The LABI Report: Show me the money

Published 12:00 am Tuesday, March 25, 2003


Practically every state government in the union is going through fiscal nightmares. Many of their leaders look like the proverbial deer caught in the headlights as they cope with huge budget deficits. Two recent studies—one by the American Legislative Exchange Council (ALEC) and the other by the Cato Institute—give state governments some sound advice on dealing with their problems and preventing them in the future.

ALEC’s recently released study, “Show Me the Money,” gives ten sound budget-cutting strategies for states with deficits. Louisiana’s lawmakers should read this report before debating this year’s budget. The No. 1 recommendation is, “Go where the money is: reduce workforce costs.” Since our state government workforce is much larger than the southern average, this is an obvious area of opportunity for our Legislature. Capping employment, reducing the number of total positions, eliminating phantom positions, providing cost-effective incentives for early retirement, and temporarily freezing retirement cost-of-living adjustments are proven methods for cutting costs.

Another major recommendation in the ALEC report is to modernize government by reforming entitlement programs. Louisiana’s Medicaid program, for example, continues to eat large sums of revenue without significantly improving health care for the poor. It will continue to do so as long as the program remains within a huge state-run bureaucracy.

Turning capital assets into financial assets by selling or leasing government property or enterprises is another ALEC recommendation. According to ALEC, the Reason Foundation in Los Angeles estimates that cities and states own over $226 billion in unneeded assets that could be sold to the private sector. Likewise, the privatization of services, properly done, can result in both savings and service improvements.

One of the most logical (and therefore, most controversial) recommendations of ALEC’s study is the concept of focusing funding on results, not problems. Typically, when crime goes up or student test scores go down, more money is thrown at the problems. The report recommends grading performance of agencies and rewarding and duplicating high performers, not simply throwing more money at low performers.

Rewarding employees for saving money is another sound recommendation. Most government pay plans treat employees the same when it comes to pay raises. If incentive pay replaced some of the antiquated “merit pay” and longevity increases, significant money could be saved and efficiency would increase (not to mention the morale of the truly motivated workers).

The study by the American Legislative Exchange Council recommends other sources of savings such as better use of technology, avoiding duplication, and empowering the individuals in government who know where the wasted dollars are to go get them. The study is a sound blend of common sense and proven tactics, and it should be taken seriously by state and local governments everywhere.

The Cato Institute article, “States Face Fiscal Crunch after 1990s Spending Surge,” gives a good look at how states can prevent such large deficits in the future. In a nutshell, the article argues for the imposition of spending caps that cannot be exceeded in boom times. The surpluses generated by these caps will build up “rainy day” funds to offset future economic downturns. Likewise, Cato strategists recommend giving temporary tax rebates during times of rapid economic growth. These renewable refunds can help stimulate state economies. If more revenue is needed in a future time of crisis, the rebates can simply expire.

There are logical ways for states to deal with their budget crises and to prevent them in the future. Following the right paths is what leadership is about. The states are about to find out how much quality leadership they have in their ranks.

DAN JUNEAU is the president of the Louisiana Association of Business and Industry.