When President Barack Obama signed the $787 billion economic stimulus package into law, he sealed the federal government's commitment to resolving the nation's economic crisis. The law creates broad categories within which individual states can spend new funds, but where the money ultimately flows will require some wise decision making by governors and legislatures.
With Louisiana facing a huge budget shortfall next fiscal year (currently pegged at $1.6 billion), our state's $3.8 billion share of the stimulus package comes just in time. Gov. Bobby Jindal and state lawmakers must allocate those funds carefully, because this is one-time funding, not recurring revenue. Much of the federal aid is dedicated to infrastructure improvements, which clearly will be one-time uses. Where the stimulus bill affords state officials budgetary discretion, we urge caution. The governor and lawmakers should not merely plug holes in next year's budget without first considering cuts drafted by the Division of Administration before the economic stimulus was announced. The president's main goal is to create or save jobs — the goal in Louisiana is 50,000 jobs — not to sustain the size of state government.
Here are our suggestions for how the Legislature and the governor can make the most of this opportunity:
Spurring job growth and rebuilding infrastructure — roads, bridges and schools — go hand in hand, which is why the feds asked every state to compile a list of "shovel-ready" projects. The state Department of Transportation and Development (DOTD) prepared a list, and the stimulus package provides $308 million for Louisiana projects. The idea was to begin these projects immediately, but the Joint Legislative Committee on the Budget, which has final approval on the proposals, rejected the latest list.
Part of the problem, say legislative sources, was a lack of communication. DOTD decided to reprioritize its initial list, moving larger projects up and smaller ones down, without informing the committee. Committee members reacted angrily, some for good reason. For example, New Orleans has no project on the latest DOTD list. The Jindal administration should draft a new list that is fair to the entire state and get these projects moving.
The stimulus plan's unemployment compensation benefits loom as another potential impasse. Jindal grabbed national headlines when he became the first governor in the country to announce he will reject $98 million in federal aid to laid-off workers. The governor claims the federal aid would require Louisiana to broaden — permanently — the range of people who qualify for assistance and will cost Louisiana businesses $12 million a year after the federal money runs out. Senator Mary Landrieu disagrees. She says the state can adopt a "sunset provision" terminating the broader ranges when the federal funding ends. Legislative staff attorneys are reviewing this issue. If Landrieu is correct, Jindal should change course and accept the money — or lawmakers should overrule him as the law allows. If Jindal's interpretation proves correct, then the Legislature should follow the governor's lead and reject these funds. Louisiana should not saddle employers with additional costs down the road.
Yet another fiscal minefield facing the governor and lawmakers is Medicaid funding. Louisiana will receive between $1.1 billion and $1.6 billion in additional funding over the next two years, but almost half of it will be needed to stave off reductions in the state Medicaid program because of an anticipated drop in federal matching funds. As painful as it sounds, it makes more sense to make some reductions this year rather than making Draconian cuts in 2010. Hopefully, by then, the feds will have adopted some semblance of health care reform — but that's a gamble the state cannot afford to make.
The stimulus package also will send Louisiana $718 million in state stabilization funds, which can be spent on education. Louisiana's constitution protects funding for primary and secondary schools, but state colleges and universities have seen their budgets slashed as the administration tries to cover this year's $341 million shortfall. Higher-education budgets for next year look even worse. The stabilization funds are one-time money, but they could save important college programs while lawmakers and Jindal find permanent funding sources for higher education. This would be our only exception to the rule of not spending temporary aid on annual expenses.