Governmental Accounting Paper

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Introduction

        Louisiana’s budget major deficit took the largest impact in 2016 due to falling oil prices. Since then, the House, Senate, and Governor implemented temporary fixes hoping to bridge the gap to a more long-term solution. Here, we discuss the Executive Budget Process for Louisiana, along with some major issues our government is facing in light of the leering fiscal cliff for 2019.

Louisiana’s Executive Budget Process

Beginning in August, state departments begin discussing preliminary budgets internally between agency heads and staff. The Louisiana state budget process officially begins on September 20th, which is the statutory deadline for the Office of Planning and Budget (OPB) to send out budget guidelines and forms to the Budget Units. Budget Units have from this date until the statutory deadline of November 15th to submit their budget requests to OPB. The OPB then gathers the requests submitted and works on the mechanics of developing the budget throughout the month of November. Towards the end of November and early December, the Revenue Estimating Conference adopts the official forecast for the upcoming fiscal year. On behalf of the Governor, The Commissioner of Administration develops the Governor's Executive Budget, which includes economic data, summary information for revenues and expenditures, the recommended budget, and more. In January, the Governor finalizes the Executive Budget and presents it to the Legislature 45 days prior to Regular Session, which is an annual gathering of legislators. If it is the first year of administration for a newly elected governor, the Executive Budget may be presented 30 days prior to the Regular Session. During the Regular Session, the Executive Budget goes to the House of Representatives as “HB1”. Once the budget is approved in the House of Representatives, it is sent to the Senate. If the Executive Budget is approved by the House of Representative and the Senate it is sent to the Governor who will either veto or sign the Executive Budget. If the governor signs HB1, it becomes an Act and eventually a Law on July 1st, and the general operations of the Louisiana State government are funded. In the first week of July, the OPB sends out the appropriation letters to each department and uploads the budget in the accounting system.

Major Budgetary Issues

        A major budgetary issue the state of Louisiana faces is a large shortfall in the 2019 budget that was signed by Governor John Bel Edwards. The state of Louisiana does not currently have enough funding for the upcoming fiscal year, this could affect the public in a few ways. This means that because of a money shortage, government services and projects will be cut or taxes will be raised. On June 9th, 2018, Edwards approved HB1, authorizing expenditures totaling $34 billion and a $1 billion loss of revenue. He stated that they anticipate $500 million or more could be cut from spending, which will affect major state programs, such as TOPS and critical infrastructure projects. The $500 million expected shortfall is due to the expiration of the temporary 1% sales tax increase that was enacted two years ago during the 2016 budgetary crisis, called the Stelly Plan and a fall in oil prices. Edwards proposed to cut the sales tax to 0.5% to cover the $500 million gap; however, the House of Representatives voted against this proposal and decided to dissolve the 1% sales tax in full. In Governor Edward’s opening letter on the Executive Budget for FY2018-2019, he states “I want to be very clear that this is not the budget I want to implement, but unless the revenue that is scheduled to be lost is replaced, the cuts outlined in this budget will become a very painful reality. In order to account for the $1 billion loss, drastic cuts will have to be made to health care, corrections, and higher education, including TOPS.” Governor Edwards tone in his message was overall disappointed with the onset of the fiscal cliff and calls for long-term tax reform to save Louisiana and the budget in the future.

        A few different proposals were passed by the House of Representatives and the Senate that involved cutting government services and programs, but the final proposal was vetoed by Governor Edwards. The House approved their budget with cuts in healthcare services to make up for the $500 million gap. Their budget would leave a large number of elderly and disabled without Medicaid coverage and threaten certain hospitals. The Senate made amendments to the House’s bill, cutting funding for universities and colleges, food stamps, and public safety. This cut included a 30% slash to the TOPS funding. The House agreed on the amended changes, but the budget was vetoed by Governor Edwards. So why cut funding for these essential services? Majority of the state budget funds are assigned, restricted, or dedicated and cannot be changed or moved for other purposes. This leaves education and healthcare as the two significant funds not specifically restricted to pull funding from in order to balance the budget. In total, there have been seven Special Sessions to balance the budget for the upcoming fiscal year. Some of the public believes the budgetary issues are being deterred due to political differences between the Republican and Democrat parties.