Baton Rouge, La. – The Louisiana Association of Business and Industry (LABI) released more than 20 recommendations resulting from a multi-part research series developed 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.
“Budget Basics #3 – Recommendations for Budget Reform” consists of 23 short and long-term solutions to Louisiana’s budget challenges grounded in research and national best practices. It follows “Budget Basics #1 – Understanding the State Budget Deficit,” which helped explain the state budget and why the deficit persists, and “Budget Basics #2 – A Closer Look at ‘Locked-Up Spending.” LABI’s research series was created to provide new information and a fresh perspective on the state budget, stimulating dialogue and solutions among citizens and policymakers. This resource is available to LABI members, employers, and citizens across the state at www.labi.org/budget-basics.
“As Louisiana confronts economic and budget challenges, there is no question that reforming the state’s approach to our tax code and budget structure should be at the top of the agenda,” said Stephen Waguespack, LABI President. “LABI is proposing numerous concrete and actionable solutions we hope lawmakers will consider in the special fiscal session. Above all, we urge officials to adopt a comprehensive approach that addresses all of the reasons behind the state deficit – revenue, spending, and the budget structure itself – through both short and long-term solutions. The fundamental importance of a competitive economy has long been recognized by both parties as the foundation for Louisiana’s growth, and LABI encourages leaders to take this into account as they seek to address state government’s fiscal challenges in the months ahead.”
The recommendations of “Budget Basics #3” are categorized in five broad areas: unlocking dedications, reforming the budget structure and process, limiting the growth of government, enacting greater transparency, and adopting a pro-growth tax code. All 23 solutions address budget reform, spending, and revenue. Major recommendations are as follows:
- Abolish the majority of state dedications. 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. A similar bill in 2016 would allow for scrutiny of state spending through more than 250 funds and more than $1.5 billion that have largely been left untouched and unscrutinized throughout the years of state deficits. Policymakers should then evaluate whether the agency, operation, or service funded with the dedication is still necessary to the state and will require replacement revenue, if that share of revenue can be reduced, or if the service or function itself should be eliminated.
- Require that all interest earned on statutory dedications flow into the State General Fund. According to the Treasurer’s staff, only about one-fifth of investment earnings in Fiscal Year 2015 were retained by the State General Fund ($37 million), while the vast majority of interest returned to dedications – an estimated $135 million.
- Place a higher threshold to enact new dedications. Since Fiscal Year 1988, the number of actual funds has grown from 78 to 393. Like new revenue, permanent new spending should have a higher threshold for enactment. LABI recommends the Legislature consider requiring a two-thirds vote to set up new dedications, a detailed analysis of the cost-benefit to the state in a mandatory five-year fiscal note, and pre-determined criteria to determine statewide benefit and need.
- Re-instate a genuine expenditure limit for state government. Louisiana has a constitutionally mandated expenditure limit, which is currently irrelevant because the budget peaked at such an extraordinarily high level following Hurricane Katrina and just prior to the recession. As new revenue is debated, LABI recommends the Legislature also re-base the expenditure limit that the voters intended to help control growth to a realistic level in the years ahead.
- Allow more time to debate new revenue. While the two-thirds vote is a significant hurdle to enacting new revenue, there are certain types of bills for which the Legislature makes a more deliberate attempt to solicit public awareness and input. New taxes or fees should require no less advertisement than retirement or local bills. Time for citizen awareness is important to analyze the full impact of new revenue on taxpayers and to encourage debate and deliberation about whether additional taxes are warranted to cover the costs of additional spending. LABI recommends the Legislature, in statute or rules, require advance publication of bills that require a two-thirds vote to raise revenue.
- Enact a pro-growth tax code. The focus of LABI’s Budget Basics research is state spending and the budget, not the tax structure of Louisiana, which has been well-studied by both public agencies and private organizations over the past year. The recent study conducted by the Tax Foundation and the Louisiana Committee of 100 is a strong starting point for policymakers to begin discussions of comprehensive tax reform that meets these principles. Louisiana’s myriad system of tax exemptions and incentives has been created to mask the poor and uncompetitive foundations of the tax code itself. LABI supports systematic overhaul grounded in key principles that result in a tax system that is more stable, simple, transparent, fair, modern, and competitive.
