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The Stelly Plan Payback: State Budget Deficits



Gov. Bobby Jindal and state lawmakers got a one-two punch to their fiscal solar plexus last week. The state Revenue Estimating Conference, which officially declares how much money the state can spend, forecast a $319 million shortfall in the current fiscal year (which ends June 30) — and an additional $245 million drop in next fiscal year's revenues. The lowered projection for the next fiscal year adds to earlier estimates of a $1.2 billion revenue decline.

  The key thing to remember when people talk about "next fiscal year" is that year begins in less than three months — on July 1.

  That means lawmakers and Jindal have only about 10 weeks to cut $319 million more from the current state budget, after making midyear cuts of roughly $248 million in December. They also must adopt a balanced budget for the coming fiscal year that's about $1.5 billion smaller than this year's budget.

  Midyear and late-year cuts are especially painful because they must occur on short notice and thus equate to much larger annual cuts. For example, cutting $319 million over the course of 10 weeks is akin to cutting roughly $1.5 billion a year — and that's on top of the $248 million cut in December, which likewise equates to almost $500 million a year.

  Lawmakers have been meeting for months to get a handle on the state's declining fiscal fortunes, mostly trying to figure out how to make the kind of painful cuts required to balance the state budget. The Louisiana Constitution bars deficit spending, and Jindal refuses to consider tax increases — although he's okay with "user fee" hikes on driver's licenses and tuition increases at state universities.

  Higher education and health care have been the prime targets for cuts, mostly because they are the least protected among the budgetary sacred cows. Jindal and lawmakers are considering a variety of remedies, from cuts and consolidations to tapping cash reserves and "rainy day" funds. "There's nothing like a fiscal crisis to force us to make the hard decisions," one budget hawk told me on Opening Day.

  True, but sometimes it's also instructive to look at what got us into the crisis. Several factors beyond anyone's control, along with some bad decisions by Jindal and lawmakers, combined to make this happen. The worldwide recession and the falling price of oil can't be controlled, but the decision by lawmakers and Jindal to go on a spending spree two years ago — while cutting state taxes — was entirely self-inflicted.

  In the spring of 2008, the state was flush with cash ... momentarily. So what did lawmakers do? They gutted the most far-sighted piece of fiscal reform in the last five decades, the Stelly Plan, and spent money like drunken sailors. Jindal initially opposed the Stelly rollback, then drank the potion and ran to the front of the parade — and took credit for reducing taxes ever since.

  The Stelly Plan lowered regressive sales taxes and replaced them with progressive income taxes. Over time, it produced more revenue, which is what progressive taxes are supposed to do. Rolling back the Stelly tax brackets cut revenues more than $300 million a year. That probably translates to more than $400 million by now — which would cover much of the ongoing shortfalls.

  Some warned against rolling back Stelly, but Jindal and lawmakers were too giddy at the thought of lowering taxes to pay attention. Now the chickens have come home to roost. A year before statewide elections, nobody in power — certainly not Jindal — wants to suggest lawmakers undo the Stelly rollback.

  So now, rather than own up to their mistake, they're dealing with the Stelly payback. And you know what they say about payback.

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