Budget Squeeze Snarls Louisiana Gov's Agenda

BATON ROUGE -- Money, money, money and more money.

Those are the top problems Louisiana political leaders face as they look ahead to the 2000 millennium year.

Money, as in a price tag of as much as $250 million to deliver on Gov. Mike Foster's four-year-old promise to boost public school teacher and college faculty pay to the Southern average.

Money, as in a projected $600-million gap between current revenue levels and expected spending needs for the 2000-01 fiscal year.

Money, as in $330 million in sales taxes set to expire on June 30, 2000, and a generally conservative Legislature set to take control of the state.

Money, as in coming up with enough money to provide funding for the Foster administration's recent call for a war on poverty and an overhaul of the state economy to attract more high-tech industry to the state.

Louisiana's 2000 regular legislative session doesn't start until April 24, and under the constitution the regular session is restricted to fiscal matters only - the budget and taxes. But, the Foster administration is already making plans for as many as two special sessions in the first half of 2000 to deal with the governor's second term agenda.

Foster, seven other statewide elected officials and members of the new legislature were sworn in Monday amid much hoopla. But the festivities did not let anyone forget that tough choices that lie ahead. Foster's chief objective is to increase public school teacher and college faculty salaries to the Southern average, a task that would require as much as $250 million, depending on how one defines "Southern average."

Foster is at a loss on how to cover the cost and recently sent a letter to hundreds of political, business and civic leaders throughout the state asking for their ideas for providing the pay hikes. Foster's letter included a request for suggestions for "revenue enhancements" if new taxes are needed.

Foster and his top advisers recently learned that providing the teacher and faculty pay hikes will be more complicated than first imagined because the state's economy has been very sluggish in the last two years. As a result, personal income taxes and sales taxes are not producing as much money as budget planners had hoped.

Foster closed out the 1999 calendar year by ordering $50 million in spending cuts in order to avoid a deficit for the current 1999-2000 fiscal year. And, Commissioner of Administration Mark Drennen warned the governor of a looming $450-million gap between revenue and desired spending for the 2000-01 fiscal year that begins next July 1. That gap includes $150 million in increased debt service and $80 million to cover tobacco settlement money used this year for the Medicaid health care program for the poor. But,it does not include the teacher or college faculty pay hikes.

Foster said his administration has done pretty well over the last four years with going into state agencies and managing them better, making them do more with less. But, Foster said, the state can't expect to squeeze much more out of the agencies through efficiencies and improved management. As a result, he said solving the budget situation will require one or some combination of the following approaches:

  • Carefully targeting deep budget cuts.
  • Changing state laws and the state constitution to allow the governor to make across-the-board cuts to all state agencies. With about 70 percent of the state general fund budget statutorily or constitutionally protected from budget cuts, Foster has indicated he might seek authority to share budget cuts more broadly across the budget.
  • Hiking taxes. Conservative lawmakers have said they're not ready to talk tax hikes, and Foster said a tax increase would be a very last resort.

Teacher pay and drafting a new state budget during tight times are not the only items on the Foster agenda. Foster and his top advisers gradually are outlining an administration agenda that is still taking shape.

Shortly after being re-elected with 62 percent of the vote in a large field, Foster set an ambitious priority for his second term: he wants to cut dramatically into Louisiana's second-in-the-nation poverty rate. Foster says that will require continued emphasis on education, particularly early childhood education, coupled with an intensified effort to train underemployed workers for higher paying jobs.

Foster hasn't been specific about how he wants to pursue those objectives, but he has indicated one area he thinks is essential is luring more high-tech businesses to the state.

In his inaugural address, Foster said he does not envision massive government programs. Instead, he said he wants to educate people so they can get decent paying jobs and help themselves and their families.

"We destroy poverty by destroying ignorance," Foster said. "We destroy ignorance by educating our people. Our commitment to education remains strong. There will be no retreat and no surrender to ignorance."

Foster said one of the keys to improving conditions in Louisiana is to attract high-tech industries, such as those that deal in e-commerce and are the engines driving the nation's hottest state economies.

"While we appreciate our chemical industry, the oil and gas industry and those who feed our families in the agricultural sector, if we are to defeat poverty, build wealth and create opportunity, it must come in others areas, like high technology," he said. "Over the next four years, we will leave no opportunity unexplored, no possibility untapped and no event unattended in our effort to move our state into those endeavors that add value to products and create new jobs and wealth for our people."

Foster has said he may call two special sessions - one to deal with teacher pay a couple of weeks in advance of the April 24 start of the regular session and a second, more wide-ranging special session shortly after the June 7 end of the regular session.

Foster hasn't ruled out a tax hike to help balance the budget and provide teacher pay hikes. He said after his inaugural ceremony that "everything is on the table" except an increase in residential property taxes. At a minimum, Foster will ask the Legislature to renew more than $330 million in sales taxes set to expire June 30, 2000.

Some other likely issues include:

  • Selling the state's tobacco settlement revenue stream. Key state officials went to New York in early November to meet with bond rating agencies. And, while discussing the state's financial situation, state leaders began exploring the idea of selling the estimated $4.4 billion in tobacco settlement money Louisiana expects over the next 25 years for cash today.
  • Imposing a new tax on oil and gas. Unsuccessful gubernatorial candidate Phil Preis, D-Baton Rouge, made a call during the fall election campaign for a new tax on oil and gas. Preis called for taxing oil and gas from foreign countries and from federal offshore tracts as it moves through Louisiana. The tax would generate about $1.5 billion a year. Interestingly, after dismissing talk of a processing tax for years, Foster said during the 1999 campaign that he might go along with such a tax if he were certain that it would not result in refineries, pipelines and other processing operations moving to other states.
  • Overhauling the state tax structure. Back in 1998, the Legislature created a special joint House-Senate panel to study the Louisiana tax structure and report back in advance of the 2000 regular session. While the special study panel met a few times in late 1998 and early 1999, it has not done anything since before the 1999 regular session and fall elections. Study panel chairman, Sen. Jon Johnson, D-New Orleans, said he expects the committee will have some suggestions for the 2000 Legislature, but little controversial is expected. As a result, discussion of tax changes is likely to be on a tax-by-tax basis.