Budget deal is only a temporary solution

Of all the weekend postmortems from the just-concluded legislative session, perhaps the most important came from Moody’s. The agency that investors rely on to judge Louisiana’s credit worthiness was not impressed with the deal that saw legislators pass a number of short-term revenue measures to help solve a $1.6 billion budget shortfall.

“Louisiana faced a significant budget gap for fiscal year 2016 of approximately $1.6 billion,” said Moody’s analyst Marcia Van Wagner. “The legislature has closed that gap with a heavy reliance on one-time measures. This means the state will likely see continued large budgetary gaps next year, when it has to craft the budget for fiscal year 2017.”

That analysis prompted a quick rebuttal from the governor’s office, which sent Commissioner of Administration Kristy Nichols to insist the budget package represented the kind of long-term structural changes that critics have called for.

“Louisiana did what it intended to do, which was to close the structural imbalance of the state’s budget and to create long-term solutions that close that gap over the next 2-3 years and even further,” said Nichols. Nichols’ office said $736 million in additional revenue was raised in this budget, of which $626 million was recurring, such as an increase in the tobacco tax. The budget also included $464 million in recurring savings, Nichols’ office said. That cut the state’s reliance on non-recurring revenue in half, to around $500 million compared with $1 billion in last fiscal year’s budget, Nichols’ office said.

So how much one-time money ended up in the final version of the budget deal? That will be determined in the days ahead, as the legislature’s fiscal analysts sort through the flurry of last-minute deal-making. As Tyler Bridges reports in The Advocate, the next governor and Legislature are likely to inherit a shortfall of around $1 billion.

The $24.5 billion budget passed Thursday night contains so many short-term fixes that next year’s governor and Legislature will inherit a budget deficit of an estimated $1 billion, documents show, and the size of the deficit is only projected to grow in the following years. “They put a Band-Aid on things; they didn’t heal the wound,” Jan Moller, director of the Louisiana Budget Project, said in an interview Friday. “It’s pretty clear they did little to fix the structural problems of the budget. They left the heavy lifting to the next administration.”

And even though the budget technically only includes around $600 million that must be replaced next year, the AP’s Melinda Deslatte points out that several of the revenue measures that passed on Thursday have a three-year expiration date.

Nola.com: Wait til next year

While next year’s budget is balanced – at least on paper – the Nola.com editorial board agrees that there is plenty of work left for next year’s governor and Legislature to address the structural imbalance between revenues and expenses.

When those leaders take office next January, they “will find that a lot of pieces are missing from the state budget puzzle,” PAR said in a recent commentary titled “The Budget is a Real Piece of Work.”  “A long-term restructuring should be led by the next governor, who should not expect to revamp everything successfully in the first few months in office,” PAR said. The work should start in those early months, though. PAR and other advocates for comprehensive tax reforms argue that the state needs to re-evaluate all of its tax credits and exemptions, which have grown dramatically in recent years. That is not what happened this year, because lawmakers were looking for quick cash payoffs to close the deficit. They also were restricted by Gov. Jindal’s promise to veto anything that didn’t please Americans for Tax Reform.

Movie industry pushing for a veto

The bill that seeks to rein in Louisiana’s heavily subsidized film industry passed with less than 5 minutes left in the legislative session. Heavily amended at the last minute, House Bill 829 has something for both industry supporters and critics to hate. The bill caps annual payouts by the state at $180 million for three years, but has no cap on the amount of credits that can be certified by the state and claimed at a later date. As Kevin Litten of Nola.com reports, film industry leaders have launched a campaign that asks Gov. Bobby Jindal for a veto.

Jan Moller, the director of the Louisiana Budget Project, said the bill has put the industry in “uncharted waters … is (production) going to grind to a halt, or are they going to keep getting money and keep getting certified and in 2019, the state will have a half-billion dollar movie liability” when the bill sunsets? “My concern is what they did is decided to save money now but pay a lot later,” Moller said. “While I’m glad we finally had a debate on the limits of the film program, I’m afraid the deal we ended up with could produce short-term savings and create long-term liabilities.” Patrick Mulhearn, executive director of Celtic Studios in Baton Rouge, said it’s likely that it won’t just be the film industry that is going to be getting involved in a “veto the bill” campaign.

Capital outlay reform failed to pass

Critics on the left and right agree that the convoluted way Louisiana allocates money for capital construction projects is broken and overly political. Year after year, lawmakers load up the state construction budget with far more projects than the state can afford. That leaves it up to the governor and his allies on the State Bond Commission to decide which projects get funded – which in turn sets the stage for the kind of political horse trading that can give politics a bad name. But this year, as in previous years, attempts to fix that system fell short of passage. As the Shreveport Times’ Alexandria Burriss reports,

At the end of the legislative session, the capital outlay bill was $245 million more than it was when it originally arrived in the House. It’s currently awaiting the governor’s signature. The budget includes projects that have a statewide, regional impact or exclusively local. Politicians, pundits and watchdogs say Louisiana needs to reform how it funds construction projects through HB 2. Rep. Kirk Talbot, R-River Ridge, offered a proposed change which survived committee but was never debated on the floor.

Number of the Day

1.38 – Percentage increase in per student state funding for K-12 education next year – less than the 2.75 percent hike requested by education officials, but more than the standstill funding sought by the governor. That’s equivalent to a base increase of $54 per student (Source: The Advocate)