LABI'S Outlook

LABI's Outlook - April 2008

The spending cap flap The rhetoric is flying over Louisiana’s constitutionally imposed expenditure limit on the growth of the state budget, a feature commonly called the “spending cap.” The Republican minority in the House during the latter stages of Governor Blanco’s administration stopped an attempt to raise the expenditure limit by $2.5 billion. Democrats in the Legislature are now saying that the Republican governor and Speaker of the House are hypocritical for supporting an increase in the cap in the current budget to spend the $1.1 billion surplus carried over from the last fiscal year.

Over the years, I have been very deeply involved in the spending cap issue. My organization was instrumental in passing the constitutional amendment that created the expenditure limit and campaigned around the state to secure its successful adoption. We believed then and now that limiting the growth of the state budget to the average of the three-year growth in personal income of Louisiana taxpayers is a sound way to budget.

Leaving the partisan debate aside, let’s focus on what makes sense regarding the spending cap and what can factually be considered entering dangerous territory.

The Legislature just wrapped up a special session in which appropriating the $1.1 billion surplus was the centerpiece. There was only $50 million left below the cap for the current fiscal year, so in order to appropriate the full $1.1 billion, the cap had to be raised. Our constitution places a fence around how any surplus dollars can be spent. It limits such appropriations to truly one-time expenditures such as highways, capital outlay, coastal erosion, and debt retirement. The money cannot be spent for recurring expenditures such as pay raises and new programs.

We now have a fully funded Rainy Day Trust Fund ($750 million), so rolling the surplus money over into it wasn’t an option. If the cap wasn’t raised to spend the surplus, what should we have done with it? We have a huge backlog of infrastructure needs, an eroding coastline, and a $12 billion unfunded accrued liability in our state retirement systems. It seemed logical and prudent to raise the cap and spend the money on these nonrecurring needs if in doing so we do not raise the expenditure limit for the following fiscal year. Language was added to the legislation raising the cap to make sure that doesn’t happen.

What gets precarious are any discussions about raising the cap to spend excess revenues. These are dollars that the Revenue Estimating Conference has certified as being available — at least for the time being — to spend above and beyond what has been budgeted. The constitution does not restrict these dollars to one-time expenditures. If they are spent on recurring items and their revenue sources diminish, we have a problem.

Governor Jindal’s executive budget for next year falls $116 million below the expenditure limit. If the Legislature follows that basic outline, there won’t be a spending cap debate. If the Legislature attempts to raise the cap for recurring expenditures, they should be stopped dead in their tracks by public pressure or a gubernatorial veto.

As long as the surplus is spent on the nonrecurring expenditures set forth in the constitution and the instrument that authorizes it does not allow the spending to increase the cap for the next fiscal year, there is no problem. But “busting the cap” to fund recurring expenditures is a disaster waiting to happen.

Unfortunately, we probably won’t be having spending cap debates much longer, because some of the revenues pushing us up to the cap are already ebbing. In the meantime, common sense — not partisan rhetoric from either side — should drive the budget debate.