Keaton Presentation on FY12 Budget Shortfall

7/28/2019 Keaton Presentation on FY12 Budget Shortfall

1/45

1

Please refer to the notes thataccompany selected slides in

this presentation for a morecomplete explanation of thepoint that the slide is intended

to make (go to view in the

menu and select notes page)


2/45


3/45

3

This presentation deals with the projectedbudget shortfall for FY 12 and includes a

discussion of the following: the process used to determine the

shortfall

what the shortfall means in the context ofthe total state budget

how it is likely to be dealt with assuming

no increase in taxes or fees and how public policy decisions affect the

states ability to live within its budget while

maintaining vital state services


4/45

The 5-Year Base-Line Budget Report that waspresented to the Joint Legislative Committee on

the Budget in August projects a $1.6 billionshortfall in FY 12.

Since this is such a large number, the firstquestion that should be asked is, where did

this number come from and how accurate is it?

4


5/45

In 1992, after Louisiana had just gonethrough some of the worst budget cycles in

recent history, the Legislature established theFive-Year Base-Line Budget Process

(R.S. 39:171 175)

The process matches the Official RevenueForecast with the Official Expenditure

Forecast to show how well revenues andexpenditures match up in the current and

ensuing four fiscal years

5


6/45

The official revenue numbers are provided bythe Constitutionally created Revenue

Estimating ConferenceBy law, the expenditure projections are

developed by the Commissioner of

Administration, but assisting in this processare the Legislative Fiscal Office, the Senate

Fiscal Staff, and the House Fiscal staff

6

Finally, the revenue and expenditureprojections are presented to the Joint

Legislative Committee on the Budget for its

review and input


7/45

The Five-Year Base-Line Budget Reportshows a shortfall of $1.6 billion for the FY

that begins on July 1, 2011

7

This projected shortfall of $1.6 billion will be

the subject of considerable speculation anddiscussion between now and when thelegislature convenes on the third Monday of

April, 2011

The remainder of this presentation lays thegroundwork for those discussions


8/458

What does a $1.6 billion

shortfall mean in the context ofthe total state budget?


9/45

Since Louisianas Constitutionrequires a balanced budget, this

shortfall must be addressed in thegovernors FY 11-12 ExecutiveBudget

9


10/45

But, theres some

misunderstanding about thesignificance of a $1.6 billion

shortfall because in Louisianas$25.5 billion FY 11 operating

budget a shortfall of that amountcould be dealt with by a cut of

only 6%10


11/45

Some radio talk show hosts mightpresent the situation to their

audiences something like this . . .Why is it so hard for the

legislature to cut $1.6 billion out ofa $25.5 billion budget. Thats a

cut of only 6% and who out therecouldnt manage to cut their

budget by 6%?

11


12/45

The upcoming slides answer that

question

12


13/45

Think of the FY 11 budget as a big pie withslices that represent the various categories offunding used to support expenditures. Federal

Funds cannot be cut to deal with the shortfall

FEDERALFUNDS

45%

$11.5 B

13

F i th l i l t d i


14/45

For various reasons, the legislature and in somecases the citizens, have chosen to dedicate

certain revenues for specific services. Dedicated

funds are not generally considered to be availableto offset a shortfall

FEDERAL

FUNDS

45%

$11.5 B

DEDICATIONS

18%

$4.6 B

14


15/45


16/45

GENERAL

FUND30%

$7.7 B

The most versatile funding in the budget is theGeneral Fund which can be used to pay for

any expense of government

FEDERALFUNDS

45%$11.5 B

DEDICATIONS18%

$4.6 B

16


17/45

Because there are restrictions on the use of the othersources of funding in the budget, the General Fund is

where most of the cuts will have to be made to deal with

the $1.6 billion shortfall

GENERAL

FUND30%

$7.7 Billion

Cutting $1.6 Billion out of this areaof state funding would amount to a20% across-the-board cut

17

H th t i ti th


18/45

However, there are even restrictions on theGeneral Fund and those restrictions protect $5.1

billion of the total $7.7 billion from cuts. This

uncuttable part of the budget is referred to asnon-discretionaryspending

$2.6 Billion

$5.1Billion

18


19/45

This leaves 10% of the total state budget orabout $2.6 billion to absorb the $1.6 billion in

cuts needed to eliminate the $1.6 billionprojected FY 12 shortfall

$2.6 Billion

FEDERAL

DEDICATIONS

AGENCYFEES

NON-DISCRETIONARY

19


20/45

Higher Ed.

