Tax hike? More cuts? Refilling rainy-day fund clouds state budget prospects

19th August 2013   ·   0 Comments

By Tyler Bridges
thelensnola.org

Gov. Bobby Jindal and state legislators have drawn down Louisiana’s rainy day fund by $255 million over the past several years rather than raise taxes or make even deeper cuts in government programs to balance the state budget.

Now the bill has come due.

The Jindal administration is quietly settling a lawsuit filed by two citizens accusing Louisiana’s top elected officials of violating state law by failing to refill the fund. As part of the settlement, the administration got state lawmakers to agree, just as quietly, to replenish it two years from now.

The rainy day fund, a kind of piggy bank meant to see the state through hard times, has $444 million today, down from $699 million when Jindal took office in January 2008, according to Treasury Department figures. Jindal and lawmakers pulled money out of the rainy day fund in the wake of a drop in state tax revenues caused by the Great Recession, the dwindling of federal and private insurance dollars for hurricane relief and tax cuts approved in earlier years.

The legislation enacted in the session that ended in June requires Jindal and state lawmakers to bring the fund to its mandated level, currently $767 million. That means repaying the $255 million and topping it off with another $68 million — for a total of $323 million.

The legislation was added to the budget as part of a deal to settle the lawsuit, according to Kyle Keegan, the Baton Rouge attorney who filed it.

The $323 million will come from oil and gas taxes that have been flowing into the state general fund to pay for a gamut of annual expenses, including schools, hospitals and the public payroll. In other words, solving one problem only creates another: Within two years, Jindal and legislators will have to find $323 million for the state general fund if they are to avoid tax hikes or another round of increasingly unpopular budget cuts.

That will be a tall order. State tax collections have declined during Jindal’s years in office. To adhere to the governor’s strict pledge against net tax increases, state legislators have repeatedly cut spending for Louisiana State University, South­ern University and other state universities and colleges, as well as the public hospital system. This year Jindal also cut planned spending increases for the disabled.

State economists do not project tax revenues to grow fast enough to provide the $323 million. The Division of Administration’s five-year budget, presented last week to the Joint Legislative Committee on the Budget, projects a $562 million deficit in fiscal year 2016 even without adding $323 million to the rainy day fund. With that payment, as called for in the newly minted legislation, the projected budget deficit soars to $885 million.

For now, the governor pledges he will do his part.

“Yes, we will be working with legislators to continue to put money back into the rainy day fund,” Jindal said at a press conference last week. “The rainy day fund has done what it’s designed to do – which is to help our state through tough times. We’ve been through the worst recession since the Great Depression. We also had on top of that the largest reduction in our FMAP rate we’ve experienced.” Congress cut Louisiana’s portion of FMAP — the Federal Medical Assistance Percentage — by $659 million last year.

Separately, Michael DiResto, the spokesman for Jindal’s Division of Administration, said in an email: “We are working with the Legislature toward a solution that protects higher education and healthcare while also investing in our rainy day fund.”

State Rep. Cameron Henry, R-Metairie, is one of the leading Fiscal Hawks, a group of mostly conservative Republicans who have repeatedly accused Jindal of balancing his budget with what they call fiscal gimmicks.

“I have limited confidence in the governor to follow through on anything that relates to the rainy day fund,” Henry said. “The current administration is not worried about the state’s finances long-term. I am much more optimistic that the Legislature will see the importance of paying back the rainy day fund.”

The rainy day fund – officially called the Budget Stabilization Fund – was put in the Constitution by voters in 1991, during the administration of Gov. Buddy Roemer. The idea was simple: to create a reserve that the state could tap from time to time when tax revenues fell short. The Constitution says legislators must use oil and gas taxes to fill the fund when certain conditions are met, including when revenue from those taxes exceeds $850 million within a fiscal year — as will happen this year.

Legislators and Jindal last tapped the rainy day fund in 2010 by drawing down $198 million. When they did, they added a catch: They would repay the money only if the 2012 fiscal year ended with a budget surplus. A surplus materialized, but Jindal and legislators reversed course. In the session just ended, they said they had to use the surplus money for the state’s ongoing spending needs, given the cuts in federal Medicaid payments.

Jan Moller, director of the Louisiana Budget Project, an independent watchdog group based in Baton Rouge, supports the rainy day fund concept.

But replenishing it “would be a huge blow to the state budget,” Moller said. “We already know it’s [the budget’s] not healthy. State support for higher education is at its lowest level since the Truman administration, in percentage terms. We’re not funding the basic needs now.”

Moller called the difficulty in keeping the rainy day fund flush, as required by law, “one more piece of evidence that Louisiana has a revenue problem and not a spending problem.”

The measure added to this year’s budget bill has gotten almost no public attention. It requires lawmakers to bring the rainy day fund to its mandated level by fiscal year 2016, which begins on July 1, 2015. Keegan said he expects the fund will be replenished by then. Details of the state’s response to his lawsuit should be made public in about two weeks, he said. Jindal, in his comments last week, suggested that $50 million might be repaid next year.

Keegan’s lawsuit contended that a 2009 law enabling the state to tap the rainy-day fund was unconstitutional because it suspended the flow of oil and gas taxes to the fund.

Keegan represents Bob Reid and Ron Gomez. Reid has been identified as a Baton Rouge resident and taxpayer. Gomez is a former state legislator from Lafayette who was secretary of the state Department of Natural Resources under Roemer. Keegan said several individuals paid for the lawsuit but declined to identify them.

This article originally published in the August 19, 2013 print edition of The Louisiana Weekly newspaper.