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Budget Basics #2 – A Closer Look at Locked-Up Spending, November 2015
The second installment of a LABI research series to help employers and the public understand the Louisiana state budget, the reasons for the deficit, and potential solutions for government to prioritize spending and promote economic growth and individual prosperity.
In Budget Basics No. 1, LABI examined three major factors contributing to Louisiana’s state deficit:
- The structure of the state budget itself with various forms of locked-up funding that make the prioritization of services virtually impossible
Budget Basics No. 2 focuses on this third factor, taking a closer look at locked-up spending.
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Locked-Up Funds in the Louisiana State Budget
Most of Louisiana’s state budget is considered “off-limits” to annual review or reductions. There are three main categories of locked-up spending:
- The Louisiana Constitution and state law mandate certain spending, such as the Minimum Foundation Program for K-12 schools. This category of “non-discretionary” spending was appropriated more than $6 billion in state funds this year.
- State agencies are authorized to charge fees for services or collect fines for enforcement of state law, generating revenue that is appropriated but rarely reviewed. These so-called “self-generated revenues” total $2.3 billion in Fiscal Year 2016.
- Finally, nearly 400 dedications of state tax revenue exist in law and the Constitution. These “stat deds” make up $3.8 billion in Fiscal Year 2016. Roughly $1 billion are generated from fees and assessments, while the remainder are either diversions of tax revenue that would otherwise flow into the State General Fund or consist of legislative appropriations, grants, or other revenue sources.
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Black Box #1: $6.07B "Non-Discretionary" State Spending
“Non-discretionary” spending is required for various reasons for specific functions within most state agencies and local government. However, there is no dedicated funding source for “non-discretionary” spending, so this category of the budget is funded largely with the State General Fund. In Fiscal Year 2016, $6.07 billion in State General Fund and $3.39 billion in federal funding were deemed “non-discretionary” by the Legislature and the administration. As a result, some of these budget items are essentially funded with little review or debate.
When federal and state “non-discretionary” spending is combined, the Louisiana Department of Health and Hospitals relies on “non-discretionary” spending the most of any state department ($4.5 billion) but is closely followed by the Department of Education ($3.7 billion). Other sizeable recipients include the Department of Children and Family Services ($471 million), the Corrections Department ($425 million), and the Louisiana Judiciary ($160 million).
It is difficult to calculate growth in “non-discretionary” spending over the past decade because budget documents in Fiscal Year 2005 did not place emphasis on this category of spending in the way it does today. However, a few line items are available in both the Fiscal Year 2005 budget and the new Fiscal Year 2016 budget that illustrate substantial growth. Of note, various sizeable examples were included in Budget Basics No. 1 to denote where the growth in State General Fund has been spent, such as the Minimum Foundation Program for K-12 schools, supplemental pay for local law enforcement, the prison budget, and judicial expenses. Other examples include:
- The cost for salaries of District Attorneys, which has increased from $15 million in Fiscal Year 2005 to $27 million today.
- Debt service for higher education, which has grown from $9 million in Fiscal Year 2005 to $39 million today.
- The legislative auditor’s budget, which has increased from $16 million in Fiscal Year 2005 to $35 million today.
The major categories of growth in State General Fund spending outlined in Budget Basics #1 along with these smaller examples demonstrate a notable trend. The growth in the use of State General Fund for “non-discretionary” expenses leaves fewer dollars every year for so-called “discretionary” items in the budget, such as higher education.
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Is it really "non-discretionary?"
Despite the label of “non-discretionary,” tens of millions of dollars in growth is occurring in statutorily required areas that are not constitutionally protected and are, in fact, subject to legislative discretion and appropriation. This misnomer leads to a rubber stamp for billions of dollars in state spending on an annual basis even as other areas of the budget suffer disproportionately. While many of these functions and services would likely still require funding, close examination and potential reductions could generate annual savings. In addition, state and local recipients could be encouraged to explore other Means of Finance and free up State General Fund.
Furthermore, a constitutionally protected mandate can also be changed. Sending these measures back to the voters for review – in some cases decades after their initial approval – is a legitimate option for the Legislature as well.
In short, “non-discretionary” spending should be subject to rigorous review, debate and prioritization against other governmental functions.
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Black Box #2: $2.3B Self-Generated Revenue in State Government
A second major locked-up category within Louisiana’s state budget is so-called “self-generated” revenue ($2.3 billion), which generally consists of fees, fines or income received by the state agency making the assessment. In most cases, the proceeds of the fees or fines is appropriated back to the agencies’ operational budgets in order to perform the functions or services associated with the fee. The main distinction between “self-generated” revenue and fee-driven statutory dedications is that a specific account or fund was simply never established to collect the proceeds of the fee.
