Another Supply-Side Miracle

Move over, Kansas: you have some spicy company!

Louisiana is facing a $1.6 billion budget shortfall. The funding gap is so large that state officials have warned they won’t be able to conduct their usual Advanced Placement tests and other types of assessments in schools next year. Some public colleges and universities might have to close and, until recently, the secretary of state’s office was saying it wouldn’t have enough money to run the presidential primary next spring.

Whatever could have caused this?

Named for former Lake Charles lawmaker Vic Stelly, the plan put income taxes on mostly moderate-to-wealthy people and did away with a sales tax on food and utilities that disproportionately affected poor people. It was passed and supported by Republican Gov. Mike Foster, but it became a target for conservative talk radio by 2007, when lawmakers and Blanco passed the first portion of the repeal.

Jindal never really sought the second half of the Stelly Plan repeal in 2008, but he didn’t have much choice — from a political standpoint — once it passed out of a committee and made it onto the Senate floor. The Louisiana Legislature unanimously approved both parts of the repeal, with only a few members absent for the vote each time.

With large budget surpluses, this appeared to be the right thing to do. Was it?

Critics point out that since the Stelly repeal, Louisiana has dealt with ongoing budget crises. If the plan were still in place, the state would have as much as $800 million more in revenue right now, according to Albrecht.

But surely the governor had some good ideas for how to deal with this?

The key: Jindal committed to not raising taxes. So as state revenue began to crater, he looked to other means to fill in the gaps. Along with cutting the budget, the governor and the Legislature relied on ephemeral pools of money — state property sales, lawsuit settlements and the like — to help cover costs for expenses that would continue over several years.

The tactic contributed to the budget crisis, according to economists. Many of these sources of revenue have now dried up, but the expenses they were covering remain.

“We probably should have been a little bit more careful about how we used the money for recurring purposes,” Richardson said.

Taking just one example, the Medicaid Trust Fund for the Elderly — once flush with $800 million in cash — has been almost entirely depleted to stitch up Louisiana’s health care budget. When the fund was created, lawmakers thought the state would mostly use the interest off the $800 million and leave that main pot of money untouched. That way, it would be a revenue source for years to come.

There is no mechanism in place to replace this funding, even though the expenses it covered — nursing home payments for Medicaid patients — will still have to be met once it is gone.

As another example, the governor has proposed selling off state vehicles — a limited source of cash — to bring in more revenue this year. The Jindal administration expects this move to generate as much as $1.4 million.

At this time, it should be noted that every candidate in the Republican primaries wants to do to the United States what Republicans have done to Kansas and Lousiana.