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Hear the Echoes # 9 - Wednesday, March 16, 2011

Hear the Echoes #9


Gov. Jindal’s Land of Smoke & Mirror Budgeting

Last week, Gov. Bobby Jindal released a budget proposal for the 2011-2012 fiscal year.  Legislators reacted swiftly.  Some of them accused Gov. Jindal of balancing the state’s operating budget on the backs of college students, state workers, and the poor. Demonstrations were staged on the Capitol steps. The proposal was designed in the face of a financial chaos that might well be a politically orchestrated stage on which to carry out an ultra conservative agenda. First, state universities were told by the governor that they would have to endure another 35% in cuts.  Then, Superintendent Paul Pastorek told newly elected K-12 school board members that it would be likely only a 10% cut.  Two days later the governor proclaimed it would be less than 10%. Secondly, the official revenue estimates (made March 7) were for revenues to amount to $7.8 billion.  The actual revenue collections for 2010 amounted to $7.1 billion. It should be recognized that revenue estimates are made several times each year for the past 17 years.  Over the 19 years for which estimates are recorded the Legislative Fiscal Office calculates that it has underestimated revenues in 16 of those years.  The March estimate is that used for casting the state budget.  Over those 19 years the fiscal authorities calculated an error rate, on the low side, averaging 7.7%.   For each percent of underestimating revenue the fiscal office reports $96 million for each percent underestimated.  That suggests the current pre-legislative estimate of revenue could be $739 million below actual when all is said and done. When one looks into the presented budget one finds that vouchers for fewer than 2,000 New Orleans school children will increase to $10 million.  These vouchers went, last year, to slightly more than 1,600 and the size of the average voucher was around $4,400.  Current MFP budget letter shows the average per pupil contribution of state funds is less than $3,500. The administration declares that it is protecting Pre-K-12 education.  But, there is no adjustment of inflation, retirement system contributions rise more than 5%, health insurance coverage increases, school bus fuel costs have grown more than 20% in the last month and are projected higher.  The legislature decreed that local school districts must pay for private school bus transportation that had formerly been paid by the state.  The $5,000 per year stipend granted by the state for Nationally Certified Teachers has now gravitated to the local school boards to pay.   Now, the administration proposes to fund TOPS scholarships by raiding a state trust fund that generates money for K-12 education. As more and more public schools are taken over by the state and converted to charter schools that divert money from local public schools, Gov. Jindal presents as part of his budget cutting the selling of prisons to private firms.  In the case of prison or privatized management of charter schools state money is diverted to the profit line.  It is unclear how such diversion of funds can make for better service or lower costs. Most folks would consider such a series of budgetary moves to be CUTS to Pre-K-12 education! The administration declares it will not grant state employees, including teachers, a pay increase.  But its budget calls for raising retirement contributions by 37%.  This governor seems to think that raising college tuition is not the same as a tax paid by students and their parents. The shock and awe doctrine that the administration has established in the media is, it seems, calculated to bring popular acceptance of policy that would not be accepted under more normal circumstance.  In the game of Craps such a move is known as a "Come Bet.” The proposition that half of the dollars needed to fund the TOPS program would come when voters approve another Constitutional Amendment that has not even been introduced to the legislature would certainly raise an eyebrow or two if the average business did so. The administration says it will cut over 4,000 state jobs to save money.  The fact that over half of them were jobs not filled during the 2010-2011 fiscal year suggests a misunderstanding of the term cash flow. An important ingredient in the state’s revenue stream is derived from the oil and gas industry.  Many headlines, over the past year, have signaled huge shortfalls in mineral income to the state.  However, a look at current official reports reveals some interesting facts: The Revenue Estimate underlying the budget calls for an average price for crude oil pegged at $84.65 per barrel.  Oil and gas industry estimates for the coming year average $101.77 per barrel.  Each dollar per barrel difference amounts to $12 million in state revenue.  That means if business forecasts are correct, the Revenue Estimating Committee is underestimating by over $200 million. In 2010, Louisiana’s production of oil on state lands and waters increased over that of 2009 by 626,243 barrels.  State natural gas production also significantly increased by 2.2 billion cubic feet.  Much has been made of oil producers’ tax relief creating a shortfall in severance tax revenue.  According to the state revenue department 2010’s severance tax increased $73 million or 10.7% over the prior year.  It should also be recalled that severance taxes are dwarfed by other state revenues that flow from oil and gas production.  Well over $1.1 billion was paid out to land owners (including the state) in royalties on production from their lands and in other expenses subject to sales taxes.  The income collected by Louisiana’s folks are subject to income tax (lessened by depletion allowance deductions) which is substantially more productive for the state treasury.  In the Haynesville Shale gas field, more than 4,000 acres of state-owned land is leased for production. One might also consider the administration/legislative attitude toward the "Rainy Day Fund.”  The Center on Budget and Policy Priorities, a Washington, D.C-based think tank says they are designed to be used when times are bad.  In Louisiana, the debate over just what constitutes a fiscal "rainy day” has fixated budget planners for more than a year.  About $644 million remains in the Budget Stabilization Fund.  One might question whether or not these times are sufficiently bad to justify tapping those funds.  While there are restrictions that revolve on repayment into the fund, that law can be changed about as easily as the administration-proposed raid on trust funds to fund TOPS. It appears as if there is a real need to evaluate administration shock-doctrine financial claims.  If the administration is right, that leaves another option to be considered other than that proposed.  Moody’s Investors Service, in January, reported that Louisiana’s debt per capita was $4,799 with by far the majority being unfunded pension liability.  Still another D.C.-based think tank, The Tax Foundation, ranks states on a per capita tax basis.  Louisiana, in the most current ranking, is 42nd lowest taxed in the nation.  One might ask:  Does Louisiana face a spending problem; or is it short of revenue to meet real needs? When the smoke enveloping the newly proposed budget clears, and the mirrors start to reflect reality, perhaps the chaos being manufactured will be clearer.  The priority of state spending then might be seen less on enhancing the Governor’s national image and more on meeting public needs.


Don Whittinghill

LSBA Consultant



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