BUDGET BASICS #2 A Closer Look at Locked-Up Spending. LABI s 2015 Budget Research Series

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1 BUDGET BASICS #2 A Closer Look at Locked-Up Spending LABI s 2015 Budget Research Series 1

2 Locked-Up Funds in the Louisiana State Budget $25.1B TOTAL FY16 BUDGET (double counts excluded) $2.3B Self-Generated $3.8B Dedications $9.0B General Fund $9.9B Federal $1.6B SGF Diversions $1.3B Other $975M Fees and Assessments $2.9B Discretionary $6.07B Non- Discretionary $3.4B Non- Discretionary Source: FY16 Louisiana State Budget (DOA) Black Box = Locked Up 2

3 Black Box #1: $6.07B Non-Discretionary State Spending $6.07B Non-Discretionary State Expenditures in Fiscal Year 2016 $3.8B Constitutional Requirements $2.2B Statutory Requirements* $3.4B Minimum Foundation Program for K12 schools $744M Federal mandates or to prevent loss of federal funds $194M General Obligation debt service $677M Unavoidable obligations (i.e. incarceration, building maintenance, legislative auditor fees) $124M Supplemental pay for local law enforcement $305M To avoid a court order $90M Revenue sharing with local government $247M Subject to legislative discretion (i.e. judicial, legislative expenses) $179M Statutory obligations (i.e. parole board, prisoner medical care, DA salaries, POST training for local law enforcement) Source: FY16 Louisiana State Budget (DOA) *The table shows a selection of requirements; more categories exist in smaller amounts. 3

4 Is it really non-discretionary? Fiscal Year 2016 $6B Non-Discretionary Spending Requirements Vote of the Legislature 37% Vote of the People 63% Constitutional ($3.8B) Statutory ($2.2B) Source: FY16 Louisiana State Budget (DOA) 4

5 Black Box #2: $2.3B Self-Generated Revenue in State Government $2.3B Total Self-Generated Revenue in State Government $1B Self-Generated Revenue in State Agencies +80% growth FY05 to FY16 $180m $84m $156m $95m $132m $140m Source: Louisiana Annual State Budgets (DOA) Health & Hospitals Capital Outlay Executive Dept Public Safety Revenue All Other >$20m each Education (RSD) Corrections Transportation Insurance Culture, Recreation, & Tourism Secretary of State Legislature 5

6 Who is generating the self-generated revenue? And for what? $1B Self-Generated Revenue in State Agencies in Fiscal Year 2016 Who? For what??????????? 6

7 Black Box #3: $3.8B Statutory Dedications FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Source: Office of the Treasurer Special Funds in the Treasury 7

8 Black Box #3: $3.8B Statutory Dedications Includes Winners and Losers +$24M 81% INCREASE state sales tax dedication to local government +$56M 91% INCREASE Wildlife and Fisheries +$15M 115% INCREASE Two Percent Fire Insurance Fund +$16M 239% INCREASE Attorney General +$52M 397% INCREASE TOPS Fund 99% DECREASE Secretary of State +$121M 15,000% INCREASE Coastal Protection 61% DECREASE Natural Resources $10M 26,000% INCREASE Culture, Recreation, Tourism Source: Louisiana Annual State Budgets (DOA) Note: Chart includes examples only; many more areas of growth and reduction exist. 43% DECREASE Agriculture & Forestry 8

9 Black Box #3: $2.2B of $3.8B Statutory Dedications are in the Constitution $2.2B Constitutional Dedications in Fiscal Year 2016 (Top 10) $703M Transportation Trust Fund (federal) Federal funds for transportation projects $480M Transportation Trust Fund (regular) State gas tax revenue for transportation projects $190M Louisiana Medical Assistance Trust Fund Healthcare provider fees for the Medicaid program $177M Lottery Proceeds Fund Lottery revenues for Minimum Foundation Program (K12 schools) $123M Coastal Protection and Restoration Fund Mineral revenues, other funds for coastal protection $110M Transportation Trust Fund (TIMED) State gas tax revenue for debt service on specific transportation projects $85M Conservation Fund Royalties, severance, various fees/fines for conservation programs $65M TOPS Fund Tobacco settlement, tax revenues for the TOPS program $53M Louisiana Quality Education Support Fund Mineral settlement, royalties that flow 50% to Regents, 50% to BESE $31M Parish Road Royalty Fund 10% of royalties from mineral leases on state-owned land to parishes Source: Act 492 report; Division of Administration data 9

10 Are all statutory dedications truly locked up? $3.8 Billion FY16 Dedications $3.8 Billion FY16 Dedications 44% 25%, 105 funds 41%, 117 funds 56% 34%, 68 funds Constitutional ($2.1B) Statutory ($1.7B) Source: Act 492 report; Division of Administration data SGF Diversions ($1.6B) Other ($1.3B) Fees ($975M) 10

