Monday, May 27, 2024

Louisiana budget negotiations face additional barrier with spending cap

by BIZ Magazine

Julie O’Donoghue, Louisiana Illuminator

Gov. John Bel Edwards and state lawmakers may have to clear additional hurdles this year to spend all the money available to them in the next 15 months. The extra steps could make it difficult to immediately distribute additional funding to universities and colleges, roadwork and coastal restoration as the governor proposed.   

Louisiana is bumping up against constitutionally-imposed spending caps in the current budget cycle and next fiscal year, which starts July 1. If lawmakers want to spend beyond those limits, they will have to vote to do so by a two-thirds majority in the House and Senate during the legislative session that starts next month. Typically, such a vote isn’t required. 

“A two-thirds vote is always questionable down here,” Senate Finance Committee Chairman Mack “Bodi” White, R-Central, said after a budget hearing Wednesday. 

The legislature is dominated by Republicans, who generally oppose large increases in government spending. Reaching a two-thirds majority in both chambers could be difficult, but declining to bust the cap would also have consequences.

 It could delay the allocation of millions of dollars, much of which the governor has proposed putting toward transportation projects and higher education. 

“There’s a reason we have an expenditure limit,” said House Conservative Caucus Chairman Jack McFarland, R-Jonesboro. “We will have to sit down and really determine if that’s in the best interest of the taxpayers.”

Louisiana Senate staff estimate the state has the ability to spend about $460 million more in the current year and $500 million in the next budget cycle before hitting the spending restrictions that would require the extra votes. That’s far less than the billion-plus in extra dollars the state has available to spend over the next few months.

In the current budget cycle, the governor and lawmakers have available $725 million in surplus funding from the last fiscal year and $928 million more from higher-than-expected revenue collections. In the next fiscal year, the state also anticipates receiving millions more in funding than initially estimated. That rise in state revenue – which will be updated in May – could also require a vote to bust the cap before it can be used.

Legislators do have a workaround if they are willing to delay some of their spending. Lawmakers can transfer money into funds to be spent at a future date – beyond July 1, 2024 at least – that wouldn’t count against the spending caps for this budget cycle or the next fiscal year. This would be a particularly easy fix for one-off expenses, such as one-time investments in higher education and road projects. 

The governor and legislators used this strategy to a certain extent last year. For example, Edwards and lawmakers placed $300 million for a not-yet-built bridge over the Mississippi River near Baton Rouge. That funding didn’t count toward the current year’s expenditure limit because it isn’t going to be spent in this fiscal cycle. 

Delaying the spending could be particularly frustrating in an election year however. Lawmakers want to be able to go back home and point to projects – particularly road and bridge improvements – they helped to fund. Every legislative seat is up for grabs this fall, and dozens of current legislators are running for reelection.

White, who leads the budget-building process in the Senate, said he doesn’t believe it’s a foregone conclusion that Republicans won’t bust the cap. He said conservative lawmakers might be convinced to do so if the money is going to be spent mostly on infrastructure and other one-time expenses.

“In the next month or so, that will get some talk,” he said. 

The legislature could also choose to do nothing, though that seems like an unlikely option. If lawmakers left the cap in place and didn’t transfer the additional dollars to other funds for future use, it would just roll into a state surplus and they would be relinquishing control over how it is spent. The next governor and a new set of lawmakers would then have authority over how that money is used. 

The governor, a Democrat, made clear this week that he favors busting through the cap. His budget chief, Commissioner of Administration Jay Dardenne, said the governor’s budget proposal was built with the assumption that lawmakers would be spending most of the money available.

“It will limit the ability to do some of the things that we think are important right now,” if lawmakers don’t agree to bust the cap, Dardenne said at a budget hearing this week.

Dardenne specifically mentioned Louisiana could lose out on federal transportation and infrastructure dollars – which are in abundance currently – if the state doesn’t put up all of the money it can now to draw down federal assistance. The federal government often requires states to put some of its own funding into a project before it will agree to provide matching dollars. 

But conservatives may also see some advantages to delaying that spending. Louisiana is expected to see a large dropoff in revenue in 2025, when 0.45% of the state sales tax rate expires. House Republican Caucus Chairman Blake Miguez, R-New Iberia, said some of his colleagues might see it as fiscally responsible to put a large chunk of this excess money in reserve to deal with that loss of revenue.

Conservatives might also feel better about waiting to spend the money until a new governor takes office, he said. The Republicans have a good chance of taking the governorship back in this year’s election.

“Some members are going to want to save some for the next governor coming in because they might trust him more than the current governor,” Miguez said. “I don’t think there is much appetite among conservatives to bust the cap.”

Legislators have voted to bust through the cap twice previously, in 2007 and 2008, following a surge in revenue related to hurricanes Katrina and Rita recovery. Some of Louisiana’s recent increase in state money is also related to an unusual event, the COVID-19 pandemic, which resulted in a huge amount of federal money flooding the state.

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