37%

Health Care

29%

All Other

34%

Breakdown of DiscretionaryGeneral Fund Budget

20

If th b d t h tf ll f $1 6 Billi ld b t


21/45

If the budget shortfall of $1.6 Billion could be cutfrom the total budget, the percentage cut toeach department would be relatively small

$1.6 billion $25.5 billion = 6%Percent c ut to t otal FY

11 budget to el iminate

a $1.6 bi l l ion sho rtfal lProjec ted FY 12 Sho rtfall Total FY 11 Budg et

Most Depts.Could Live

With This 21

U f t t l 90% f th t t b d t i


22/45

$1.7 billion $25.5 billion = 6%

$1.6 billion $2.6 billion = 61%

Percent c ut t o FY 11

discret ionary budget

required to el im inate

the $1.6 bi l l ion sho rtfal l

Projec ted FY 12 Sho rtfall FY 11 Disc retion ary

Budget

Most departmentscould not managethis level of a cut

without a significantreduction inservices

Unfortunately, 90% of the states budget isprotected from cuts, so the shortfall must beabsorbed by those departments that receive

discretionary appropriations and the percentagecut is very high

22


23/45

Whatare the Legislatures options for not cutting61% of the FY 11 budgets of higher education,

health care, and a host of other importantprograms like Veterans Affairs, Elderly Affairs,Economic Development, School Accountability,

Ethics Administration, the Military, State Parks,TOPS, and whole host of other programs thatare lumped into the all othercategory?

23

Lets take a look at all of the departments thatcomprise the All Other category

Whats Incl ded in the All Other Categor of


24/45

Whats Included in the All Other Category of

Discret ionary Spending

Department% of Dept.s Gen.

Fund DiscretionaryBudget

Dollars

Executive 93% $133,683,908

Veterans Affairs 73% $5,660,657

Sec. of State 41% $11,748,744

Agriculture 100% $16,707,363

Attorney General 87% $6,984,507

Economic Dev. 82% $16,167,176

Tourism & Rec.91% $24,373,438Youth Services 98% $129,017,227

Labor 100% $8,558,722

Civil Service 93% $4,342,748

TOPS100% $138,000,000 24


25/45

25

With this background we canbegin exploring options for

dealing with the $1.6 billionshortfall


26/45

Option 1: Continue the hiringfreeze, dont give merit raises, dont

budget new equipment, freezetravel, dont fund MFP increase,defer building and equipment

maintenance, and dont budget forinflation

26


27/45

Option 2: Cut programs in the non-discretionary budget that are not

constitutionally protected

27

Whats Included in the Non Discret ionary Budget


28/45

What s Included in the Non-Discret ionary Budget

Department Gen. Fund DollarAmount

Primary Reason forNon-Dis.

Classification

Executive $9,912,922 Court Order/Debt Serv.

Sec. of State$16,821,573 Constitutional

Corrections $358,161,030 Unavoidable Oblig.

DHH $347,069,358 Court Ord./Fed. MandatesDSS $61,095,969 Unavoidable Oblig

Higher Ed. $91,465,034 Un. Avoid. Ob./Stat Oblig.

Education$3,092,747,146

Const. /Unavoidableobligations. CourtOrder

HCSD $38,212,277 Unavoidable Obligations

Other Requirements $419,255,144 Const./Debt/Un. Avoid

Non. Appropriated $426,991,041 Constitutional

Judicial/Legislative $201,745,557 Legislative Discretion

Whats Left in the Non Discret ionary Budget A fter


29/45

What s Left in the Non-Discret ionary Budget A fter

Const i tut ional Items A re Removed?

DepartmentGen. Fund Dollar

AmountPrimary Reason for

Non-Dis. Classification

Executive$9,912,922 Court Order/Debt Serv.

Sec. of State$16,821,573 Constitutional

Corrections $358,161,030 Unavoidable Oblig.

DHH $347,069,358 Court. Ord./Fed. Mand

DSS $61,095,969 Unavoidable Oblig

Higher Ed. $91,465,034 Un. Avoid. Ob./Stat Oblig.

Education $3,092,747,146 Const. /Avoid. Ct. Order

HCSD $38,212,277 Unavoidable Obligations

Other Requirements $419,255,144 Const./Debt/Un. Avoid

Non. Appropriated $426,991,041 Constitutional

Judicial/Legislative $201,745,557 Legislative Discretion29


30/45

Revenue is projected to grow From FY 11 through FY 14(Official Forecast in Million $s)

This is pretty decent revenue growth given the currenteconomy. Maybe too good.

