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LABI Releases Second Installment of “Budget Basics”


November 18, 2015

Research Series Explores “Locked-Up” Spending that the Legislature Should Review

Baton Rouge, La. – The Louisiana Association of Business and Industry (LABI) released the second installment in a 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 No. 2 – A Closer Look at ‘Locked-Up’ Spending” consists of 16 easy-to-understand charts accompanied by facts, data and brief findings available at www.labi.org/budget-basics. This resource is available to LABI members, employers and residents across the state. It follows “Budget Basics No. 1 – Understanding the State Budget Deficit,” released in October, which helped explain the state budget and why the deficit persists. This research series is intended to provide new information and a fresh perspective on the state budget, stimulating dialogue and solutions among taxpayers and policymakers alike.

“As voters prepare to head to the polls this weekend, the state’s budget challenges are front and center in the gubernatorial and legislative races,” said Stephen Waguespack, LABI President. “Candidates are promising reforms to a structural deficit that should be comprehensive and rooted in facts.  LABI released research several weeks ago to help explain the state budget and why the deficit persists. Today, we are providing a deeper dive into one of the perennial problems plaguing the state budget – the structure of the budget itself, dedications and the inability to prioritize limited taxpayer dollars.”

Major findings of “Budget Basics No. 2” include:

  •  Across the country, states face similar challenges to Louisiana. Economic recovery is sluggish, deficits persist and costs are on the rise, particularly in health care and entitlement spending. Annual deficits persist in Louisiana as a result of three major factors: revenue, spending and the budget structure.
     
  • Strong similarities exist between both the origins and short-term solutions to the state’s budget challenges of the late 1980s and today. The budget challenges are not new and were not created overnight but are a product of fiscal policies enacted over many years.
     
  • For decades, Louisiana has chosen an approach where the state collects taxes and shares revenue with local government. In Fiscal Year 2016, roughly $4 billion dollars in State General Fund directly financed local governmental entities – an enormous figure, given that total State General Fund this year is only $9 billion. In addition to State General Fund, an estimated $300 million in statutory dedications are appropriated exclusively to various forms of local government. With regard to capital expenditures, nearly half of all state bond proceeds have been used to fund non-state projects (46 percent).
     
  • 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. Louisiana is one of only eight states that allow private organizations to make requests for capital expenditures.
  • Whether spending is through state agencies, local government or NGOs, most of Louisiana’s state budget is considered “off-limits” to annual review or reductions due to three main categories of locked-up spending: 1) “non-discretionary” State General Fund, 2) “self-generated” revenue and 3) statutory dedications. 

“Non-Discretionary” 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.
     
  • 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.
     
  • 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.
  • The sizeable 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. 

“Self-Generated” Revenue

  • 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.
  • Higher education tuition and fees make up $1.3 billion of this total, and state agencies collect and spend roughly $1 billion in fees and self-generated revenue. The Louisiana Judiciary is one of the only categories in the state budget that does not report self-generated revenue despite collecting court filing fees and fines.
  • 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 (80 percent). 
  • 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. 
  • 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. 

Statutory Dedications

  • 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. 
  • 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, the number of actual funds has grown from 78 to 393.  The dollar amount of statutory dedications is also on the rise.
  • Constitutional and statutory dedications fall into three main categories:

Diversions of tax revenue that would otherwise flow into the State General Fund total $1.6 billion in Fiscal Year 2016 in 117 funds, including various local government subsidies.

Fees and assessments are appropriated to 105 funds totaling $975 million in Fiscal Year 2016, including a number of sources of gaming revenue dedicated to programs or expenditures largely unrelated to the fee, fine, or revenue source.

“Other” legislative appropriations, grants or other revenue sources total $1.3 billion in Fiscal Year 2016 in 68 funds.

  • About 40 dedications are constitutional with Fiscal Year 2016 appropriations totaling more than $2 billion – slightly more than half of all dedications that would require a vote of the people to unlock.
  • More than 250 dedications exist in Louisiana law only (not the Constitution) with Fiscal Year 2016 appropriations totaling $1.7 billion that can be unlocked by a vote of the Legislature. 
  • Despite state law that requires it, there appears to be no recommendations for consolidation or elimination of dedications resulting from regular mandated legislative reviews. 

“Louisiana is facing a cyclical budget challenge that raising revenue alone will not solve,” said Waguespack. “The approach of the new Legislature and administration to closing the deficit must be comprehensive and recognize that cost containment, a review of sacred cows, transparency and structural budget reform must be on the table along with any discussion regarding revenue increases. Every spending program at the state and local level deserve equal attention and how we prioritize is key. Fiscal reform will not be easy, but it can be done. In the third and final installment of Budget Basics, LABI will offer research-based solutions to the state’s budget challenges for the new Legislature and governor to consider in 2016 that will encourage both smarter government and a stronger economy.” 

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, 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 66 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.

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The Louisiana Association of Business and Industry is the largest and most effective business advocacy group in the state of Louisiana representing more than 2,500 member businesses of every size, in every sector and region.