The Sensible Path on the Fiscal Front

On Friday, March 16, the Blanco administration sent a clear message to the voters and taxpayers about where it stands on fiscal responsibility in 2007. That day, Commissioner of Administration Jerry Luke LeBlanc presented the administration’s executive budget to the Joint Legislative Budget Committee. As a part of that process, Governor Blanco’s budget contains the spending cap for Fiscal Year 2007-08, as determined by LeBlanc and his staff.

The word on the street is that the Blanco administration will include a $1.3 billion increase in the spending cap as part of the executive budget. If that turns out to be the case, it will be an insult to Louisiana’s taxpayers and an open invitation for the Legislature to spend much more money than state government revenues are likely to cover in the near future.

Isn’t a $1.3 billion increase in the spending cap for state government an astronomical increase? Absolutely. The cap is supposed to be determined by averaging the prior three years of personal income growth for Louisiana’s citizens. Due to the timing of submitting the executive budget, the personal income figure for the last quarter of 2006 will not be available until 11 days after the budget document is submitted.

What everyone should understand is this: If the Blanco administration proceeds with a $1.3 billion increase in the spending cap, the fourth quarter of 2006 personal income number they use would have to reflect a 70 percent jump in personal income for the fourth quarter alone. That means if the average income of Louisiana workers was $8,000 for the third quarter, it would have increased by $5,600 to $13,600 in the fourth quarter, according to Blanco administration arithmetic.

If Commissioner LeBlanc and the administration do indeed raise the spending cap by $1.3 billion, they are doing so by using a figure that they know is wrong, a fact that will be exposed on March 27 when the U.S. Commerce Department releases the actual fourth quarter 2006 personal income growth number.

A much more reasonable approach would be for the governor and her administration to use the approach suggested by the Legislative Fiscal Office (LFO). Under its model, the fourth quarter 2006 number would more closely reflect the spending cap’s historic growth trend.Ü

Under the LFO approach, the spending cap would still increase by a hefty $540 million, but it would not be out of line by $750 million as would be the case under the $1.3 billion increase scenario.

I can remember when $540 million used to be a lot of money, even at the state Capitol. It would be enough for the Blanco administration and Legislature to fund the much-discussed state worker pay raises and additional education investments. Beyond that, the Legislature could do strategic one-time investments, such as highways and debt retirement, with surplus and excess revenues—as long as the spending cap would be returned to the $540 million growth curve.

Sensible individuals of all political persuasions can come together and make reasonable tax reductions, strategic one-time investments, and an appropriate amount of recurring expenditures—and do it within the framework of a $540 million increase in the spending cap. Those who want to push the cap above the billion dollar mark place the future finances of the state in considerable jeopardy.

The first major issue in the 2007 elections could be what the Blanco administration does with the spending cap and how the Legislature responds.