A view of the state budget from 30,000 feet

Few individuals inside or outside of state government have any idea what the state budget is all about. Trying to assess what is happening with almost $30 billion of state spending by following the actions of individual legislative instruments often only adds to the confusion. Even so, taxpayers should try to understand a basic overview of the 2008 budget, because the spending it contains may come back to haunt them in the not-too-distant future.

To understand what is happening with the 2008 budget, one first needs to know about the current year’s budget. After the Revenue Estimating Conference (REC) met on May 22 and added an additional $118 million in new current revenue, there is a total of $1.4 billion in excess revenues available in the 2007 budget ($300 million of that is money reserved for the ThyssenKrupp steel mill project that is no longer needed). The Blanco Administration is proposing that a $770 million special fund for new spending be set aside from the current budget to be spent in the 2008 budget.

This appropriation would not be subject to spending cap limitations for the current year. The administration also plans to use $156 million of the 2007 dollars for certain supplemental appropriations to cover “shortfalls” in the current budget.

That allocation would use up all of the available spending cap room in the 2007 budget. Once all of those dollars are added up, it appears that only about $200 million will remain of the $1.4 billion in excess 2007 funds — depending on if the steel mill fund is spent for other purposes.

The 2008 budget is being fashioned by using some $1.4 billion in excess revenues recognized by the REC, including $128 million recognized at its May 22 meeting. The Blanco Administration is proposing that the excess revenues be used to provide $150 million in tax cuts and $1.15 billion in additional spending.

That would leave only the $128 million in newly recognized revenue unspent — for the moment, at least.

From all current indications, the governor and legislative leadership intend to add approximately $3.5 billion in new potential spending to the state budget (including the $827 million in surplus funds from the 2006 budget) while cutting taxes by $150 million. That is a ratio of $23 in new spending for every dollar of tax cuts.

There will certainly be a number of legislators who will push to try to add more balance between the tax cuts and the huge increases in state spending. Don’t expect them to succeed. Most of the tax reduction bills have been held up until the budget moves first. Once the budget advances, tax cut advocates will be told they have to file amendments to cut areas out of the budget in order to increase the amount of tax reductions. Those attempts are not likely to succeed.

During the REC meeting on May 22, the Legislative Fiscal Office cautioned that some of the revenue streams — especially the state sales tax — are starting to slow down, a fact that could have implications on future state finances if state spending increases according to current projections.

At the meeting, Commissioner of Administration Jerry LeBlanc characterized the revenue trends in a different way. He described them as being a return to more normal revenue growth patterns built upon a higher base of overall revenues. If the Legislature shares that belief, it could lead to a fiscal mess a few years from now.

If the “higher base of revenues” is not stable and enduring, state revenues could drop significantly in the future. Few doubt that hurricane recovery efforts pumped huge and somewhat abnormal increases into state revenues, particularly into sales tax collections. If those increases go away, the huge spending increases can’t be maintained without new revenue sources, which would most likely mean higher taxes.

Government is doing quite well in the budget discussions thus far. Taxpayers, unfortunately, are getting chump change. They could be called on soon to give back their meager proposed tax cuts plus a huge amount more in higher taxes.

What a deal!