Is it possible to do less with more?

Now that the "Rescue Plan" bill has passed, it's time to pick around in it and see what we've won.  Of particular interest now will be keeping an eye on state and local politicians to see if they continue pushing for austerity budget cuts even though the stimulus specifically provides funds intended to prevent that from happening. This morning the LA Budget Project calls attention to one provision of the bill meant to head some of this off. 

The law also contains an important provision for states receiving the aid: for every dollar that a state government spends on net tax cuts, it will lose a dollar of federal support. As lawmakers gavel into session next month, they will have an opportunity to make long overdue investments in Louisiana’s people, families and communities instead of providing tax cuts to businesses and the wealthy. This provision provides an incentive to do just that.  Nicholas Johnson of the Center on Budget and Policy Priorities has the details: 

Cutting state taxes now would repeat a mistake many states made in the wake of the Great Recession: they cut taxes, which harmed families, undermined economic growth, and exacerbated economic inequality and racial injustice. Instead, states should address critical health and economic needs by making investments that can help build antiracist, equitable states. To help them do so, the American Rescue Plan Act includes $195 billion in fiscal aid for state governments (and more for schools and for local, tribal, and territorial governments).

They can't use the one time stimulus payments to create new "fiscal cliffs" made out of tax cuts for rich people.  Republicans in some states are already complaining, of course.  But the truth is there will plenty opportunities in the new law for them to steal whatever they want.  This line, in particular, seems like a just such an opportunity. 

(3) TRANSFER AUTHORITY.—A metropolitan city, nonentitlement unit of local government, or county receiving a payment from funds made available under this section may transfer funds to a private nonprofit organization (as that term is defined in paragraph (17) of section 401 of the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11360(17)), a public benefit corporation involved in the transportation of passengers or cargo, or a special-purpose unit of State or local government.

Which suggests that the city of New Orleans, still beset with serious infrastructure challenges, and which has spent the past year threatening layoffs, furloughing workers, and dropping cryptic hints about "shared sacrifice," could still move ahead with its plans to do all of those things while shoveling the federal stimulus funds out the back door to non-profits controlled by the NOLA Business Alliance or Leslie Jacobs, or even Stephen Perry with very little accountability for any of it. Especially interesting thing to watch for just ahead of an election season when people will need paying off.

You can build it back better later

The Governor's budget proposal is due out this week. It looks like they are going to plan for cuts now that they expect to undo once the stimulus comes in. 

Jay Dardenne, the commissioner of administration for Gov. John Bel Edwards, plans to kick off the negotiations on February 26 by presenting a budget proposal to the Legislature that includes spending cuts based on current revenue projections.

But the potential for more federal aid is on the horizon. President Joe Biden’s push for a $1.9 trillion stimulus package, which would be the third federal aid bill since the pandemic started, could ease the state’s losses, and put Louisiana in a stronger position for fiscal 2022, which starts July 1.

“It's anticipated that we get a federal stimulus. If that's the case, then we'll be in better shape,” said state Rep. Jerome Zeringue, R-Houma, the chairman of House Appropriations Committee. “Because the economy is in such bad shape right now, we’re hoping we'll have a similar situation to what we had last fiscal year, and we won't know that until the federal stimulus package comes in. We're anticipating it, but there's no guarantee until it comes. That's kind of what we need and are depending upon to continue to get us through this crisis.”

A month ago, the Revenue Estimating Conference deliberately chose a more conservative projection than was really necessary, not only because they didn't know the size of the stimulus, but also because they chose to lowball projected tax collections.  So there should be ample opportunity to add back later whatever cuts show up in the proposal now.

Of course, the last time this legislature had to figure out what to do with federal stimulus funds, they carved out $300 million for John Schroder to dispense on his own.  So we'll have to see what they come up with this time.

 

The state budget is not yet busted

Some quick notes on what's being reported from the Revenue Estimating Conference today. The projection they adopted expects the overall budget to shrink by about $223 million this year. BUT there are multiple caveats and what-ifs that will determine the eventual impact on services. 

The REC is itself a politically contentious process.  Its purpose is to set an initial framework for the Governor's budget proposal before the legislative session begins.  After that, lawmakers can figure out how to find more money if they want or just move everything around. But this is where they come up with the number that sets the starting point.  But that starting point isn't an absolute truth ordained from the heavens. It's something that gets argued over by the committee. The result of that isn't so much as an agreement on the most reasonable forecast as much as it is an agreement to stop arguing.

The four-member Revenue Estimating Conference, made up of (JBE's Commissioner of Administration Jay) Dardenne, (Senate President Page) Cortez, independent economist Stephen Barnes, and House Speaker Clay Schexnayder, picked the less rosy of the two available forecasts.

Manfred Dix, an economist for the governor’s administration, forecasted a drop of only $35 million in the state general fund for the upcoming fiscal year, citing what he sees as a quicker recovery as vaccinations ramp up.

Dardenne initially moved to recognize Dix’s forecast, saying the panel would meet again in two months to revise its forecast. President-elect Joe Biden’s administration is also expected to push for aid to state and local governments now that he has Democratic control in Congress.

The panel’s independent economist, Barnes, sided with Dardenne, but Cortez and Schexnayder refused, with Cortez saying the panel should proceed cautiously with so many unknowns. Instead, all four agreed to the more conservative estimate, with Dardenne saying he wanted to avoid going without a revenue forecast, something that had thrown the budget process into chaos amid previous disagreements.

So the REC number is important. But remember not to take it too seriously. Predicting the future is, after all, always more of an art than a science. For example, it says here that state sales tax revenues during the pandemic weren't quite as bad most people expected.  Also there's a fair amount federal money already allocated for Louisiana that hasn't been factored in yet simply because the rules for spending it haven't been established. 

However, the $292 million in higher-than-expected tax collections this year could be used to help cover some of next year’s expenses. In addition, Louisiana is receiving new federal aid passed by Congress in December, some of which could help offset state budget cuts next year. Louisiana and other states still are awaiting federal guidance on what strings exist on the latest assistance.

And, of course, no one expects that to be the end of the federal aid. We could end up being disappointed about the eventual size of it. But right now there are reasons to be optimistic that the next stimulus package could include real fiscal help for the states. Even Cortez thinks so. 

Once President-elect Joe Biden takes office, Congress could also put even more federal funding relief on the table — and that could also affect how large any state budget cuts would need to be.

“We fully expect to get more stimulus dollars,” said Senate President Page Cortez, R-Lafayette, a member of the Revenue Estimating Conference.

Cortez said he does worry any money coming from the federal government after Biden becomes president might not arrive in time to help prop up the state budget. Congress still has to negotiate the new package and the legislature often finishes Louisiana’s budget in June, right before it takes effect in July.

It's hard to know whether or not Page is joking there.  If the last few years have taught us anything it is that this legislature is not worried in the least bit about fiscal deadlines. 

The upshot is the pandemic fiscal doom is not yet upon us. Which is an important thing to remember when Republicans start talking about belt tightening during the session this year.  They are still in charge of deciding whether or not you have to suffer in order to protect the petro-bosses who fund pretty much all of them.  There are better choices, though. 

Oh also be sure and check out this FB event hosted by the LA Budget Project. Looks like they will be talking about a lot of this stuff.