Division of Administration - Kristy Nichols, Commissioner - State of Louisiana
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May 14, 2012
Contact: Michael DiResto, 225-342-7000

Commissioner Rainwater testifies on House-passed budget at Senate Finance committee

BATON ROUGE – Commissioner of Administration Paul Rainwater delivered the following testimony this morning to the Senate Finance committee as it begins its work on the budget (HB 1), after House passage:

Thank you, Mr. Chairman and members of the committee.  I will provide an overview of HB 1 as it stands after House passage – and then we will walk you through specific amendments that were made.

As you take up the budget, however, I do think it’s important to remember that, since 2008, this legislature and our administration, working closely together, have forged a strong fiscally conservative record that is clear.  From the beginning we have consistently reduced the size and cost of government, instituted countless conservative reforms that restructured government to do more with less, while at the same time acting strategically to protect critical services, especially higher education and healthcare.

Under the Jindal Administration, and with the help of the legislature at every step along the way …

  • Both the total number of state government employees and the number of fulltime employees in state government have been reduced to their lowest levels in 20 years.
  • The total number of Executive Branch fulltime appropriated positions has been reduced by almost 10,000.  Further reductions of more than 6,300 in FY 13 would bring the total to more than 16,000 positions reduced since the beginning of 2008.  These position reductions have produced significant recurring savings – without them, the state budget would be more than $1 billion higher.
  • More than 100 boards and commissions have been eliminated since the beginning of the Jindal administration.
  • The size of state government’s vehicle fleet has been reduced by more than 1,300 vehicles, bringing the size of the fleet to its lowest level since 2004.

The FY 13 Executive Budget also continued to build on past efforts to reform and restructure government, utilizing tools like consolidation, reorganization, privatization, and modernization that improve service while saving taxpayer dollars.

Again, under Governor Jindal’s leadership, and with the support of the legislature:

  • We transformed the Department of Labor into the leaner, more effective Louisiana Workforce Commission, making strategic partnerships with community and technical colleges, while also creating LED FastStart, the top-ranked workforce training program in the country, to better prepare our workers for promising careers.
  • The Department of Social Services undertook one of the largest departmental reorganizations in decades, consolidating and modernizing its operations, and improving its priority initiatives as the revamped Department of Children and Family Services.
  • Last year, we consolidated almost 30 housing-related programs managed across five different organizations, and created a new, unified Louisiana Housing Corporation, improving effectiveness by reducing bureaucratic overlap, in order to develop focused and coordinated strategies for providing safe and affordable housing around the state.
  • The Department of Health and Hospitals is now implementing the first phases of Bayou Health, changing the way Medicaid services are delivered in Louisiana through coordinated care networks that focus strongly on consumer choice, so that patients have better access to primary and specialty care, while reducing unnecessary costs.
  • The Department of Children and Family Services, Department of Health and Hospitals, Office of Juvenile Justice and Department of Education are working in collaboration to develop a Coordinated System of Care – the Louisiana Behavioral Health Partnership – that will offer an integrated approach to providing services for at-risk children and youth served within the child welfare and juvenile justice populations.
  • These are the real ways to make lasting change in the fiscal management of the state, and the list goes on and on and on….

But don’t just take my word for it…

  • Last May, Standard & Poor’s raised Louisiana’s credit rating from AA-minus to AA.
    • The upgrade gave Louisiana its first AA rating from S&P since 1984.
    • S&P’s upgrade was the sixth credit-rating upgrade among all three major credit-rating agencies Louisiana has received since 2008.  Under S&P’s criteria to grade states, on a scale of 1-4, with 1 being the strongest, Louisiana’s Budget scored a 1.5, and its Financial Management scored a 1.

The bottom line is: Working closely together, we have budgeted in a fiscally prudent way.  We have reduced the size and cost of government.  We have reformed and restructured government and made government more sustainable. And we have worked strategically to protect critical services.

Let me say a few things about one-time money:

What we have said from the start is that we would reduce the reliance on one-time dollars.  We have done that.  But we have also said that we would work to protect critical services like higher education and healthcare that most rely on discretionary General Fund and are most vulnerable to cuts when revenues decline.  We have done that too.

For years state government relied on a high level of one-time money to balance the budget, topping out at $800 million in the last budget year before the Governor took office, leaving the legislature to inherit how to address that problem in his first budget.

In response, the Governor’s first budget proposal (FY 09) cut that reliance to almost half ($420 million), which entailed making reductions to other parts of the budget in order to bring recurring expenses back in line with recurring revenue.  When revenue estimates were increased during the legislative session, the Governor worked with Chairman Fannin, former Chairman Michot, and the Legislature to make sure the money was used not to increase spending but instead was devoted to lowering the use of one-time money to zero – perhaps the first time in the history of the state.

Last year, the House passed a rule seeking to limit one-time money in the budget to an amount less than the projected revenue increase for the following year.  We worked with legislative leaders to pass a responsible budget that was also below that cap, with about $315 million of one-time money.