11 Black Box #3: $1.7B Statutory Dedications are Not Protected in the Constitution $1.7B Non-Constitutional Statutory Dedications in Fiscal Year 2016 (Top 10)* $350M Higher Education Initiatives Fund ( SAVE ) Other: appropriation for institutions of higher education $155M Support Education in La. First Fund Fees: casino franchise fees for salaries (70% K12; 30% higher education) $60M Video Draw Poker Device Fund Fees: gaming fees, fines, penalties for DA, ADA salaries; local government $59M Environmental Trust Fund Fees: industry permits, licenses to defray cost of environmental regulation $45M Riverboat Gaming Enforcement Fund Fees: riverboat fees, fines for DOA, DOJ, State Police $39M Tobacco Tax Healthcare Fund Diversion: certain cigarette sales taxes for smoking prevention, Cancer Centers, DHH, State Police, sheriffs, LSU and SU Ag Centers $33M State Highway Improvement Fund Fees: commercial truck/trailer registration fees for DOTD projects not eligible for federal funds ( rural roads ) $32M Louisiana Public Defender Fund Other: appropriation for public defender program $32M Insurance Verification System Fund Fees: vehicle regis. reinstatement fees, fines for State Police, sheriffs, DAs $29M Two Percent Fire Insurance Fund Diversion: fire ins. premium tax for Fire Marshall, LSU training, local govt. Source: Act 492 report; Division of Administration data *List excludes fiduciary funds as well as Over-collections and Amnesty. 11

12 Is history repeating itself? Louisiana s pattern of increasing spending in boom times has resulted in an overall level of operating expenditures the state cannot support, even with frequent tax increases and budget cuts. So far, the major tools used have been across-the-board and some selective cuts, hiring freezes, some layoffs, limits on travel and vehicle use, reduced workhours, and a drop in state-financed construction and highway maintenance. Public Affairs Research Council, April 1987 Tax increases have been the main solution when sagging state revenues were unable to keep up with demands for increased spending. Despite tax increases, the state/local revenue structure remains basically the same the initial impact falls most heavily on business rather than individuals, revenues are centralized at the state level to the detriment of local governments, and the state remains overly dependent on oil and gas which results in shrinking state revenues. State spending policies have remained essentially unchanged also a plethora of programs and a large amount of state aid to local governments. Public Affairs Research Council, May 1988 Louisiana is facing its toughest state budget challenge since the 1980s oil industry depression The risks are running high that the outcome will mean deep funding cuts at universities, strains on health care, a shift of tax burdens onto businesses and eventual deficits and cash flow problems of r the state So far, the balancing act has avoided discussion of spending cuts in some sacred areas Economics, major events and key decisions over the years all played a part in determining the revenue stream and the level of state expenditures. We have also seen that the state over time has accumulated a number of mandatory spending priorities that speak for much of the state s revenue before any real decisions are made. Public Affairs Research Council, April 2015 The Legislature and the governor produced a state budget during the recent session that boosted government spending with higher taxes, lower tax credits and various forms of temporary patchwork financing... The overall picture is that state and local governments were the winners of this session and most state agencies will manage sustained or larger budgets based mainly on tax and revenue increases. Public Affairs Research Council, June

13 Comparing past and present A Comparison of Deficit Reduction Plans* Fiscal Year 1989 $7.5B Budget Fiscal Year 2016 $25.1B Budget Increased user fees and self-generated revenue Suspended exemptions on numerous sales taxes affecting all taxpayers, including three percent on gasoline, food, and electric power as well as one percent on drugs, farm products, and more. Abolished statutory dedications X Imposed a five-cent per month telephone tax on consumers X Reinstated tolls on certain bridges X Reduced non-school aid to local government by 25% including supplemental pay for local law enforcement, the parish transportation fund, the tobacco tax distributions to municipalities, and fire insurance premium tax allocations Reduced the Minimum Foundation Program for K12 schools by $22 million in non-instructional costs X Closed various offices, parks, tourist centers, motor vehicle offices X Enacted long-term reforms to control costs such as scheduling payment of liabilities over time X (partial) X Source: Public Affairs Research Council reports; FY16 State Budget (DOA) *The list of deficit reduction strategies is not comprehensive, but a sample of actions taken. 13

14 What share of state tax dollars actually fund statewide priorities? $9.0B State General Fund in FY16 Operating Budget $7.7B FY14 Bond Debt for Capital Outlay 44% 56% 46% 54% State Institutions Local Government Source: FY16 Louisiana State Budget (DOA); FY14 Comprehensive Annual Financial Report (DOA) State Projects Non-State Projects 14

15 Are Louisiana s budget challenges unique? Source: Charts used with permission from The Economy Recovers While State Finances Lag, June 2015, The Nelson A. Rockefeller Institute of Government 15

16 COMING SOON BUDGET BASICS #3 Recommendations for Budget Reform in 2016 LABI s 2015 Budget Research Series 16