While there is little visibility on the actual fees, the official State Budget does appropriate self-generated revenues by department, and the Revenue Estimating Conference projects self-generated revenues in the same format. Roughly $1.3 billion of this total is generated by higher education in tuition and fees. This is self-generated revenue, but it is not projected by the Revenue Estimating Conference, does not affect the state expenditure limit, and does not flow through the Treasury.
Higher education aside, the state collects and spends roughly $1 billion in fees and self-generated revenues. The Department of Health and Hospitals collects an estimated $180 million in this category – largely through the Medicaid program. Another $156 million in self-generated revenues are also collected through capital outlay projects, mostly by the Office of Facility Planning. A third major category is in the Executive Department with $140 million in self-generated revenues, about half which is from the Louisiana Stadium and Exposition District that operates the Superdome and other state assets. Public Safety Services collects $132 million in self-generated revenue – $63 million through the State Police and another $42 million from Motor Vehicles. The Department of Revenue rounds out the top five state agencies with self-generated revenues at $95 million in Fiscal Year 2016.
One category in the state budget actually reports $0 in self-generated revenue: the Louisiana Judiciary. It is unclear why court filing fees, fines and other self-generated revenue is neither appropriated nor reported – not even for the Louisiana Supreme Court and the appellate courts, where operations are funded by the state in the annual budgeting process of the Legislature.
In part driven by tuition, fees and self-generated revenue have grown more than any other Means of Finance in the state budget over the past decade. In Fiscal Year 2005, the Legislature appropriated $1.29 billion in self-generated revenue. In the current fiscal year, that figure is $2.33 billion – a growth rate of nearly 80 percent. Contrast this with the State General Fund, which has grown 32 percent over that same period. Much of this growth in actual dollars is in higher education due to tuition increases (95 percent growth), although many post-secondary institutions in Louisiana still remain below the Southern average for tuition rates. Of note, the most growth in self-generated revenue in state government actually occurred in the Department of Revenue (113 percent) and State Police (106 percent), which outpaced tuition growth over the past decade.
Note: Above and beyond the $2.3 billion appropriated in the state budget for self-generated revenue is an additional $1.5 billion in self-generated revenue that is related to shared functions of state government such as the Office of Group Benefits, whereby each state agency collects and remits retirement contributions to the Office. Technically, this is also self-generated revenue, but it is not appropriated and categorized as such because it simply transfers between state agencies.
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Who is generating the "self-generated" revenue? And for what?
Self-generated revenues is a particularly “black box.” Despite state law that requires it, there appears to be no comprehensive list of the fees that make up “self-generated” revenue in the Louisiana state budget. Act 1001 of 2010 required the Division of Administration and the Legislature to establish a plan and schedule for the Joint Legislative Committee on the Budget to review and approve all state fees at least once every five years beginning in 2011. An annual report is required that must include a policy determination as to whether or not each fee is set at the appropriate amount to fund the activity in whole or part. It is unclear if any such report has ever been produced.
State law also requires agencies that charge fees as part of their operating budgets to post the method of fee calculation on the agency website. It is also unclear if state agencies are in compliance with this transparency provision.
Nearly all self-generated revenue appears to be statutory and not enshrined in the Constitution. Again, as with “non-discretionary” spending that is only required in statute, the Legislature has the authority to make changes to these fees and associated functions. For example, the Legislature could review fees and fines to determine if they are set at the appropriate level to fully fund the costs of the affiliated services and make adjustments accordingly. If the function is deemed to have broad state benefit, the Legislature has the authority to convert the fee to a tax and thereby allocate the revenue for general operations. In any event, state law should be followed and the spending associated with fees and fines should be regularly reviewed and transparent to the public that pays them.
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Black Box #3: $3.8B Statutory Dedications
An estimated $3.8 billion of budget dedications were appropriated for Fiscal Year 2016. This includes dedications created in the Constitution and funds created by statute subject to the authority of the Legislature and the Governor. These dollars were appropriated to about 300 separate funds in the 2015 regular legislative session, although 393 funds remain in law today.
To help address the significant deficits of the late 1980s, the Roemer administration and the Legislature abolished more than 100 statutory dedications in one bill, unlocking hundreds of millions of dollars for general use. Since then, dedications have been created year after year, slowly locking away billions of dollars in state tax revenue for specific functions of state and local government. Since Fiscal Year 1988, the number of actual funds has grown from 78 to 393.