30

TRIGGER TO CUT CONSTITUTIONALLY PROTECTEDEXPENDITURES AND FUNDS WILL NOT BE MET IN FY 12

Wh t h if ll dit i th


31/45

What happens if all expenditures in the non-discretionary budget that are NOT

Constitutionally mandated are subjected to the

same cuts as the discretionary programs?

+ $1.436 B (non-Const. expenditures)

$2.644 B $1.601 B = 61%

Cuttable FY 12 Shortfall % Cut Needed

$4.080 B $1.601 B = 39%

31


32/45

Option 3: Implement Options 1 and 2,but also put selected programs funded

with statutory dedications in the mix ofprograms to be cut to deal with theshortfall

32

Dedications account for $4 6 Billion of


33/45

Dedications account for $4.6 Billion ofthe FY 11 State Budget. Some of these

funds are constitutional, some are fromfederal sources, and some representone-time money. But some portion of

the $4.6 Billion is from statutorilycreated funds and those monies can beredirected by the Legislature. Any

redirection should be done for multipleyears to avoid pushing the FY 12shortfall into the future

33


34/45

Option 4: Refinance debt, changeamortization schedules for theunfunded accrued liability of theretirement systems, and push anyother expense for FY 12 as far out intothe future as possible. This createssome short term savings but in somecases increases future years costs.

34


35/45

35

SOME FINAL THOUGHTS


36/45

The state has faced largebudget shortfalls in the past

and was able to avoidsignificant curtailment ofservices. Why might it be

different this time?

36


37/45

1. The state is in its third year ofbudget cuts and downsizing. Budgetsare lean with little slack left to absorbadditional cuts without significantreductions in services

2. As cuts shrink the size of thediscretionary budget, the non-discretionary budget becomes a

greater percentage of the GeneralFund budget. This change exposesdepartments in the discretionarybudget to largercuts

37


38/45

4. There are fewer options to infuse non-recurring funding into the revenuestream to stave off cuts because many of

those options have already been used

3. The budget shortfall is not the result ofa revenue forecast that is declining

which would trigger access toconstitutionally dedicated funds thatcould help mitigate the shortfall andlegislation that would have increasedthe legislatures access to those fundsdid not pass

38


39/45

5. The 2011 Regular Session precedes astate-wide election year and this makes

all decisions more difficult

39


40/45

40

Tax cuts and dedications enacted

over the past four years weremajor contributors to the FY 12

shortfall but the trend shows thatthe legislatures inclination forsuch actions has been declining

as the size of the shortfall grows

FY 12 Loss to the General Fund as a


41/45

FY 12 Loss to the General Fund as aresult of tax cuts and dedicationlegislation enacted since 2007*

2007 Regular Session -$508.8 Million

2008 Extra. Session -$283.0 Million

2008 Regular Session -$101.5 Million**

2009 Regular Session -$ 88.5 Million

2010 Regular Session -$ .1 Million

TOTAL FY 12 Impact -$981 .9 Million

* Source: Fiscal Notes Legislative Fiscal Office

* *Additional dedication of $166.3 million was delayed andnot included in the revenue loss for this FY

41

The General

Fund loss is at

least this much

annual ly goin g

forward

UNMET NEEDS


42/45

42

In addition to the projected shortfall, there is agrowing backlog of important projects that cannot be

addressed with currently available resources. Thecost of this backlog increases daily

Highways ($14 Billion approx.) - gasoline tax revenue

grows at about 2% annually and highway constructionand maintenance costs grow at about 6%

UAL on Retiree Group Benefits ($11 Billionapprox.) this liability continues to grow because

there are no active plans to deal with it

Deferred maintenance on state buildings andcollege campuses ($4.3 Billion approx.)

State self-insurance program - R.S. 42:851 ($1.2Billion a rox.

UNMET NEEDS


43/45

43

Things to watch for in the coming months . . .

Congressional handling of federal tax cuts setto expire in January 2011

Certification of FY 10 ending General Fund Balance . . .

Amendment No. 2 on the November 2ndballot

. . . could have a negative impact of up to $35 million in FY 12 and asmuch as $65 million in following years

. . . would have a negative impact of

approx. $30 M in FY 12 if cuts are not renewed for upper end taxpayers

This event has already occurred and the balance for FY 10 was a deficit of$106 million. The governor issued an executive order cutting the currentyear budget to cover the deficit and highereds share was $34.8 million

Next meeting of the Revenue Estimating Conference . . .the FY 12 shortfall of $1.6 billion is based on a revenue forecast made inApril of 2010. A revision of the current forecast is always possible and adownward revision could increase next years shortfall and create another

shortfall in the current fiscal year


44/45

44

end of presentation


45/45

Documents

Keaton Presentation on FY12 Budget Shortfall