- Reduce cost drivers through best-practice long-term reforms. While many areas of the state budget have seen decline in recent years, others have grown. LABI recommends the Legislature adopt data-driven, long-term reform in areas of significant growth in the state budget in order to help avert future fiscal challenges, including the consideration of best practices for state retirement and healthcare, smart-on-crime legislation to address over-incarceration, and reforms to the TOPS program, among others.
- Consider an initial round of zero-based budgeting to review every expenditure prior to appropriation for the first time in many years. Zero-based budgeting is a mechanism to press reset on state spending, requiring annual justification for each activity included in a new budget. Zero-based budgeting began in the 1970s and has been utilized by both Republicans and Democrats to truly analyze funding and prioritize spending. It is time-consuming, but could yield positive outcomes and benefits for years to come.
- Inject transparency into the funding formula for higher education and incentivize better outcomes in accordance with role, scope, and mission of each institution. When it comes to higher education, how we utilize our limited dollars is equally important to the level of the state appropriation. LABI recommends that the Legislature and the Board of Regents establish this year’s appropriation as a stable baseline for predictable funding going forward and allocate any and all new resources in an outcomes-based formula that builds performance models tailored to institutional missions and ends enrollment-driven allocations. In addition, LABI recommends the Legislature grant long-term autonomy in tuition, fees, and operations while also enhancing accountability for the performance of institutions of higher education through the creation of institutional scorecards that are easy to understand for taxpayers and students alike. Finally, policymakers should also develop a targeted mechanisms to take additional intervention to help institutions that are chronically under-performing, similar to BESE’s role for K-12 schools.
- Reform capital outlay to focus on statewide infrastructure priorities. Nearly half of Louisiana’s $7 billion in bond debt is not for state projects, and Louisiana is one of only eight states that allow private organizations to receive capital outlay funding. Going forward, the Legislature should remove non-public entities from eligibility altogether and reduce the allocation to local government to ten percent. This action would immediately free up resources for long-postponed statewide infrastructure projects, higher education maintenance, and state roads and bridges.
- Expand the state’s budget transparency website beyond executive branch expenditures to include activity in the judicial branch, the legislative branch, and local government. Louisiana’s online spending databases are focused only on state agencies. Model states, such as Ohiocheckbook.com, offer information on all levels of government spending including local government, which receives a sizeable amount of state dollars in Louisiana. LABI recommends taking a more comprehensive approach to state transparency efforts in line with best-practice states.
"Comprehensive fiscal reform will not be easy, but it can be done,” reiterated Waguespack. “LABI’s research-based solutions seek to encourage both smarter government and a stronger economy. Efforts to resolve the deficit should not solely focus on quick solutions that generate new revenue, but on long-term reforms for cost containment, more public engagement, and improved budgeting and prioritization in the years ahead.”
Research for “Budget Basics” began immediately after the conclusion of the 2015 legislative session. LABI consulted with experts and gathered data from the public and private sector in preparing this analysis, including the Public Affairs Research Council of Louisiana, the National Association of State Budget Officers, the National Council of State Legislatures, the Center for Budget and Policy Priorities, the Volcker Alliance, the Nelson A. Rockefeller Institute of Government, the State Higher Education Executive Officers Association, the Southern Regional Education Board, fiscal staff in the Louisiana Legislature, the Louisiana Department of Revenue, and the Louisiana Division of Administration, among others.
The “Budget Basics” research series addresses one of the six strategies of the CASE Agenda. The Coalition for A Stronger Economy (CASE) launched in September 2015 with 67 statewide organizations, chambers of commerce, trade associations, and civic groups representing nearly every corner of Louisiana. The CASE Agenda and signatories are online at www.labi.org/CASE. Relevant reports and research from CASE organizations on the six strategies, such as “Budget Basics,” are added to the site on an ongoing basis. LABI has focused on budget solutions, while the Committee of 100 proposed tax reforms – both part of a comprehensive CASE agenda.