The Fiscal Cliff John Bel Edwards - PowerPoint Presentation

The Fiscal Cliff John Bel EdwardsGovernorJay DardenneCommissioner of Administration

State Budget

FY18 Appropriated MOF - $32.7 Billion 3

Sources of Revenue 4In Billions

Comparison of Sources of Funds YearState General FundFees and Self-GeneratedStatutory Dedications Federal 1982 64.3% 0% 8.9% 23% 2008 32.3% 12.9% 7.2% 40.1%201828.9%13%12.8%40.2% 5

Then and Now – Total Budget FY08 Total Actuals - $32.1 BillionFY18 Total Appropriated –$32.7 Billion 6

Then and Now – General Fund FY08 Actuals - $10.4 BillionFY18 Appropriated –$9.4 Billion 7

Limitations on Spending

Non-Discretionary Expenditures FY 2008FY 2018 FY 2019 General Fund $10,492,708,192 $9,442,198,100 $8,367,900,000 Constitutional: MFP, Elections $ 2,944,131,267 $ 3,494,006,555 $ 3,494,006,555 Debt Service $294,921,979 $ 548,404,308 $ 548,404,308 Local Support: supplemental pay law enforcement, revenue sharing $ 188,829,00 $ 213,012,083$213,012,083Total Non-discretionary$3,427,882,246$4,255,422,946$4,255,422,946Total Discretionary$7,064,825,946$5,186,775,154$4,112,477,054 Non-Discretionary Percentage32.67%45.07%50.85% 9

10Another Constitutional Mandate In 1987 Louisiana voters approved a constitutional amendment requiring payoff of state retirement systems’ debt – the UAL – by 2029The UAL payment in FY18 is projected to require nearly $700 million in state general funds – dollars that cannot be used for government operations.The commitment to debt reduction is a plus as bond rating agencies look at state finances. LASERS is nationally recognized as one of the top five pension plans in the best shape in debt pay down policies in the U.S.Adding UAL payments, the non-discretionary expenditures top 50% of available state budget dollars in FY18.

Higher Education Funding Over Time General Fund Actual ExpendituresBudgetedNOTE: FY12 - $92 Million in SGF for TOPS was replaced with Overcollections Fund. FY14 - $490 Million in SGF was replaced with Overcollections Fund. FY16 - $350 Million in SGF for institutional support was replaced with SAVE funds. 11

Department of Health 12

State and Federal Medicaid Funding 2008-2018 13

Revenue Sources

Major State Revenues 15

Then and Now – Actuals Fiscal Year 2008Fiscal Year 2016 16

17 Corporate Tax Incentives Have Severely Eroded Collections

18 State & Local Sales Tax Rates (2017) Source: Tax Foundation, Facts & Figures, 2017 State State Tax Rate Rank Avg. Local Tax Rate Combined Rate Rank State State Tax Rate Rank Avg. Local Tax Rate Combined Rate Rank Ala. 4.00% 40 5.01% 9.01% 4 Nebr. 5.50% 29 1.39% 6.89% 25 Alaska ----1.76%1.76%46Nev.6.85% 8 1.13% 7.98% 13 Ariz. 5.60% 28 2.65% 8.25% 11 N.H. -- -- -- -- -- Ark. 6.50% 9 2.80% 9.30% 3 N.J. 6.88% 6 -0.03% 6.85% 26 Calif. 7.25% 1 1.00% 8.25% 10 N.M. 5.13% 32 2.43% 7.55% 15 Colo. 2.90% 45 4.60% 7.50% 16 N.Y. 4.00% 40 4.49% 8.49% 9 Conn. 6.35% 12 0.00% 6.35% 32 N.C. 4.75% 36 2.15% 6.90% 24 Del. -- -- -- -- -- N.D. 5.00% 33 1.78% 6.78% 29 Fla. 6.00% 16 0.80% 6.80% 28 Ohio 5.75% 27 1.39% 7.14% 19 Ga. 4.00% 40 3.00% 7.00% 23 Okla. 4.50% 37 4.36% 8.86% 6 Hawaii 4.00% 40 0.35% 4.35% 45 Ore. -- -- -- -- -- Idaho 6.00% 16 0.03% 6.03% 37 Pa. 6.00% 16 0.34% 6.34% 33 Ill. 6.25% 13 2.39% 8.64% 7 R.I. 7.00% 2 0.00% 7.00% 21 Ind. 7.00% 2 0.00% 7.00% 21 S.C. 6.00% 16 1.22% 7.22% 18 Iowa 6.00% 16 0.80% 6.80% 27 S.D. 4.50% 37 1.89% 6.39% 31 Kans. 6.50% 9 2.12% 8.62% 8 Tenn. 7.00% 2 2.46% 9.46% 2 Ky. 6.00% 16 0.00% 6.00% 38 Tex. 6.25% 13 1.94% 8.19% 12 La. 5.00% 33 4.98% 9.98% 1 Utah 5.95% 26 0.81% 6.76% 30 Maine 5.50% 29 0.00% 5.50% 42 Vt. 6.00% 16 0.18% 6.18% 36 Md. 6.00% 16 0.00% 6.00% 38 Va. 5.30% 31 0.33% 5.63% 41 Mass. 6.25% 13 0.00% 6.25% 35 Wash. 6.50% 9 2.42% 8.92% 5 Mich. 6.00% 16 0.00% 6.00% 38 W.Va. 6.00% 16 0.29% 6.29% 34 Minn. 6.88% 6 0.42% 7.30% 17 Wis. 5.00% 33 0.42% 5.42% 43 Miss. 7.00% 2 0.07% 7.07% 20 Wyo. 4.00% 40 1.40% 5.40% 44 Mo. 4.23% 39 3.66% 7.89% 14 D.C. 5.75% 27 0.00% 5.75% -41 Mont. -- -- -- -- --