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Black Box #3: $3.8B Statutory Dedications Includes Winners and Losers
The dollar amount in statutory dedications is also on the rise. Just 10 years ago, in Fiscal Year 2005, $3.08 billion was appropriated in statutory dedications compared to $3.84 billion today.
Some dedications of state revenue are not for the state at all, but for local government. A percent of state hotel/motel sales taxes, for example, are dedicated back to each local government. This figure grew 81 percent over the past decade, diverting $29 million from the State General Fund in Fiscal Year 2005 and $53 million in the current fiscal year.
At the state level, some statutory dedications have grown dramatically as a revenue source for certain agencies. For example, the Department of Culture, Recreation and Tourism relied on just $40,000 of dedicated revenue in Fiscal Year 2005, which grew to more than $10 million in the current year. Similarly, the Attorney General’s Office has seen statutory dedications grow 239 percent from $6.6 million in Fiscal Year 2005 to $22 million in the current fiscal year.
The Department of Transportation and Development saw its statutorily dedicated revenue increase by $146 million in the past decade, seeming to contradict the ongoing problems with sufficient funding for infrastructure. The Department of Education also saw growth in dedicated revenue by more than $71 million, which is small in proportion to the $3.5 billion in State General Fund for K-12 schools but significant dollars nonetheless. Both of these agencies have seen substantial budget growth overall in the past decade.
The Department of Wildlife and Fisheries nearly doubled its dedicated revenue over the past decade from $62 million to $118 million in Fiscal Year 2016. The dedications within the Department of Public Safety grew by more than $75 million over this same period (48 percent growth). Growth of dedications in both of these agencies is particularly interesting because self-generated revenue also grew at a significant rate in the last decade, combining to grow agency budgets significantly.
On the flip side, several agencies have relied less on dedications. The Secretary of State received $48 million in Fiscal Year 2005, but only half a million this year. The Department of Agriculture took in $59 million in dedicated revenue 10 years ago, but just $34 million this year. The Department of Natural Resources saw a substantial drop from $74 million to $29 million as well. In some cases where dedications decreased, revenue sources merely shifted to self-generated revenue, agencies absorbed significant reductions to their overall budget, or functions transferred to a different agency. However, areas where costs were shifted to the State General Fund should be closely examined. For example, $20 million additional State General Fund is required for the Secretary of State today than in Fiscal Year 2005.
The bottom line is that whether state agencies were winners and losers in statutory dedications, this $3.8 billion has been off the table for discussion, review, reduction or re-allocation – a trend that must end to address the state’s budget challenges.
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Black Box #3: $2.2B of $3.8B Statutory Dedications are in the Constitution
To truly understand dedications requires a deeper dive into specific funds. About 40 dedications are constitutional with Fiscal Year 2016 appropriations totaling more than $2 billion – slightly more than half of all dedications. Some have existed for decades such as the Louisiana Education Quality Trust Fund, and others have been added as recently as 2014 in the case of the Artificial Reef Development Fund and the Medical Assistance Trust Fund.
The Transportation Trust Fund is by far the largest constitutional dedication of funds and includes both federal and state gas tax revenues. The dedication was approved by the voters in an effort to ensure gas tax revenue flows to highways and infrastructure. The newly created Louisiana Medical Assistance Trust Fund existed in statute for many years before being enshrined in the Constitution by the voters in 2014. This Fund is made up of fees imposed on certain healthcare providers (i.e. nursing homes) that draw a federal match to provide for the operation of the Medicaid program in Louisiana, ultimately returning to the providers as a dedicated state appropriation for services rendered.
The Lottery Proceeds Fund was added to the Constitution in 1990 and dedicates nearly all lottery proceeds to the Minimum Foundation Program for K-12 schools. The Coastal Protection and Restoration Fund consists largely of mineral revenues that must be spent on coastal protection, restoration and conservation. Fines, penalties and funds resulting from the Deepwater Horizon incident will be deposited into this Fund as will future revenue from oil and gas activity on the Outer Continental Shelf pursuant to federal law. The Conservation Fund at the Department of Wildlife and Fisheries was placed in the Constitution in 1987 for fees, licenses, permits and various royalties that can only be used to conserve, protect and manage the state’s natural resources and wildlife and to operate the Department.
