A Spending Reform that Shouldn’t be Overlooked

It may be one of the most reform-minded bills of the session and one which most people know nothing about. It’s HB 86 by Rep. Walt Leger and its goal is to change behaviors when it comes to state spending in a way that is systemic and forward looking.

To understand its intent you have to rewind to 2005 and the aftermath of Hurricane’s Katrina and Rita. Much of south Louisiana was devastated and the economy went into a severe shock. But immediately afterwards, a major rebuilding effort got underway, and it churned billions of recovery dollars from insurance companies and the federal government into our economy.

And things bounced back to new heights. The national economy was booming, oil prices were in the $100 range, and all of that activity was pumping hundreds of millions of dollars into the state treasury and creating huge surpluses. So what did we do? Well, mostly we spent it and there’s no question that it went towards a lot of good things. But it also grew our recurring budget significantly, so much so that, thinking it would last forever, we passed a major tax cut totaling hundreds of millions of dollars.

Then, of course, the bottom fell out: the hurricane recovery dollars plateaued and then dropped, oil prices tanked and then the national recession hit Louisiana. So the bottom line was something quite predictable – when revenues were booming we spent them, grew our budget and lowered our taxes, and when they went away, we were hamstrung with a structural budget deficit we’re still trying to work our way out of. That’s what Rep. Leger’s bill attempts to address.

Basically, it caps the amount of money we can spend on an annual basis from our two most volatile revenue sources – energy taxes and corporate taxes – and says when we exceed that cap those dollars go into another account that can’t be spent on the recurring expenses of government. There are still ongoing discussions about just what might happen with the revenues that exceed the cap, but the point is this is really a significant spending reform bill.

It puts the brakes on government spending when revenues spike and eliminates the big cliff we always tend to fall off of when those revenues dry up. Realistically for the short-term, this bill won’t have any impact, but for the long-term something along these lines could be huge.

Clearly, there are a lot of important pieces of legislation that need to pass this session to keep the state from shuttering some of its most critical services. But Rep. Leger has come up with a strong concept that mirrors CABL’s historical perspectives on fiscal reform. We would be shooting ourselves in the foot – again – if we failed to put something like it into law.