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PastPres Horiz

THE PAST AS PRESENT

Comparisons between past and current state budgets will show very different results depending on the period of time examined. One useful comparison is to look at today’s state budget versus the budget before the fiscal turmoil caused by the 2005 hurricanes. Another good comparison is to examine the budgets during the periods of particular administrations, reflecting the policy and fiscal practices of those gubernatorial and legislative regimes.

Since fiscal year 2005, general fund spending has risen by 44%, which is equal to an average annual increase of 2.7%. But the general fund has had a rough up-and-down and up-again ride. In fiscal year 2005, just before Hurricanes Katrina and Rita, general fund spending was $6.5 billion and total spending was $16.5 billion. After the fateful storm and flood, tax collections swelled from a large temporary private sector workforce during the recovery and a surge of purchases for replacing wardrobes, cars, homes and workplaces. Federal aid and private insurance dollars poured in. For fiscal year 2007, general fund spending rose to $9.3 billion and the total budget was $26.1 billion, buoyed by a 76% increase in federal dollars.

The boom continued the following year, with hurricane recovery expenses making a big impact on the budget. The general fund approached $10.4 billion, its highest point in history, even unto today. The total budget was $28.6 billion, an amount that would not be surpassed until 2018. Fiscal year 2008 was the last budget during the term of Gov. Kathleen Blanco. She approved a significant cut in individual income taxes by restoring excess itemized deductions as a personal income tax exemption. This change was a partial repeal of the 2002 Stelly Plan, which raised income taxes for many people while cutting sales taxes on food and home utilities. Blanco and the Legislature gave across-the-board state employee and teacher pay raises, among other budget enhancements, and spent surplus dollars on infrastructure.

Then, a lot happened in 2008 that is still being felt today. Gov. Bobby Jindal and a newly elected Legislature took office in January. The Legislature passed a further repeal of the Stelly Plan’s income tax increases by changing the tax brackets, with the governor eventually signing on. The Legislature also provided businesses with a further phase-out and final permanent exemption on sales tax for the purchase of utilities. Combined, the tax repeals of 2007 and 2008 have an estimated value today of close to $1 billion, which is a savings to taxpayers but also a decrease in annual state revenue.

Later in 2008, the mortgage crisis and the collapse of the financial markets threw the country into the Great Recession, which had a definite though delayed impact on Louisiana. That year also marked the beginning of a decline in tax revenue resulting from the tapering Katrina recovery. In Jindal’s first budget year (fiscal 2009), general fund spending was $9.4 billion and the total budget was $25 billion. The state general fund would continue to decline for two more years. In the period from fiscal 2008 to 2011, the state general fund fell by almost $3 billion before beginning to recover, and then only slowly.

Billions of dollars in federal stimulus money during the recession buoyed the state’s total spending budget. Some of that stimulus went to higher education, but the overall trend in the Jindal years was to cut direct state appropriations to colleges while allowing the schools to raise tuition and fees. Much of the burden of balancing the state budget was being placed indirectly on students and their parents, particularly those who did not qualify for the state’s TOPS scholarship program. Meanwhile, federal regulations determined that Louisiana would get a smaller share of federal health care dollars because the state economy had suddenly boomed during the storm recovery. Although the recovery was only temporary, the state’s match rate was short-changed by the federal formula (Federal Medical Assistance Percentages, or FMAPs). State dollars spent on Medicaid increased by more than $1 billion even before the state’s Medicaid expansion to low-income adults in 2016.

The Legislature reduced tax credits and rebates in 2015 and the following year, under Gov. John Bel Edwards, increased the state sales tax from 4% to 5%, boosting annual state recurring revenue by more than $1 billion. The extra cent of sales tax expires at the end of June 2018. Overall health care spending rocketed with the adoption of the Medicaid expansion to lower income adults, a program supported mainly by new federal dollars for the time being.

The Public Affairs Research Council (PAR) is a private, nonprofit, non-partisan public policy research organization focused on pointing the way toward a more efficient, effective, transparent and accountable Louisiana government. Founded in 1950, PAR is a 501(c)(3) tax-exempt organization supported by foundation and corporate grants and individual donations.