Oct. 28: More cuts on the way

Oct. 28: More cuts on the way

State government spent $313 million more than it took in from tax collections in the 2015-16 budget year, which means Gov. John Bel Edwards and the Legislature will have to make up the difference in the current-year spending cycle.

State government spent $313 million more than it took in from tax collections in the 2015-16 budget year, which means Gov. John Bel Edwards and the Legislature will have to make up the difference in the current-year spending cycle. This means across-the-board cuts for many state agencies that have already shouldered massive funding reductions in recent years. The larger than expected shortfall highlights the critical task ahead of the legislature in 2017: Short-term fixes won’t be enough. A bold tax reform package that raises revenue by closing tax loopholes will be needed to strengthen Louisiana and set the state on a sustainable path to shared prosperity. The AP’s star reporter Melinda Deslatte has the story:

The biggest hits in across-the-board cuts would befall colleges and health services. LSU spokesman Jason Droddy said the university system was asked to determine how campuses would absorb a 7 percent state general fund reduction. Such a cut would top $24 million for the system. “That gives us something to start working on,” Droddy said. A 7 percent state general fund cut to the state health department would reach $192 million. The deficit from last year has to be closed in the current 2016-17 budget year. (Commissioner of Administration Jay) Dardenne said the deficit won’t be officially recognized until November, a process that starts a clock giving the governor 30 days to outline a plan for closing the gap. Louisiana has struggled through repeated budget shortfalls in the last nine years amid the national recession, the oil price slump and the continued use by former Gov. Bobby Jindal and lawmakers of short-term fixes to close holes.

 

TANF funds not going to core activities

The 1996 welfare law signed by President Bill Clinton was supposed to help those struggling to make ends meet connect with jobs and find permanent pathways out of poverty. Yet funding to states was given as a “block grant” that has little oversight and accountability. The result: Many states aren’t spending their grant on the three core activities envisioned by the law – work-related services, child care assistance, and direct cash assistance. Louisiana’s spending is among the worst in the country, spending only 11 percent of TANF dollars on the core activities. J.B. Wogan reports on this for Governing magazine:

Last year, on average, states used less than 10 percent of welfare funding for work-related services, such as subsidized employment, job training, job search assistance and transportation vouchers. In Louisiana, a policy research group recently referred to the state’s welfare program as a slush fund “used to plug holes in the state budget caused by large tax cuts.” This isn’t illegal, said Liz Schott, a senior fellow with the Center on Budget and Policy Priorities (CBPP). Instead, it highlights a gray area that allows states to use the money in ways that technically meet the letter of the law but break from the spirit of a work-oriented welfare program.

 

Feeling the Bern on Amendment 2

The debate over whether university boards should have unilateral authority to set tuition rates heated up Thursday, as a group inspired by former Democratic presidential candidate Bernie Sanders came out strongly against Amendment 2. Supporters of the amendment argue that universities will be able to set the price of education and wouldn’t set it too high and risk losing students. While this may be true, higher tuition could price out low-income students especially since need-based financial aid is chronically underfunded. It also could continue the trend of shifting costs to students and diminishing the public nature of the schools. The Advocate’s Will Sentell has the story:

“Louisiana voters fund the state’s public college and university system with their tax dollars, and like residents of every other state, they deserve to have a say in tuition and fee costs,” the group said in a position paper. “At a time when public colleges are increasingly unaffordable, it makes no sense to allow college boards to raise tuition and fee amounts with no accountability to Louisiana residents,” according to the organization.

 

GDP growth up, but state investment down

There is some good news for the U.S. economy this morning. Bolstered by an increase in inventories and exports, grew at the highest rate in two years from July to September. Shobhana Chandra of Bloomberg has more:

The 2.9 percent annualized increase in gross domestic product, the value of all goods and services produced, was the biggest in two years and followed a 1.4 percent gain the prior quarter, Commerce Department data showed Friday. The median forecast in a Bloomberg survey called for 2.6 percent growth. Consumer spending, the biggest part of the economy, rose a less-than-projected 2.1 percent.

Despite the good news on GDP growth today, growth could have been more robust had states invested in transportation infrastructure and higher ed. Eric Morath and Ben Leubsdorf have that story for the Wall Street Journal:

The decline (in infrastructure spending) depressed gross domestic product growth this spring and was on track to weigh on growth again in the third quarter. “We’re seeing anemic [government] revenue growth and consistent austerity-oriented budgets,” said Gabe Petek, managing director for state ratings at S&P Global Ratings. States are trimming investments in infrastructure and higher education, “areas of the budget helpful for generating economic growth going forward,” he said.

The lack of investment could make the next downward swing in the business cycle more severe.

“We’re not seeing a push to take advantage of the lower interest rates” to raise new funds, said S&P’s Mr. Petek. “It’s not our forecast, but you can’t rule out a recession in the next two or three years, and several states haven’t put themselves in a good position to weather it.”

 

Number of the Day

$313 million – Size of the state shortfall for the 2016 fiscal year. The gap must be closed during the current budget year that ends June 2017. (Source: Division of Administration via the Associated Press)