Louisiana Budget Basics. Jan Moller, Louisiana Budget Project ex. 224

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1 Louisiana Budget Basics Jan Moller, Louisiana Budget Project ex

2 The Great Recession was severe

3 Shortfalls were common

4 Louisiana s experience When the Great Recession began, Louisiana was in the middle of an unprecedented (but somewhat artificial) boom. Revenues plunged from $10.1 billion in FY 2008 to a low of $7.2 billion in FY 2010 a 29 percent drop. The cliff was offset by more than $2.5 billion in ARRA money, which has now mostly expired.

5 In billions General Fund Revenues $12.00 State General Fund $10.00 $8.00 $6.00 $4.00 $2.00 SGF $0.00

6 Where we are This year s total budget is $25.6 billion, but only 32 percent of that ($8.2 billion) is state general fund, where policymakers have the most control through tax and spending policy. State general fund revenue has bounced back to pre-katrina levels after years of dramatic ups and downs. The rest is federal ($11.1 billion) statutory ($4 billion) and self-generated ($2.13 billion).

7 And we re not out of the woods Louisiana was one of 10 states reporting midyear budget shortfalls. Louisiana s $198 million gap was the secondlargest in the country, after Maine, when measured as a percentage of the overall budget (2.4 percent). It was the fourth year in a row Louisiana has been forced to make mid-year cuts.

8 In Millions Where does it come from? $3, $2, State General Fund $2, $1, $1, $ State General Fund $0.00

9 Where does it go? Total budget Capital Outlay 4% Resources & Environment 2% Transportation, Business, Tourism 4% Public Safety, Corrections & Judiciary 4% Other 24% Education 29% Health, Family & Children 33%

10 Where does it go? Capital Outlay 0% Resources & environment 0% State general fund Other 14% Transportation, business, tourism 1% Public Safety 9% Health, Family & Children 23% Education 53%

11 Discretionary vs. non-discretionary Although the budget is $25 billion, less than 10 percent of that is left to the discretion of state legislators. The rest is money the state is required to spend.

12 Discretionary vs. non-discretionary State General Fund (in billions) Non- Discretionary $5.98 Discretionary $2.43

13 Non-discretionary spending Constitutional mandate (MFP, elected official salaries, severance taxes to parishes, supplemental pay). Debt service (state buildings, corrections, higher ed) Federal mandate (Medicaid, safe drinking water) Local housing of adult offenders Unavoidable obligations (incarceration; forensics; probation and parole; group benefits)

14 Non-discretionary spending Business & Infrastructure, 0.10% Public Safety, 11.50% General Government, 11.60% Environment & Natural Resources, 0.10% Human Resources, 21.40% Education, 55.30%

15 Discretionary general fund by subject area General Government, 5.8 Business & Infrastructure, 3 Environment & Natural Resources, 1.1 Public Safety, 4.5 Human Resources, 40.8 Education, 44.8

16 Budgeting is a year-round process As soon as one cycle ends, another begins The key decisions in the governor s executive budget are made long before it s presented to the Legislature each winter. Know your legislators, agency employees and administration officials.

17 Budgeting is year-round Appropriations letters (July) Legislature reviews & approves (March-June) Budget Requests Due Nov. 15 BA-7 Governor presents budget to JLCB (Feb- March) REC determines forecast (December) Appeal meetings and governor review (Jan-Feb)

18 Highlights Started with $895 million shortfall. $325 million in cuts $286 million by not funding inflation. $284 million means-of-finance swaps Coordinated System of Care for mental health. GOHSEP positions shifted to federally funded Disaster Recovery unit.

19 Highlights Reduces more than 6,300 full-time jobs. But savings from privatization are tough to measure. Total payroll costs are up. Closes two state prisons and would sell a third. Public school funding frozen for 4 th year in a row. Relies on major contingencies: $709 million in Medicaid dependent on funds sweep 40% payroll tax increase on state employees to fund general budget needs.

20 highlights DCFS closing offices around the state Higher education at a standstill, but tuition going up. $100 million in extra funding if retirement changes pass. Office of Elderly Affairs shifted into DHH Will this affect future funding for Councils on Aging? School vouchers part of MFP formula. How will this affect public schools?

21 highlights Funding for TOPS going up by $13.6 million ($168 million total) Needs-based scholarships at a standstill ($26.4 million) Medicaid transitioning to private managed-care system for 865,000 recipients (mostly children) Promised savings of $136 million. But Medicaid private provider budget is going up $731 million.

22 Fiscal Effect of Stelly Repeals (in millions) FY08 FY09 FY10 FY11 FY12 5-Year Total Excess Itemized Deductions $152 $250 $255 $260 $265 $1,182 Bracket Changes N/A N/A $359 $251 $262 $872 Total Cost $152 $250 $614 $511 $527 $2,054 Source: Department of Revenue for Excess Itemized Deductions, except FY12, which is LBP estimate Legislative Fiscal Office for Bracket Changes

23 Tax expenditures are mostly hidden Louisiana s tax code includes 464 different exclusions, credits exemptions and other loopholes worth a combined $4.8 billion (364 in 2006). Tax expenditures have the same effect as other government spending, but it is less noticed and receives far less scrutiny. Corporate tax exemptions have grown dramatically in recent years. Louisiana now collects less than 12 cent of every corporate tax dollar.

24 Tax collections v. exemptions $1,600 $1,400 $1,200 $1,000 $800 $600 Collections Exemptions $400 $200 $

25 What lies ahead? Medicaid FMAP changes (at least $150 million starting in FY 14). Federal budget sequestration ($300 million in lost federal support; details to come). Vehicle taxes to Transportation Trust Fund. New restrictions on the use of one-time money.

26 What does LBP advocate? A balanced approach Review of tax expenditures Return to Stelly tax brackets