The Louisiana state budget has grown by 44 percent since 2005. Contrast this figure with the state’s Gross Domestic Product, which grew 25 percent. While the state budget peaked in Fiscal Year 2008 in the aftermath of Hurricanes Katrina and Rita, short-term fixes have essentially maintained the size of state government from Fiscal Year 2011 until the current year.
From a revenue perspective, state government collections dropped dramatically due to three notable events that collided in 2008 and 2009: 1) the end of temporary economic growth and federal recovery funds following Hurricanes Katrina and Rita; 2) the onset of the national recession; and 3) large reductions in tax receipts due to the reversal of “the Stelly plan.” Personal income tax collections alone dropped more than $1 billion between Fiscal Year 2008 and Fiscal Year 2010. Corporate income and franchise tax revenues also dropped $400 million during this period.
In addition, a combination of factors are at play for the growth in tax exemptions, which totaled $7.7 billion in Fiscal Year 2014. Sales tax exemptions and individual tax exemptions are the most widely utilized of all revenue categories, totaling roughly $5 billion and representing more than two-thirds of all tax exemptions. Individual tax exemptions grew more than 100 percent over the past five years, while corporate tax exemptions grew 27 percent.
Despite the decline in revenue after 2008, the amount of taxes, licenses, and fees collected by Louisiana state government are on the rise and are projected to increase over the next five years, even as state economists predict more deficits as well.
That brings us to the next contributor to the deficit: spending. In the years when tax collections declined, state government spending did not decrease proportionally. Instead, temporary mechanisms and stop-gap measures were taken to generally maintain the size and services of state government.
Louisiana spends an estimated $5,577 per person every year, ranking No. 16 nationally according to the U.S. Census Bureau. Louisiana’s local government also spends an average of $4,931 per person every year, ranking No. 13 nationally. Taken together, Louisiana’s state and local government spends an amount equivalent to roughly 20 percent of the state’s GDP every year.
Today, government spending is growing faster than state revenues. Expenditure growth between Fiscal Year 2016 and 2017 is projected to be nearly 14 percent while revenue growth will be less than 5 percent. The delta is the state deficit projected for next year: $713 million.
Compounding the recurring deficit is the budget structure itself, specifically the fact that most of Louisiana’s state budget is considered “off-limits” to annual review or reductions. The Constitution requires certain spending ($6 billion). State agencies charge fees for services ($2.3 billion). Nearly 400 dedications of revenue exist in state law and the Constitution ($3.8 billion). “Budget Basics No. 2” will focus on all three forms of locked-up state funding, which total roughly two-thirds of the entire state budget.
If we want next session to end with a different result, all the facts need to be put on the table. The people of this state deserve to know the truth.
Our state budget is a complex document to say the least, but to “fix” it we need to get back to the basics. You can’t get to the basics without looking at all of the facts. The facts are that we have not cut spending at a rate that matches the reduction in revenue collections and the dollars we do collect are locked up in ways that make them hard to use.
These are the facts whether we like them or not. It doesn’t get more basic than that.
Stephen Waguespack is president of the Louisiana Association of Business and Industry.