BRADENTON, Fla. – Louisiana's fiscal crisis deepened as state lawmakers prepared for a special legislative session this week to deal with an already historic budget deficit.
Legislators learned just over a month ago that the state faced an estimated shortfall of $750 million in the current year, and a $1.9 billion funding gap in fiscal 2017.
After a revenue estimating conference last week, the estimated chasm widened to a $940 million shortfall in the fiscal 2016 budget and to $2 billion for the new year that starts July 1.
General fund revenue estimates have plummeted due to the continuing decline in oil prices and slowdown in sales and corporate tax collections.
State officials say the current budget did not account for certain expenses, including estimates on the number of people that would seek Medicaid assistance or how many students would qualify for state college scholarships.
The Joint Budget Committee on Monday unanimously voted to cut $38.5 million from the budget – the maximum allowed under its unilateral authority.
"From where I sit right now…I have never seen the degree of financial crisis that we are in in the state right now as a result of a budget that has failed to meet recurring needs with recurring dollars," Commissioner of Administration Jay Dardenne told the committee as he explained the worsening crisis.
The Budget Committee's reductions are on top of those recently imposed by Gov. John Bel Edwards, who said that a $28 million shortfall in the funds available for scholarships would be absorbed by higher education institutions.
Already struggling from some of the worst budget cuts in the nation, Louisiana's colleges and universities will also encounter another $42 million in budget reductions because of the recent lower revenue estimate.
On Sunday, just before opening the three-week legislative session, Edwards took additional steps issuing a series of executive orders, the first of which instituted a hiring freeze expected to save $2.5 million.
In a second order, Edwards initiated certain budget cuts under his purview and officially requested the Legislature's approval to use $128.5 million from the state's budget stabilization fund to close a portion of the current-year deficit.
Tapping the rainy day fund for a second time this fiscal year means that it won't be available as an emergency revenue source in fiscal 2017, according to Dardenne.
While Gov. Bobby Jindal was in office, lawmakers in November dipped into the fund for $28.1 million to help address what was then a $500 million current-year general fund deficit.
In a third executive order, Edwards called for a comprehensive review of all state contracts to be submitted to the Division of Administration.
The order gives the commissioner authority to cancel or reduce any professional, personal or consulting contracts "deemed to be inappropriate, unnecessary or duplicative."
The contract review follows last month's release of a DOA report showing that from July 1, 2014 through June 30, 2015, the Office of State Procurement approved $14.5 billion in 4,017 contracts and amendments. In total, Louisiana's outstanding contracts are worth $15.1 billion, the report said.
Edwards, a Democrat, said at the opening joint session of the Legislature on Sunday that Louisiana has endured budget deficits in each of the last eight years.
"Rather than make the structural changes we needed, instead one-time funds were increasingly used to patch budget shortfalls," he said. "Today, all of that money is gone."
Edwards said the state's funding problems were exacerbated by promised efficiencies that never materialized, the use of tax credits and incentives, and "privatization schemes that actually increased costs" instead of generating savings.
On the positive side, he said, Louisiana will lower health care costs by expanding the Medicaid program to cover more people who do not have access to medical insurance.
Edwards signed an executive order on his second day in office to begin the process of accepting the federal funds necessary to expand Medicaid to working families under the federal Affordable Care Act. Republican predecessor Bobby Jindal had blocked such an expansion.
"Today, we pay 38% of the cost of providing care to the uninsured after they already are sick, but with expansion, we will never have to pay for more than 10% of the cost of helping the same patients see their primary care doctor and get preventive care," he told the GOP-dominated Legislature. "It is a win-win for health care and the budget."
Without expansion of the insurance program, he said that federal payments to cover the costs that hospitals incur for providing health care services to the uninsured will soon dry up, requiring the state to make 100% of the payment from the general fund.
If the state cannot pay the bills, hospitals would begin closing, Edwards said.
To address the budget deficit this year and in fiscal 2017, Edwards has proposed reducing tax credits, suspending corporate tax deductions, and increasing the 4% state sales by a penny on the dollar.
"I am proposing this penny as a bridge that will give us time to stabilize and restructure our state's tax code," he said. "When that restructuring is complete, this penny sales tax will be removed."
Edwards also suggested an increase in alcohol and cigarette taxes among others, though critics have pointed out that the governor spoke of holding the line on taxes during his campaign.
State Treasurer John Kennedy characterized Edwards' plan as the "largest tax increase in the history of state government" in the GOP response to the governor's address.
"It will wreck our economy, already fragile, and it won't work," said Kennedy, who recently announced a bid for a U.S. Senate seat.
Kennedy, holding up a thick document during his response, said he sent the governor and each legislator a plan with "400 different ideas and suggestions" for reducing state spending.
Some suggestions include unlocking $400 million currently restricted by statutory dedications, cutting some of the 19,000 state consultants who "charge way too much," preventing Medicaid recipients from using emergency rooms for unnecessary services such as pregnancy tests, and stepping up enforcement of Medicaid fraud believed to account for 10% of program's $9 billion cost, he said.
While Edwards' speech concentrated on current budget cuts, he also submitted his first executive budget for fiscal 2017.
Edwards proposed an $8.24 billion general fund budget, a 3% decrease over the current spending plan that also imposes budget cuts between 24% and 63% on most agencies.
"The proposed budget is built on the state dollars available today – some $2 billion less than what is required to provide the same level of services provided in the current fiscal year," he said in a message to lawmakers. "You will find few areas exempted from the budget ax with a number of agencies, including the executive office, getting less than half of the state funds they previously operated on."
Edwards said he exempted funds for public schools from proposed cuts but warned that health care and higher education would be hit with "devastating" cuts absent new sources of revenue.
The Department of Health and Hospitals budget could be cut by $880 million without additional money, and funding for higher education could drop by as much as $180 million.
Edwards recommended $819.6 million for state capital outlay, a 3.2% increase over the current year, and a $25.6 million increase in capital funding for the Department of Transportation and Development for a total of $778.4 million.
The state's debt service would more than double in fiscal 2017 to $404.8 million.
Legislators are expected to act on current budget cuts and some revenue raising measures in the special session. They plan to address measures tackling the structural imbalance during the regular session starting March 14.
