Gov. John Bel Edwards’ 2017-18 fiscal year executive budget is built on $9.469 billion in state general fund tax receipts, of which 92 percent ($8.750 billion) will be used to fund general government operations. The rest would finance the Legislature and judiciary, along with required spending on debt service and other obligations. The general fund budget is at a practical standstill compared to current-year spending levels after adjusting for inflation (a 0.32 percent decrease). The state’s overall budget would increase by 5 percent in real terms, primarily due to an increase in federal dollars that support healthcare services.
Although Louisiana is expecting a slight revenue uptick next year, state tax collections continue to lag far behind the levels seen before 2009, when the Great Recession and two major income-tax cuts helped destabilize the state tax structure. After adjusting for inflation, the state’s general fund – which finances K-12 schools, universities, healthcare and other services – is down 21 percent since the 2008 fiscal year. This reality, coupled with data showing state revenues well below their historic share of the state economy – by multiple measures (see Appendix) – should put to rest any notion that spending is “out of control.”
The Division of Administration calculates that an additional $440.5 million is needed to maintain the current level of state services, provide for routine cost-of-living adjustments. Some of the major needs identified by the administration include:
When all means of financing are counted, the proposed budget totals $29.74 billion. Adjusted for inflation and accounting for the 2017 mid-year budget cuts, this is a 5 percent increase from the FY 17 budget. Since the 2008 fiscal year, the overall budget is down 14 percent. Half of the recommended expenditures in the executive budget are for health and human services.
The uptick in the overall budget this year is largely thanks to an infusion of federal money associated with Louisiana’s Medicaid expansion. The influx of federal dollars is allowing the state to save money on healthcare expenses. While the Louisiana Department of Health is getting less state general fund money, it will receive more than $1.8 billion in new federal dollars above current-year levels.
Almost two-thirds of Louisiana’s budget – 64 percent – is considered non-discretionary, meaning that spending levels are prescribed by statute, the state constitution, court order or federal law. The vast majority of discretionary spending (89 percent) goes to health, human services and education programs.
And here’s how the discretionary portion of recommended spending is broken down:
Where do we go from here?
The governor’s executive budget will begin the legislative process as House Bill 1, and will be debated by the House Appropriations Committee and the Senate Finance Committee. Ultimately, both houses of the Legislature must agree on an annual spending package to send to the governor. Gov. Edwards’ office has indicated that it will be putting forward a plan to fund the $440.5 million of state services not covered by this budget proposal, while also putting forward a proposal to avoid the FY 19 budget cliff.
The 2017-18 cuts in the state general fund, the unfunded priorities, the upcoming fiscal cliff and the many needs not being funded all provide the impetus for fundamental tax reform in the 2017 session. This reform should create a fairer, more adequate and more sustainable tax structure. The graphic below illustrates how one costly tax break compares to some of the unfunded priorities in the governor’s budget. Visit www.investlouisiana.org to learn more about LBP’s vision for tax reform.
Future blog posts will explore in more detail the budget picture for education, health care, and human services.
Note: Figures for FY 08 – FY 16 are year end actuals adjusted for inflation. FY 17 figure is from January Revenue Estimating Conference estimate.
APPENDIX: By multiple measures, state revenues below historic levels