Anatomy of a budget shortfall

It’s no secret that budget negotiations will dominate the two-month legislative session that starts Monday. The $1.6 billion gap between the state’s projected revenues and expenses pretty much guarantees a contentious and difficult session. But how did we get here? Nola.com’s Julie O’Donoghue tries to answer that complex question with a look through the archives.

Tracing the origins of Louisiana’s budget crisis is complicated. Lawmakers and economists agree that Louisiana’s finances face a “structural” budget problem that has nothing to do with the energy market. The state simply isn’t set up to collect enough revenue to cover its expenses, even during oil and natural gas booms.

While no single decision led Louisiana to this point, there were some consequential tipping points along the way, starting with the two largest tax cuts in state history at a time when the state economy was temporarily flush with post-Katrina cash.

Critics point out that since the Stelly repeal, Louisiana has dealt with ongoing budget crises. If the plan were still in place, the state would have as much as $800 million more in revenue right now, according to Albrecht. “The decision to repeal Stelly is, undoubtedly, a root cause of this current budget dilemma,” said Jan Moller, head of the left-leaning think tank, Louisiana Budget Project, that monitors the state’s fiscal matters.

Tobacco sale would be boon to financiers

Gov. Bobby Jindal’s latest plan to generate one-time money for state coffers – selling the remaining 40 percent of the state’s settlement with tobacco companies to investors for upfront cash – would net $1.29 million in fees for the lawyers and underwriters handling the transaction. As The Advocate’s Mark Ballard reports, the fee structure was approved by the Tobacco Settlement Financing Corp., with one dissenting vote.

If the Legislature approves, the state would raise $300 million from the sale of the settlement sometime before June 30; another $300 million for the fiscal year that begins July 1; and the remaining amount for $150 million for the fiscal year that begins July 1, 2016.

But if lawmakers agree to sell the settlement for $750 million upfront, it would be giving up the $55 million a year that cigarette makers currently pay to the state – money that goes to pay, among other things, for school-based health clinics. And while Louisiana would have more money in the short term, it’s a long-term money loser. As the AP reports,

It would spend all the dollars that are received over seven to eight years — eliminating the yearly $55 million revenue stream after that, until the bond debt is paid. The state would pay off the debt over 20 to 25 years, depending on how the deal is structured, meaning the state could trade as much as $1.3 billion over the life of the deal for $750 million in a lump sum.

Giant health insurer discovers Medicaid expansion
Notably absent from Louisiana’s policy debate over Medicaid expansion – at least until this point – has been the health insurance industry. That’s true even though insurers stand to get more than 240,000 new customers if and when Louisiana takes advantage of federal dollars to extend health coverage to low-income adults. But that could be about to change. Michael Bertaut, a health care economist with Blue Cross/Blue Shield of Louisiana, spoke this week at the Monroe Chamber of Commerce and sounded as though coverage expansion would almost certainly happen after voters elect a new governor this fall.

“Whichever one of the four makes it into the governor’s chair, there will be a study committee formed to look at it immediately,” Bertaut said. “It offers the promise of an economic boost and a lot of federal dollars. Because of the budget issues we’re having now, I don’t think they can avoid talking about it anymore. They’re going to have to address it.”

Federal budget cuts would hurt the poor
More than two-thirds of the non-defense cuts included in the budget approved last month by the U.S. House and Senate would fall on people with low to moderate incomes. That’s according to an analysis by Richard Cogan and Isaac Shapiro of the Center on Budget and Policy Priorities, which found that these programs only constitute about one-fourth of the federal budget. As such, it represents a break from a longstanding bipartisan consensus.

The bipartisan deficit reduction plan that Alan Simpson and Erskine Bowles (co-chairs of the National Commission on Federal Policy) issued in 2010 adhered to the basic principle that deficit reduction should not increase poverty or widen inequality.  The new Congressional plans chart a radically different course, imposing their most severe cuts on people on the lower rungs of the economic ladder.

Number of the Day

33,231 – Advance Placement (AP) courses taken by Louisiana high school students in 2013-14, an 18.6 percent increase over the previous year. (Source: Advocate via state Department of Education)