Today, Governor Bobby Jindal announced a package of three bills to foster greater flexibility in the state's budget process and aid in protecting critical state services, especially in times of declining state revenues and back-to-back years of budget challenges.
Governor Jindal said, "Our state faces a multi-billion dollar budget shortfall over the next two fiscal years that is uniquely challenging due, in part, to the faulty federal FMAP formula causing a decrease in our Medicaid funding and federal cuts to the hospital funding formula. Working to make our budget process more flexible is absolutely essential to moving our state forward through current and future budget challenges. These three bills will direct resources that are currently off-limits in the budget process to better support higher education and healthcare."
Currently, dedicated funds in the budget process make it difficult to determine which spending priorities provide the most public benefits. The Governor stressed that the ability to assess all competing budget priorities is the hallmark of a sound budget process that makes the best use of taxpayer money. Jindal said, "Louisiana has locked away $3.9 billion in protected funds over the years and it is time to put more options on the table. These three initiatives will do just that while providing critical access to funding during times of deficit."
Senate President Joel Chaisson said, "At this time we are facing unprecedented mid-year budget reductions. We need all options on the table with the opportunity to have an open discussion about the proposals and their impact on our efforts to move our state forward."
Senator Mike Michot said, "These three initiatives will give us greater flexibility in the budget process, especially at this time when we face such significant budget challenges. As we head into this legislative session we should be considering all budget options to responsibly fund the priorities of this state."
Commissioner of Higher Education Sally Clausen said, "Louisiana's higher education community is pleased that the Governor and several legislators are seeking creative ways in which to increase the state's budget flexibility during these tough fiscal climates. Opening up these avenues will allow for broader discussions when it comes time to sustaining our institutions and ensuring that Louisiana's students are served. While the Louisiana Education Quality Trust Fund has been a welcome funding source for important research as well as endowed professorships, it can also serve as a safety net during a severe budget crisis like the one we're experiencing today."
Dr. John V. Lombardi, President, LSU System said, "Providing more flexibility in dealing with the complex fiscal issues confronting Louisiana is a welcome addition to the policy framework as the state faces increasingly difficult challenges in providing essential services. The LSU System is grateful for the thought and commitment represented by these efforts and we're confident the governor, his administration and the Legislature remain dedicated to the long term preservation of these trust accounts that have provided critical funding for thousands of research projects, subsidized hundreds of endowed chairs for eminent scholars and played a key role in the recruitment of scores of exceptional graduate fellows."
LCTCS President Dr. Joe D. May said, "We applaud the efforts of Governor Jindal as he continues to identify solutions for the financial challenges plaguing our state. These proposed budget reform initiatives will have a positive impact on the higher education community. Furthermore, the flexibility it will provide in mitigating future budget cuts will benefit our colleges as they continue in their mission of putting Louisiana's citizens to work. Our system's 70,000 students, 16 community and technical colleges, and the State of Louisiana all stand to benefit greatly from this move."
Interim President of the Southern University System Kassie Freeman, Ph.D. said, "These innovative budget reform initiatives are certainly a significant step in the right direction in mitigating the budget crisis our higher education institutions are facing. The proposed measures will certainly assist the Southern University System as we continue to enhance our academic programs and significantly increase graduation rates. We sincerely commend Governor Jindal for his continued leadership and ongoing commitment to post secondary education in Louisiana. Furthermore, we look forward to working with the members of the Legislature during the upcoming legislative session in order to ensure final passage of this important legislation."
UL System President Randy Moffett said, "The University of Louisiana System is supportive of the Legislature's and Governor Jindal's efforts to create long-term solutions to higher education's budgetary challenges with out-of-the-box solutions such as the Louisiana GRAD Act. We are encouraged that the administration is looking at available options for freeing up resources during a funding shortfall. If higher education is to survive the budget crisis, we must put everything on the table."
John Matessino, President and CEO of the Louisiana Hospital Association said, "We applaud Governor Jindal for his proposals to enable the administration and Legislature to put all options on the table when making strategic budget decisions. This is a fiscally-prudent, common sense approach to protect healthcare services for our residents. It is critical that the Legislature work with the administration in planning ahead for the expected budget shortfalls by bringing state government into a more sustainable position, so it can afford the immediate healthcare and education needs now and in the coming years."
Randal Johnson President and CEO of the Louisiana Independent Pharmacies Association said, "The management of a budget is a necessary and vital task to the well being of any business or person. As small businesses and families, the community pharmacists understand and work to balance our accounts while continuing to provide the necessary healthcare services to our patients. We support these legislative initiatives to provide the budget flexibility as we ask our Governor and Legislators to provide for the wellbeing of our State and people."
Three Budget Reform Initiatives to Improve Budget Flexibility:
FIRST - Increase the annual 5 percent cap of cutting dedicated fund budgetary units to 10 percent. This initiative will also allow access to the Louisiana Education Quality Trust Fund to mitigate reductions to education. (Sponsored by Sen. Mike Michot)
This provision (which is similar to SB 1 authored by Senator Chaisson in the 2009 Regular Session) allows another option for the administration and Legislature to use when developing a budget savings plan.
As has been widely noted, general fund expenditures in health care and higher education in Louisiana are the most "vulnerable" because they make up a sizable amount of the discretionary or unprotected portion of the general fund. Current law, in accordance with the state constitution, allows reductions to be considered to statutory dedications of up to 5 percent.