State-Local Tax Burdens per Capita & as a Percentage of Income (2012)19 Source: Tax Foundation, Facts & Figures, 2017State State-Local Tax Burden as a Share of State Income Rank Total Tax Burden (per Capita) State State-Local Tax Burden as a Share of State Income Rank Total Tax Burden ( per Capita) US 9.9% $ 4,420 Mont. 8.7% 38 $ 3,389 Ala. 8.7% 39 $ 3,067 Nebr. 9.2% 30 $ 4,197 Alaska6.5%50 $ 3,229 Nev.8.1%43 $ 3,349 Ariz. 8.8% 36 $ 3,276 N.H. 7.9% 44 $ 3,961 Ark. 10.1% 17 $ 3,519 N.J. 12.2% 3 $ 6,926 Calif. 11.0% 6 $ 5,237 N.M. 8.7% 37 $ 3,141 Colo. 8.9% 35 $ 4,304 N.Y. 12.7% 1 $ 6,993 Conn. 12.6% 2 $ 7,869 N.C. 9.8% 20 $ 3,659 Del. 10.2% 16 $ 4,412 N.D. 9.0% 33 $ 4,867 Fla. 8.9% 34 $ 3,738 Ohio 9.8% 19 $ 3,924 Ga. 9.1% 32 $ 3,426 Okla. 8.6% 40 $ 3,515 Hawaii 10.2% 14 $ 4,576 Ore. 10.3% 10 $ 4,095 Idaho 9.3% 26 $ 3,318 Pa. 10.2% 15 $ 4,589 Ill. 11.0% 5 $ 5,235 R.I. 10.8% 9 $ 4,998 Ind. 9.5% 22 $ 3,585 S.C. 8.4% 42 $ 2,936 Iowa 9.2% 31 $ 4,037 S.D. 7.1% 49 $ 3,318 Kans. 9.5% 23 $ 4,131 Tenn. 7.3% 47 $ 2,805 Ky. 9.5% 24 $ 3,298 Tex. 7.6% 46 $ 3,340 La. 7.6% 45 $ 2,950 Utah 9.6% 21 $ 3,556 Maine 10.2% 13 $ 3,997 Vt. 10.3% 11 $ 4,557 Md. 10.9% 7 $ 5,920 Va. 9.3% 27 $ 4,623 Mass. 10.3% 12 $ 5,872 Wash. 9.3% 28 $ 4,541 Mich. 9.4% 25 $ 3,631 W.Va. 9.8% 18 $ 3,331 Minn. 10.8% 8 $ 5,185 Wis. 11.0% 4 $ 4,734 Miss. 8.6% 41 $ 2,742 Wyo. 7.1% 48 $ 4,407 Mo. 9.3% 29 $ 3,591 D.C. 10.6% 10 $ 7,541

Stelly: Giveth and Taketh Away

Repeal of Stelly 21In Millions

A Decade of Gimmicks

Historic Use of One-time Money 23

Historic Use of Fund Sweeps 24

Major Fund Balance Erosion In BillionsInterest Income in FY 2008 was $189 Million. Projected Income for FY 2017 is $8 Million.25

Major Sources of Fund Balance Erosion In Millions26

A Tale of Two Administrations

A Tale of Two AdministrationsNew Administration in January 2008Surplus of $1.1 Billion from prior administration from FY 2007 Appropriated $955 Million in 2nd special session in early 2008 for supplemental needs and capital outlayFund balances in state treasury exceeded $5.1 billionNew Administration in January 2016Revenue Decline of $570 MillionUnfunded FY 16 budget requirements of $373 MillionUnable to fund supplemental needsFund balances in state treasury of $2.1 billion 28

Audited Budget Surplus (Deficit) In MillionsNOTE: The method of calculating the General Fund Surplus (Deficit) was changed for the FY 14 year. The undesignated general fund balance of $345.8 million was included in the calculation and appropriated in FY 15.

Current REC Forecast: The Looming Cliff

Looking Over the Cliff $1 Billion drop in major revenue sources in one yearGeneral Fund Direct falls $1.1 Billion from FY 2018 to FY 2019$10.1 B $8.5 B $8.6 B $7.6 B 31

Options

RevenuesReplace the 5th penny of sales tax with a more balanced tax policy, suggested by the Task Force on Structural Changes in Budget & Tax Policy Expand the sales tax base on the permanent pennies by mirroring the sales tax base of the 5th pennyExpand the sales tax base to include services and digital productsReconsider income tax components of the Stelly repeal, e.g., allowing only 57% of excess itemized deductions, which would cover home mortgage payments and charitable contributions.33

Reconsider components of the HCR 11 Task Force recommendations for restructuring the individual income tax:OPTION 1: ConstitutionalEliminate Federal Income Tax DeductionReduce Excess Itemized Deduction to 50%Compress brackets Would allow for lower ratesOPTION 2: StatutoryEliminate Excess Itemized DeductionCompress bracketsWould not allow for lower rates34 Revenues

Cut the BudgetFund the non-discretionary general fund obligations and reduce the Executive, Legislative and Judicial budgets by at least 20%Any exceptions to the 20% reduction, will increase cuts to other agencies 35