In California, Gov. Arnold Schwarzenegger warned the state faced “financial Armageddon” unless lawmakers take decisive action to shrink a budget deficit that has ballooned to nearly $40 billion for the next two years.
Gov. Bobby Jindal used less colorful language, but his message was the same – Louisiana's spending spree must come to a halt.
“Just like in families and small businesses, state government has to live within its means,” he said in a news release.
Fiscal analysts reported a $341 million revenue shortfall for the current-year state budget, with next year's budget shortfall projected at $2 billion – about $750 million more than earlier estimates.
The state's current 2008-09 budget is nearly $30 billion.
Developed by Jindal and state lawmakers, that budget boosted state spending by $1 billion. Their next budget for the 2009-2010 fiscal year that begins July 1, will have to be trimmed. If not, it will cost $2 billion more than the state has to spend next year to continue running all of the programs and keep up with the costs of inflation.
Declining revenue
Louisiana's income from personal and business taxes is expected to decline, sales taxes are flat and the severance taxes and royalties tied to oil and gas prices are shrinking as mineral prices fall.
With those economic realities, and a $360 million income tax break the Legislature recently approved for middle- and upper-income taxpayers, the state's income streams will fall below what came in last year.
Jindal did veto the legislative pay raise.
And, he recently put a partial hiring freeze in place to help cut cost – a move expected to save more than $25 this year and more next year.
He's also asked state agencies to look at reductions they could make now to help lessen costs next year.
“Everything is on the table,” he said.
Well, almost everything – except raising taxes.
No new taxes
“Raising taxes is not an option, and would be the worst thing we could do in an economic downturn,” Jindal said.
The governor has to submit his recommended budget to lawmakers before they return for a regular legislative session in April, and lawmakers will craft a final version.
This could prove to be a career-defining moment for the governor as for Gov. Buddy Roemer who faced similar financial woes. He tried to enact long-lasting reforms to restructure and clean-up state government 20 years ago, but the Legislature would not go along with it. As a result, Roemer's rising political star sputtered and died.
Former President George H. W. Bush, who once said: “Read my lips, no new taxes,” backed out of his promise in order to reduce the national deficit. With a Senate and House both controlled by Democrats – he had to negotiate and raise several taxes as part of the 1990 budget agreement.
Will Jindal be able to deliver on his promise of no new taxes?
Barry Erwin, President of the Council for a Better Louisiana, believes the governor will deliver on this promise.
“I think the governor will balance the budget without raising taxes because he has already said that was his intent,” Erwin said.
“I don't get a sense from much of the Legislature that there is a desire to raise taxes at this time. That said, I think it is going to be extremely difficult. The amount that needs to be cut is huge and I don't think it can be done without impacting services of some variety.”
Erwin said there is always some level of cutting that can be done in state government without having a major impact, but with the level of cuts the state faces – he thinks the cuts will have to be much deeper.
“Again, there are certainly some 'easy' cuts that can be made, but after that we are going to have to start assessing our true priorities and make some hard decisions about how we can preserve the most important services in higher education and health care, while recognizing that some things we might like to keep will have to be scaled back or eliminated,” he said. “All of this is very hard.”
A surplus
Jindal has some options – for example, an $865 million surplus left over from last year.
However, the money can only be used for one-time items, like debt payments and construction spending – not to fill any budget holes. Some state leaders have suggested using $285 million from the “Rainy Day” fund to help cover the deficit, but the governor said he won't tap into the fund this year.
He has left open the option for next year, however.
Trimming the budget
Higher education and health care will be the first in the state to be impacted by budget cuts, according to the Jindal administration.
But, with a push for a better educated workforce, is it wise to shrink spending at the state's colleges?
“I think the jury is still out on the impact these cuts will have to education, but when you consider that we still have great needs, especially when it comes to educating and training our workforce, the scenario is not very encouraging,” Erwin said.
“The university presidents are trying now to look at their budgets and see where they can cut while trying to minimize the impact. But it is hard to see a scenario in what we know now where students, faculty and staff at our institutions are not all affected.”
Jindal notified UL schools recently, including McNeese, that higher education will face a budget cut of more than $109 million.
The governor's proposal amounts to an average 7.82 percent decrease in spending for all UL schools. They are McNeese, Nichols, the University of Louisiana at Lafayette, the University of Louisiana at Monroe, Grambling, Louisiana Tech, Northwestern and Southeastern.
The governor has asked each to submit a plan outlining how it will implement the cuts.
In Louisiana, Medicaid spending has grown from 8.5 percent of the state general fund, two years ago, to more than 16 percent today. Medicaid spending is expected consume nearly 22 percent of available discretionary dollars by 2011 – potentially eclipsing funding for schools, economic/job development, roads and law enforcement.
The Jindal administration has already announced plans to cut Medicaid spending.
But, which Medicaid services for the disabled will be cut?
Cutbacks in other states
According to a new report from the National Association of State Budget Officers and National Governors Association, 12 states, this year, have cut back on optional Medicaid benefits such as vision and dental coverage.
The report said for many states across the nation, everything is on the chopping block.
- New Hampshire decided to suspend jury trials for a month to save money.
- Michigan has closed two prisons.Idaho announced plans to lay off 63 part-time workers.
Even some politicians are tightening their belts.
- Kentucky Gov. Steve Beshar – D, and his lieutenant governor took a 10 percent pay cut, saving the state $100,000.
- Indiana Gov. Mitch Daniels – R, refused a $13,000 pay hike.Lawmakers in Georgia and Pennsylvania recently rejected cost-of-living raises for themselves.
Erwin said everyone is waiting to see what this level of budget cuts will look like in Louisiana.
“We tend to think of budget cuts in the abstract, because usually we find a way to minimize the damage,” he said. “But we have not been in a situation like we face now in decades and in many areas, higher education in particular, it took us decades to crawl out of the hole we dug to survive at that time.”
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