This year, in the face of declining revenue forecasts, we presented a budget plan that continued to reduce the size and cost of government but also, importantly, protects vulnerable funding for higher education and health care, while reducing the amount of one-time money in the budget bill reported to the House to $268 million – again, below the threshold of the following fiscal year’s projected revenue increase.

But then, in the House, another part of the House rule was invoked saying that if the budget contained even $1 of one-time money in it, then it was prohibited from even being discussed without first getting a two-thirds vote to proceed.  Ultimately, to satisfy that rule, the House stripped the $268 million from the budget.

Let me outline for you now the practical impact this rule has had on the budget.

  • The $268 million in unspecific reductions mandated by the Geymann and Henry Amendment and adopted by the House will have to be made to operations and services.  They are in addition to the reductions already made to HB 1 when it was amended in House Appropriations Committee with language that said, in effect, ‘the Commissioner shall cut another $43 million from the budget,’ without specifying where those cuts should be made.  Between the committee and the floor, the total amount of unspecified “Commissioner shall” cuts inserted by the House in order to balance HB 1 was $311 million.
  • Because you can only cut where the money actually is, the departments with the following largest amounts of discretionary General Fund dollars in their budgets will face the greatest reductions: Higher Education (which has $938 million), Department of Health and Hospitals ($644 million), LSU’s Health Care Services Division (with Interagency Transfer from DHH at $163 million), Department of Education ($115 million), Office of Juvenile Justice ($98 million), Department of Children and Family Services ($75 million), and Department of Corrections ($56 million).
  • Based on these numbers, Higher Education should expect to take a reduction of approximately $134 million due to the floor amendment.  This reduction is in addition to the $50 million reduction to Higher Education made in the House Appropriations committee, and the $21 million reduction resulting from the first “Commissioner shall” amendment added in the Appropriations committee.  These reductions combined result in more than $200 million in cuts to Higher Education.
  • Similarly, healthcare services (DHH and HCSD combined) should expect to receive a reduction in General Funds of approximately $100 million, which will result in a total reduction of approximately $350 million due to loss of matching dollars.  This reduction is in addition to the $57 million in reductions already made in committee, and the $21 million reduction resulting from the first ‘Commissioner shall’ amendment added in committee.  These reductions combined result in more than $500 million in total cuts to healthcare services with the loss of matching dollars.

Let’s stop and consider, actually, the implications of the House rule.  Higher education will be cut more than $200 million, and healthcare services will be cut more than $500 million.

  • But we will reject the proceeds from the sale of the underused New Orleans Adolescent Hospital, when these funds would have been used to support healthcare, but instead we will … cut healthcare by $500 million.
  • We will reject using settlements from pharmaceutical companies and instead … cut healthcare.
  • We will reject using GO Zone loan repayments coming to the state and instead … cut healthcare.
  • We will reject using unused funds from the Higher Education Initiatives Fund, and instead we will … cut Higher Education by $200 million.
  • We won’t even use the TOPS Fund for TOPS, and will, instead … cut Higher Education.

In other words, again: The practical impact of the House’s actions will be to cut Higher Education and Healthcare despite the fact that there are available funds. 

As for the parts of the House amendment:

  •  Although the amendment suggests general categories like ‘enhancements, vacant positions, travel, supplies, acquisitions, and contracts,’ these categories of expenditures have already been reduced to a point that you cannot achieve the savings indicated in the amendment.
  • For instance, most of the vacancies being targeted by this amendment are already unfunded, or not funded by General Fund, therefore this amendment double counts these saving.
  • Furthermore, most of the ‘enhancements’ are not actually increases, but instances of using General Fund to continue critical operations that were previously funded by other means of finance.
  • The amendment also suggests reducing $16 million through a 2-day furlough for state workers.  These are one-time savings, which essentially equates to replacing one source of one-time revenue with another.
  • The amendment calls for cutting $75 million in contract costs in the upcoming fiscal year – an 80 percent reduction in the statewide annual expenditure for professional services contracts funded by the General Fund.  More than half of the professional service contract costs contained in the budget are from DHH contracts.  The reductions would jeopardize Medicaid payment processing as well as the Medicaid Eligibility Data System.  These cuts would also impact the Department of Education’s student achievement testing through LEAP, as well as medical and rehabilitation services at the Department of Corrections.
  • Finally, to the extent that the amendment makes $70.7 million in across-the-board 10 percent cuts to statutory dedications to replace General Fund, this step essentially does what the authors claim to oppose.

Before we move on to more specifics about the changes made to the budget in the House, let me close with this: Working together, the legislature and our administration have reduced the size and cost of government to historic levels.  We have reformed and restructured government so that it continues to provide quality service while also saving taxpayer dollars.  And together, we have significantly reduced the reliance on one-time money, as we said we would.

But we have also worked to do all that by balancing it with another mission, during tough financial times, of protecting higher education and healthcare, and we will do that too.  As always, I stand willing to work with members of this committee, Chairman Donahue, Chairman Fannin, and all members of the Legislature to continue forging a fiscally responsible path while finding practical solutions that protect critical services.  Thank you.


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