Local government is also a recipient of constitutional dedications. The Parish Road Royalty Fund ($31 million), the general severance taxes for parishes ($23 million), the Highway Fund No. 2 ($12 million), and the timber severance taxes for parishes ($6.2 million) are all examples of state dedications funding local government that are protected in the Constitution. As noted in Slide No. 3, local government operations are also funded through various requirements in the Constitution (supplemental pay for local law enforcement, for example), but this slide is specific to dedications.
While constitutional dedications certainly enjoy a heightened shield from scrutiny, some are decades old and should be re-visited, even as it means going back to the public on the ballot. The Highway Fund No. 2, for example, was actually a product of the 1921 Louisiana Constitution, was not included in the 1974 Constitution, but was grandfathered in through an Attorney General’s opinion in 1976. Several of the conservation funds committed to particular species of fish or animal may no longer be necessary, for example, especially in light of the growth and size of the general Conservation Fund.
Note: There are fewer than two dozen active dedications termed “fiduciary,” which also enjoy a heightened level of protection. “Fiduciary funds” indicate the state is acting in a custodial capacity for funds that belong to individuals or other governments, such as the Clean Water Revolving Loan Fund or the Workers’ Compensation Second Injury Fund. These fiduciary funds total only $257 million but are not legally owned or available to appropriate by the state.
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Are all statutory dedications truly "locked up?"
Regardless of whether a dedication is enshrined in the Constitution or in state law, there are three main types of revenues that are used to fund dedications. For those that are not in the Constitution, a vote of the Legislature is all that is required to abolish the dedication and the funds can be redirected to other areas of the budget.
- Mandatory diversions of State General Fund dollars are appropriated to 117 funds totaling $1.58 billion in Fiscal Year 2016. In general, the revenue in these funds are state taxes set aside for specific purposes that would otherwise flow into the State General Fund. Of this total, $1.34 billion is protected in the Constitution; nearly all of this figure consists of federal and state gas taxes for the Transportation Trust Fund. The largest non-Constitutional dedication in this category is the Tobacco Tax Health Care Fund ($39.3 million) from cigarette sales taxes.
- The majority of the remaining statutory dedications that are diverted from the State General Fund are subsidies for local government for roads, severance sharing, and tourism and local economic development. A significant number of the diversions of State General Fund dollars are recognized by the Revenue Estimating Conference (REC) in its five-year forecast ($1.95 billion projection for Fiscal Year 2016). These dedications are sourced from the total Taxes, Licenses and Fees collected by the state. For example, $10.8 billion will be collected in Taxes, Licenses and Fees this fiscal year, but $1.9 billion is diverted due to a dedication, leaving only $8.9 billion in the State General Fund available to appropriate.
- Fees and assessments are appropriated to 105 funds totaling $975 million in Fiscal Year 2016. The revenue in these funds are collected from particular groups to be spent on related programs. It is largely industry that is paying these fee-for-service dedications. About one-third of this category of dedication is from constitutionally assessed fees; the bulk is either for the Medical Assistance Trust Fund or the Conservation Fund. Roughly 13 fee-for-service dedications are also considered fiduciary valued at $125 million such as the Workers’ Compensation Second Injury Fund ($61 million). The largest non-constitutional dedication in this category is for the Support Education in Louisiana First Fund ($155 million) from casino franchise fees for salaries in K-12 and higher education.
- In fact, a number of sources of gaming revenues fall into this category, such as the Video Draw Poker Device Fund where $60 million in gaming fees are dedicated to the salaries of district attorneys and other local governing authorities. Throughout the statutes, it is common to find that gaming revenue is dedicated to programs or expenditures largely unrelated to the fee, fine or revenue source. Considering the budget challenge at hand, it is past time to scrutinize spending from gaming revenue in order to determine if the use has statewide benefit and whether or not these fees might be better utilized as taxes for high-priority state services.
- Of note, for this category alone, a two-third legislative vote would be required to convert the dedication from a fee to a tax in order to utilize the funds for other purposes. If the fund is abolished by a majority vote, the Constitution still requires fee-driven revenue to be used for the operations or services paid by the user.
- An estimated $1.3 billion was appropriated in Fiscal Year 2016 in 68 funds that are categorized by Division of Administration staff as “Other” – a catch-all category for sources that staff have not been able to identify specifically as a tax or a fee. These may include federal dedications or legislative appropriations or other sources of revenue. Twelve of the “Other” funds are constitutionally protected with more than $500 million in appropriations this year, including Lottery Proceeds, the Coastal Protection and Restoration Fund, the TOPS Fund, and others. The largest non-constitutional “Other” dedication in this category is the Higher Education Initiatives Fund (which houses the newly created tax credit program known as SAVE) with $350 million.