Using the flexibility provided by this provision, the administration's FY 09 savings plan called for reductions of $24.3 million in statutory dedications. Of 391 identified dedications, the administration and Legislature cut portions of 152 funds. These reductions in statutory dedications, as part of the overall $341 million budget deficit elimination plan, helped to mitigate general fund cuts to other areas not statutorily protected, particularly health care and higher education.
As proposed last year, this initiative makes an amendment to Article VII, Section 10(F)(2)(a) and (b) changing 5% to 10% in two places. One is for projected deficits in the middle of a fiscal year. The other is for projected deficits in the next fiscal year.
Louisiana Education Quality Trust Fund
This proposed constitutional change would also allow the Legislature and the administration access to 10% of the LEQTF balance when a severe budget deficit is projected in order to help mitigate reductions to education.
The Louisiana Education Quality Trust Fund (LEQTF) began in 1986 when the state accepted a $541 million settlement with the federal government over oil and gas revenues and put the proceeds into a trust. Earnings on the trust fund are divided (50/50) each year between the Board of Elementary and Secondary Education (BESE) and Board of Regents (Regents) with the priority of promoting research and education.
Over the life of the LEQTF, the fund has allocated $1.03 billion to BESE and Regents combined. This past fiscal year, the fund allocated nearly $82 million to BESE and Regents, with each receiving about $41 million. There are three major sources of income for the LEQTF: investments, royalties, and capital gains/loss. Once the market value of the LEQTF reaches $2 billion, all investment income is credited to the Louisiana Education Quality Support Fund, and reoccurring royalty income reverts to the State General Fund. The LEQTF balance is about $1 billion.
SECOND - Authorize greater health and human service investments by increasing deposits (from 25% to 75%) to the Louisiana Fund from monies resulting from the Master Settlement Agreement. (Sponsored by Sen. Joel Chaisson)
This initiative would provide greater flexibility to stabilize the healthcare and human service budgets by further unlocking deposits to the Millennium Trust Fund for critical services.
Many states issued stand-alone tobacco backed bonds in the early 2000s to generate proceeds for budgetary or capital needs in the last recession. Only Louisiana and South Carolina executed "Trust Fund" transactions, whereby the bond proceeds were invested into an account that was invested into the financial markets (Louisiana sold 60% of the revenue stream from the tobacco settlement and kept 40%). These transactions were sold to transfer the risk of nonpayment of revenues under the tobacco settlement agreement. So while 60% of the annual tobacco settlement goes toward debt service on the tobacco bonds, 40% is allocated to the state.
Of that 40 percent, 25 percent (around $15 million) is dedicated to the Louisiana Fund for healthcare services, and 75 percent (around $45.8 million) goes back into the Millennium Trust Fund. The balance of the Trust Fund is currently $1.38 billion
This proposal decreases the constitutionally mandated deposit into the Millennium Trust Fund by 50 percent (from 75% to 25%), thereby increasing the deposit into the Louisiana Fund by 50 percent (from 25% to 75%). This change would yield about $30 million additional dollars for qualifying health and human service expenditures.
As prescribed by the state's constitution, all remaining monies received as a result of the Master Settlement Agreement after deposits are made into the Millennium Trust Fund, must be invested in the Louisiana Fund.
Funds in the Louisiana Fund are currently allocated for (1) Initiatives to ensure the optimal development of Louisiana's children through enhancement of educational opportunities and the provision of appropriate health care; (2) Initiatives to benefit the citizens of Louisiana with respect to health care through pursuit of innovation in advanced health care sciences, provision of comprehensive chronic disease management services, and expenditures for capital improvements for state health care facilities. (3) Provision of direct health care services for tobacco-related illnesses; (4) Initiatives to diminish tobacco-related injury and death to Louisiana's citizens through educational efforts and other requirements of the Settlement Agreement by the attorney general.
THIRD - Allow the Board of Regents and BESE greater flexibility to stabilize their respective education budgets by epanding the use of dedicated revenue for pressing education needs during deficit years. (Sponsored by Sen. Mike Michot)
This proposed initiative would give both the Board of Regents and BESE greater flexibility to stabilize their respective education budgets by expanding the use of the Louisiana Education Quality Trust Fund for pressing needs during deficit years. More flexibility will allow education management boards to re-align these dedicated dollars during deficit times.
The Board of Regents allocates monies from the LEQTF through the LA Education Quality Support Fund, which is derived from 75% of recurring mineral revenue from Outer Continental Shelf and 75% of earned investment income from LEQTF.
These funds are currently required to be used for: (1) the endowment of chairs for eminent scholars, (2) recruitment of superior graduate students, (3) the enhancement of departmental and unit infrastructure, and (4) the research efforts of public and private universities. FY08 allocations totaled $36 million.
The Board of Elementary and Secondary Education also allocates monies from the LEQTF through the LA Education Quality Support Fund.
These funds are currently required to be used for: (1) compensation to city or parish school board professional instructional employees, (2) ensuring an adequate supply of superior textbooks, library books, equipment, and other instructional materials, (3) exemplary programs in elementary and secondary schools designed to improve elementary or secondary student academic achievement or vocational-technical skill, (4) research efforts, including pilot programs, designed to improve elementary and secondary student academic achievement, (5) school remediation programs and preschool programs, (6) teaching of foreign languages in elementary and secondary schools, (7) to fund an adequate supply of teachers by providing scholarships or stipends to prospective teachers in academic or vocational-technical areas where there is a critical teacher shortage. FY10 allocations:
Statewide Initiatives (49.1%): $20.6M
Block Grants (41%): $17.2M
Competitive Grants (7.6%): $3.2M
Total $41 Million