Anatomy of a problem

Published 12:00 am Wednesday, April 14, 2010

The push is on at the state Capitol to raid dedicated funds in order to plug future budgets with one-time revenue — a risky and shortsighted policy. To understand why this practice is fiscally irresponsible, a look at the recent past is important.

In August/September of 2005, Katrina and Rita slammed into Louisiana. In a matter of a few months, state general fund revenues plunged by almost $900 million. Gov. Blanco called the Legislature into special session, and they acted to reduce the general fund budget by that amount. Not a single state institution closed and pink slips were not given to state employees.

In a matter of months, state revenue collections began to improve. The high sales taxes coming from the “rebuild” replenished state and local coffers. By May 2006, state general fund revenues were above pre-Katrina levels, and they continued to climb steadily. By May 2007 state revenues shot up to $10.7 billion and a year later reached an all-time high of $11.8 billion. In addition to the rebuild, rapidly rising oil and gas prices in 2007 and 2008 were a major influence on this rapid rise of state revenues. It was during this interval that the term “excess mineral revenues” came into existence.

Excess mineral revenues are oil and gas revenues above the $850 million dollar level. Our state constitution requires that those dollars must first be used to fill up the Budget Stabilization Fund before any can go into the state general fund. That had never happened before 2006. In the last two years of Gov. Blanco’s term, hundreds of millions of dollars in excess mineral revenues flowed into the state general fund budget. In Gov. Jindal’s first year (2008) the amount inched even higher. The Legislature passed and the governor signed a record budget in 2008 and then went home to a fiscal implosion that fall. The financial sector meltdown and subsequent recession partnered with a huge drop in oil and gas prices to reduce the state revenues by almost $2 billion. This was the Katrina/Rita moment for the current administration and Legislature.

Our state officials opted to wait until the 2009 Regular Session to address the problem. It was addressed by plugging $1.5 billion in one-time federal stimulus money to fill the revenue hole. The $1.5 billion in stimulus money remaining is being used to do the same thing for the next budget. In essence, the stimulus money is being used to maintain the high level of spending brought on by recovery money and high oil and gas prices. But the stimulus money is gone after this year, the recovery money is gone also, and oil and gas prices are below the record highs of a few years ago.

Now some of our elected officials are trying to secure another grab-bag of one-time money to maintain unrealistic levels of state spending. Their instrument for doing this is to take money out of constitutionally dedicated trust funds and to transfer into the state general fund money from fees that are dedicated to providing specific services. This would be yet another use of temporary dollars to fund recurring expenditures.

Many of our state officials are trying to maintain that high level of general fund spending we reached in 2008 by continuing to plug the budget with temporary revenue sources. They are delaying the inevitable with that approach. Such procrastination will likely result in more fiscal crises in the near future and an increased likelihood of big taxes to continue to fund a government that has grown beyond the means of the public to support it.

Dan Juneau is president of the Louisiana Association of Business and Industry.