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Black Box #3: $1.7B Statutory Dedications are Not Protected in the Constitution
More than 250 dedications exist in Louisiana law only (not the Constitution) with Fiscal Year 2016 appropriations totaling $1.7 billion – slightly less than half of all dedications.
The largest non-constitutional dedication in Fiscal Year 2016 is the Higher Education Initiatives Fund, which is the recipient of the Student Assessment for a Valuable Education (SAVE) tax credit program. This fund essentially acts as a conduit from the State General Fund to the institutions of higher education across the state. Unlike most dedications, this revenue source is scheduled to sunset in July 2020, leaving the dedication in law but without funds.
The Support Education in Louisiana First Fund is the second largest dedication that is not protected in the Constitution, but is fee-driven from casinos; proceeds fund salaries in both K-12 schools and higher education. The Video Draw Poker Device Fund ranks third in non-constitutional dedications, directing statewide gaming fees and fines to local government and district attorneys’ offices. The Environmental Trust Fund is generated by industry permits and licensing fees that are utilized for regulator purposes by the relevant state agencies. Rounding out the Top 5 non-constitutional dedications is the Riverboat Gaming Enforcement Fund, which directs another source of gaming revenue to various law enforcement entities within state government.
The full list of statutory dedications is on the state’s LaTrac website as a result Act 492 of 2009, which also required a biennial review of not more than 25 percent of special funds and dedications by the Joint Legislative Committee on the Budget. According to the schedule in statute, the Legislature should be reviewing dedications in October 2015 and a report should be issued by Feb. 15, 2016. It is unclear if such a report is underway.
Of note, legislative staff do not have records of any stand-alone review in the past few years; it is simply part of the budget hearings every regular session. There do not appear to be any recommendations for consolidation or elimination of dedications resulting from the reviews conducted under Act 492.
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Is history repeating itself?
This is not the first time Louisiana has found itself in multi-year deficits. In fact, the comparisons to the crisis in the 1980s are almost eerily similar. Reports from the Public Affairs Research Council – then and now – point to similar budget challenges, similar short-term fixes and similar tendencies to raise revenue rather than address “sacred cows” in state and local spending.
In 1988, a new administration elected on a platform of reform took office. Governor Roemer and the Legislature passed significant fiscal reform in order to address a multi-year deficit. Prior to this time, for much of the 1980s, the Legislature did not even pass a balanced budget. Louisiana not only had a deficit, but a cash flow problem for at least six years. The administration of Governor Edwin Edwards issued Revenue Anticipation Notes (RANs) and created a taxation district statewide in order to repay debt.
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Comparing Past and Present
The way the multi-year deficit was addressed in 1988 and 1989 stands in stark contrast with recent attempts, particularly the 2015 legislative session. In the first special session of 1988, Governor Buddy Roemer and the Legislature enacted a deficit reduction plan that significantly cut government spending, tackled the structure of the budget itself, reduced local aid, addressed long-term cost drivers, and raised new revenue through suspensions of tax exemptions and new taxes and fees.
Perhaps most relevant today for our elected officials, the 1988 plan abolished most statutory dedications in a single bill. The number of special funds dropped from 197 to 78, freeing up an estimated $589 million (the total budget was $6.9 billion). Self-generated revenue also increased – about half due to the elimination of dedications that simply converted to more flexible self-generated revenue. Act 5 of 1988 directed the Treasurer to abolish funds and deposit the balances into the State General Fund on July 1 of the new fiscal year. The interest on the investments was also required to be deposited in the General Fund.
A few categories of dedications were left untouched by Act 5 such as constitutional funds; funds established pursuant to a grant or court order or state contract; special funds composed of and representing members of a trade, business or professional association from fees paid by its members expended for product or market research; and judicial funds. Of note, these exclusions were similar to the categories of funds that are not deposited directly into the State Treasury pursuant to the Constitution.
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What share of state tax dollars actually fund statewide priorities?
For decades, Louisiana has chosen an approach where the state collects taxes and shares revenue with local government. Constitutional provisions prohibit local taxation authority on certain items, such as severance, income, inheritance, and motor fuels. The Constitution authorizes an industrial property tax exemption and guarantees the nation’s most generous homestead exemption. The state funds nearly two-thirds of K-12 schools, all of higher education including community colleges, the vast majority of publicly delivered healthcare, parish road construction, and subsidies for local tourism, local economic development and more.
