated and used for any other purpose -any decent treasurer would know this) and because the funds involved are, relatively speaking, insignificant compared to the size of the deficit.
So while our revenues may be less than we budgeted for, we have no shortage of grandstanding around unworkable solutions for political points.
I’ve heard some folks blame our situation on “global markets” that are “outside our control” and the decimation of oil in the commodities market, but that didn’t create the problem. Our revenue estimating folks were way off in their estimates and assumptions. Their estimates were pushed through by Team Jindal to make his budget "balance". While that didn’t help, that’s also not the root cause for our current problem.
The collapse in oil is terrible for us and it’s why our economy is falling into what will be a deep recession for many years to come, but we had an unsustainable situation even before that. However, this collapse is just one more reason I think we should implement real permanent cuts to government rather than raising the sales tax to the highest in the nation – taxing the poorest people in the poorest state to turn around and provide benefits for them seems like a really horribly inefficient idea to me.
Still, what I haven’t heard is anyone identifying the true root cause of this fiasco. Complaining about something “outside our control” is a weak excuse. We have known for decades that oil prices are outside our control. This shouldn’t be something we just figured out last month. If our government was a good steward of our state and tax dollars then it should have planned for the inevitable crash.
Unless Louisiana diversifies out of the oil and gas sector our fate as a state will always be tied to the booms and busts of the energy sector. We should to be stockpiling funds during the boom years to wait out the lean years – without having to resort to new taxes during recessions – when Louisiana can least afford it. However, because of the ephemeral nature of politics and politicians, that will probably never happen. Still, I’d like to make a point about what I’d like to see happen over the next four years.
The resources the oil and gas industry are extracting from public lands belong to the people of Louisiana. The people should be getting a better share of that revenue, at least during boom times, to keep taxes as low as possible. Much of our government is controlled by the oil and gas industry, so we are basically at their mercy unless people start to stand up to them, but that’s another set of issues entirely.
I would also like to see us address the whole issue of 80+ year corruption scandal whereby former Governor Huey Long’s descendants continue to reap financial benefits from public property. That won’t fix the current year’s budget problem, but we have spent hundreds of millions over the years on the basis of what is most likely an illegal contract. It would be a nice start to show our government is ready to finally be good stewards of our lands and tax dollars by ending this boondoggle.
However I admit these are distractions from the root issue as well.
I decided to start looking at the problem as if I was making the decisions. Initially I started looking at small agencies to nickel and dime some money from to equal a billion dollars but the budget figures are present as annual amounts. To actually address the problem we would have to cut 3 times that amount with only 4 months remaining in the fiscal year.
For instance if an agency was budgeted 1 billion dollars for the year, you would have to eliminate their budget for the remaining third of a year to save just 333 million dollars, only about a third of what we need to recover. To put this problem in perspective, the state’s portion of MFP is about 3 billion dollars. To fix this problem with just cuts you would need to stop all payments to all schools in the state starting March 1st until the end of June (assuming the situation doesn’t continue to get worse.) Bankrupting every school district in the state is probably a bad idea as well.
As part of my own research I also looked at the feasibility of furloughing employees as an option. I know people like to suggest this every year we have serious budget shortfalls. Unfortunately the entire payroll for the state is 3.2 billion dollars. With a billion dollar deficit and only one third of year to make it up, we would have to furlough, fire, or lay off just about every single employee. About half of the employees are state college employees so that would mean immediately closing every single public university in the state – and probably result in looters carrying off whatever they wanted since we wouldn’t even be able to pay for state police or even security guards to oversee the campuses. Since many of these positions are actually federally funded that would get us in a whole lot of legal trouble as well. So the solution can’t even be solved by sending state employee home for the next 4 months without any pay.
Things are really that serious, but how did we really get here?
Many people have blamed this year’s budget for the problem. I still don’t understand what Jindal and the Legislature did this year to pretend to balance the budget while appeasing Grover Norquist and his tax pledge slaves, and I have a degree in Accounting. Generally speaking you want financial transactions and budgets to be transparent. The more financial wizardry you employ to make the numbers work, the more likely your spells will backfire and end up cursing you. That’s why a lot of banks, financial institutions, and even countries (Merril Lynch, AIG, GM, Citibank, Lehman Brothers, Ireland) went bankrupt or had to sell off their assets in fire sales to kick off the Great Recession.
To add to the complexity of the situation and duplicity of our elected officials, many politicians were running for reelection this year and Jindal was still intent on his Quixotic quest for the Presidency. I think many folks just wanted to pass a budget and worry about the implications later (or let their successors fix their mess.) I know some legislators just wanted pass something with the knowledge Jindal would be gone after the elections and they might have someone less obsessively obstinate and deceitful to work with.
Well here we are, right where most of our reelected legislative incumbents left us. With his presidential campaign in the toilet, and the job he said he wanted officially over, Jindal apparently has nothing better to do than tweet cryptic and childish things at his political opponents. I think that’s actually a fitting end for someone who may come to be known as the Martin Shkreli of Governors.
However the problem we are having now actually has roots much older than 2016. Based on a review of the last 10 years of general fund outlays, it’s pretty obvious what happened when you get to 2010, when Jindal decided to privatize all our hospitals pay outrageous sums to private entities. Sometimes privatization can work, but if you look at DHH’s budget for the last 10 years, you can see this was an example that clearly did not.
DHH was averaging a little more than a billion dollars a year in general funds. After Jindal’s meddling that price tag skyrocketed to 2.7 billion today. It has been growing by leaps and bounds every year. That’s roughly equal to our entire corporate and personal income tax collections for the entire state!
At the current rate of expansion, general funds for DHH might very well eat up our entire General Fund budget before Edward’s first term is even over. Ironically, if DHH was still funded at its 2006-2010 average we would have had surpluses in Louisiana every year, including this one. Next year’s 2 billion dollar deficit would have been only a mild concern easily remedied with our vast surpluses.
Our healthcare spending is killing us.
I can’t justify spending all of our taxes on DHH, or raising taxes to cover these ballooned and ballooning costs. Can you? These privatization deals occurred while most of our current legislators were in power. They did not do their job during Jindal’s reign of error. They let us down; perhaps gambling on following Jindal to a Federal role. . .
That didn’t work out for them, and certainly not for us. Now it is time to hold them responsible for their gambling with our future and the futures of our children. I would recommend that the Governor’s office, State House, and State Senate take on the lion’s share (percentage-wise) of the necessary short term cuts to get us through the end of the year. They allowed this situation to transpire with their negligence and they should literally pay for it before tapping any other agency. (The budgets for the House and Senate are about 50 million and the Governor’s budget for this year is 121 million so obviously more cuts will be required.)
However, in the long term we have to address the DHH situation and stop the profuse bleeding of our tax dollars. Not only has the general fund cost for treating our poor tripled during Jindal’s tenure, we’ve managed to simultaneously close charity hospitals and emergency rooms across the state. A double whammy of out of control spending coupled with less accessible care.
Wouldn’t it be nice if our state our Treasurer and State legislature put in a little more time monitoring our finances before we got into crisis situations like this one? Maybe if they are forced to pay for their mistakes this time, they will be less likely to just go with the flow next time?
Instead of blaming, I’d like to see some of them finally accept some blame.
Instead of demanding unrealistic cuts on others, I’d like to see them show some leadership by committing to some cuts to themselves first. It’s easy to blame others, and cut others, but that’s how we got here in the first place. We won’t fix this problem doing the same things over again and expecting different results. That’s either just crazy, or just a gamble we can no longer afford.