In Fiscal Year 2016, nearly $4 billion dollars in State General Fund directly financed local governmental entities. Much of this was for the Minimum Foundation Program for K-12 schools, but more than half a billion dollars funded the operations of local government for various purposes, including supplemental pay, human service districts, salaries of district attorneys and direct subsidies for local operations. This is an enormous figure, given that total State General Fund this year is only $9 billion.
In addition to State General Fund, roughly $300 million in statutory dedications are appropriated exclusively to various forms of local government. The dedication of hotel taxes collected by the state for local tourism and economic development is one of the largest categories of diversions of State General Fund and totaled $52 million this year. The parish road royalty fund is another example; at $31 million this year, 10 percent of royalties from mineral leases of state-owned land flows back to the parishes. In addition to the $300 million in dedications direct to locals, another $400 million in statutory dedications are shared between the state and local government – many of these are from gaming revenue. Taken together, roughly one of every five dollars in state dedications are utilized to fund local entities at various levels.
Above and beyond this sizeable state investment for local government, it still does not take into account the fact that many states use local dollars to fund community colleges, a greater share of K-12 school costs, and regional public hospitals, among other functions. The state absorbs the lion’s share of these costs as well, relieving locals of this burden.
In addition to utilizing state revenue for local needs, funding for non-governmental organizations (NGOs) continues today both in the operational budget of the state and in capital outlay despite multiple years of deficits. In Fiscal Year 2016, more than 100 entities requested state line items of funding totaling more than $200 million. A number of these entities did in fact receive funds despite the deficit. In some cases, it appears that State General Fund was appropriated directly to specifically named NGOs as line items in the overall budget or within state agency budgets. In some cases, statutory dedications actually exist in state law for non-public entities such as the Greater New Orleans Sports Foundation, which receives more than $1 million annually from a state dedication to attract and manage sporting events in New Orleans.
It’s no surprise then, as Budget Basics No. 1 noted, that Louisiana tops the Southern states on U.S. Census reports of state and local government per capita spending. The state spends an estimated $5,577 per person each year, ranking No. 16 nationally. Louisiana’s local government also tops the Southern states in per capita expenditures, spending an average of $4,931 per person each year according to the U.S. Census Bureau.
Finally, with regard to capital expenditures, in Fiscal Year 2014, nearly half of all state bond proceeds have been used to fund non-state projects (46 percent). The state has $7.7 billion in bond debt outstanding, of which $3.6 billion has been or will be spent on non-state projects. Most of this debt is for local government, including projects approved just this year. In many cases, local drainage, water, or road projects are prioritized for state funding – which arguably are local responsibility – but beyond that, many non-critical projects are funded with state debt as well, including local visitor’s centers, community parks, sidewalks, parking lots, and more – all were approved by the State Bond Commission. In a time where transportation infrastructure is universally acclaimed as a state priority, millions of dollars are still being diverted elsewhere by a vote of the Legislature.
In the state’s capital budget, again non-governmental organizations received dollars from General Obligation Bonds. Louisiana is one of only eight states that allow private organizations to make requests for capital expenditures. In these cases, the state is actually borrowing money to support private entities such as local museums, historical society chapters, masonic lodges or the YMCA – again all approved by the State Bond Commission. The state is making a deliberate decision to divert borrowing capacity for state priorities in higher education and other areas.
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Are Louisiana's budget challenges unique?
Across the country, states are facing similar challenges to Louisiana. Economic recovery is sluggish, deficits persist, and costs are on the rise. Tax revenue for state governments nationwide is improving at a far slower rate from the recent Great Recession than from prior recessions over the past few decades. Revenue in Louisiana, of course, continue to be impacted by the simultaneous end of hurricane recovery dollars and reversal of Stelly tax changes.
In addition to sluggish economic growth, state governments across the country are facing rising entitlement and health care costs. Just like Louisiana, this situation is forcing tough decisions and disproportional reductions in other areas of government.
Our budget structure is broken. Raising revenue alone will not solve this problem. Cost containment must be part of the equation. Perhaps even more importantly, as Budget Basics No. 2 demonstrates, the structure of the budget must be addressed to allow for prioritization of spending. Locked-up funding that is not reviewed or reduced is no longer an option. Every spending program at the state and local level deserves equal attention as the new Legislature and administration seeks to prioritize state funding.
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The choices are not easy, but it can be done. How we prioritize will be key.
Budget Basics No. 3 will draw on this research and best practices from other states to make suggestions for Louisiana budget reform.