1. 1 An Overview of Louisiana’s Budget February 3, 2000

2. 2 With the deregulation of oil prices in the late 1970’s, mineral revenue began to climb rapidly, peaking in 1982 at $1.6 billion. In 1983, oil prices began to fall from the mid-$30 range and did not bottom out until they reached the $15 range in 1986. Since then, oil prices have generally stayed below the $20 mark except for the Persian Gulf War in 1992 and during the last two quarters of the current fiscal year. Lower prices account for some of the decline in oil revenues, but a steady decline in production is a consistent bias in the declining mineral revenue base.

3. 3 1982 $1.6 billion Mineral Revenue FY 75 to FY 01 2001 $552 million $(1.05 billion)

4. 4 The next slide contrasts mineral revenue with sales tax revenue. Both of these revenue sources have been tweaked to generate more revenue since 1983 when mineral revenue began its decline. Since 1982, an additional penny has been added to the sales tax, exemptions have been suspended on three of the pennies, and gas severance tax has been changed to a percent of value with a floor minimum tax.

5. 5 Comparison of Mineral and Sales Tax Revenue For FY 74 to FY 01 $1,614 $929 $2,329 $552

6. 6 Combined Mineral and Sales Taxes Fiscal Year 2001$2,881 million Fiscal Year 1982$2,543 million Growth$ 338 million

7. 7 FY 2001 $2,881 1982 $2,543 $+338 Combined Mineral Revenue and Sales Tax FY 75 to FY 01 (in million $)

8. 8 Mineral revenue and sales tax revenue supported $2.543 billion worth of expenditures in FY 82. From FY 82 to FY 01, the combined mineral and sales tax revenue grew only 13% while inflation on the $2.543 billion supported by that revenue in FY 82 grew by 81%. In order to support the FY 82 expenditure base, mineral and sales tax revenue would have to yield $4.602 billion in FY 01. The yield for that year is projected to be only $2.881 billion. That means some other tax source has had to pick up the difference of $1.721 billion.

9. 9 Mineral and Sales Tax Growth Projected at Rate of Inflation from FY 82 to FY 01 (in million $) FY 82 $2,543 FY 01 $4,602 FY 01 $2,881 81% FY 82 $2,543 13% Budget Gap $1,721

10. 10 Prior to 1993, the undesignated General Fund Balance at the end of a fiscal year could be spent on recurring expenditures in the ensuing fiscal year. The large surpluses that occurred during the oil boom, as well as the rather large surpluses of FY’s 89 and 90, were pretty much spent on recurring items in the budget. In 1993, the legislature limited the use of surplus funds to retiring debt and other non-recurring expenditures. In 1998, 25% was designated to the Rainy Day Fund and capital outlay was added as an authorized use.

11. 11 Total General Fund Revenue Compared to Surplus FY 75 to FY 98 (In Million $)

12. 12 In 1982, corporate taxes were generating more than the the personal income tax. Beginning in FY 89, personal income tax growth began to increase annually and has provided a much needed boost to overall state revenue. Corporate taxes have been erratic during the period beginning in FY 89 and the growth rate of these taxes has flattened out considerably during the past few years.

13. 13 Corp FY 82 $428 P.I. FY82 $247 Corp FY01 $671 P.I. FY01 $1,802 Personal Income and Corporate Income Taxes Growth Rate Comparison FY 82- FY 01 (in million $)

14. 14 COMPARISON OF PERSONAL INCOME AND CORPORATE INCOME TAX GROWTH FY 82 FY 00 * Dow Jones is from Feb. 1, 2000.

15. 15 What’s wrong with the next chart?

16. 16 Revenue Growth for Six Major Sources FY 74 to FY 01 (in million $)

17. 17 Answer: Five out of the six major revenue sources are headed in the wrong direction

18. 18 Louisiana’s share of the tobacco settlement was estimated at $4.58 billion over the next 25 years. A recent constitutional amendment will dedicate 75% of the revenue after three years. Recent declines in tobacco sales have prompted the Revenue Estimating Conference to reduce projections for FY 00 by $15 million and FY 01 by $19 million.

19. 19 $184 $156 $187$189 $158$178 $181 Probable Reduction 15% to 20% Tobacco Settlement Revenue Projections FY 00 Through FY 25

20. 20 Current Budget

21. 21 FY00 Current Budget Shortfall The FY00 Budget is roughly $104 million short in revenue. It must also pay for a $26 million deficit from last year, making it $130 million short.

22. 22 $54 million will be generated through various cash savings. FY00 Current Budget Shortfall

23. 23 Cash Savings FY00 Current Budget Shortfall $33 million to be saved from MFP due to fewer students included in headcount. $14 million to be saved from a drop in TOPS participation levels.

24. 24 FY00 Current Budget Shortfall Cash Savings $2.3 million from the Group Benefits Program. $250,000 from unemployment compensation. $170,000 from Interim Emergency Board.

25. 25 The remaining $50 million is to be cut throughout various departments. FY00 Current Budget Shortfall

26. 26 Executive Order — Spending Freeze Executive Department$5,094,428 Secretary of State$415,308 Office of the Attorney General$929,864 Commissioner of Elections$599,763 Lieutenant Governor$30,047 State Treasurer$181,085 Agriculture and Forestry$2,000,409 Commissioner of Insurance$393,368

27. 27 Executive Order — Spending Freeze Economic Development$930,164 Culture, Recreation & Tourism$1,611,780 Transportation & Development$863,404 Public Safety & Corrections$3,380,795 (Public Safety units only) Health & Hospitals$22,456,291 Social Services$2,063,695 Natural Resources$716,087

28. 28 Executive Order — Spending Freeze Revenue$2,978,673 Environmental Quality$79,472 Labor$173,147 Wildlife & Fisheries$28,515 Civil Service$110,228 La. Special Education Center$59,357 Office of Student Financial Assistance$92,784 (Except TOPS)

29. 29 Executive Order — Spending Freeze La. Educational Television Authority$276,897 CODOFIL$9,253 BESE$36,236 Department of Education$4,444,679 (Except MFP) LSUMC Health Care Services Division$43,271

30. 30 Top Budget Issues Facing the State of Louisiana FY00 — FY04 Balancing the Budget for FY01 through FY04... … The Five-Year Baseline Budget, as updated at the last Revenue Estimating Conference, indicates deficits for FY01 - FY04.

31. 31 Five-Year Projections

32. 32 Reasons for FY01 Budget Shortfall The Medicaid Program will require an additional $115 million in State General Fund revenue, of which $85 million replaces non-recurring revenues.

33. 33 Reasons for FY01 Budget Shortfall Debt Service payments will increase by roughly $153 million. The MFP will require an additional $64 million.

34. 34 Sheriffs’ Housing — an additional $19 million will be needed to account for increases in prison population. Reasons for FY01 Budget Shortfall

35. 35 Inflation will account for an additional $30 million needed in state funds. Merit Increases — The cost of providing merit increase statewide will cost roughly $29 million. Reasons for FY01 Budget Shortfall Note: Agencies have been required to absorb these increases for the past 10 years. Inflation during that period of time has been roughly 40%.

36. 36 TOPS Program — Current estimates reflect an additional $4 million. This reflects an increase in the level of students eligible. There are currently 28,876 students eligible in FY00. FY01 projections estimate roughly 36,929 students will be eligible. Reasons for FY01 Budget Shortfall

37. 37 The State’s Risk Management program requires an additional $28 million in premiums Reasons for FY01 Budget Shortfall

38. 38 Top Budget Issues Facing the State of Louisiana FY00 — FY04 Teacher Pay Raises — Early estimates have projections set at between $150 and $200 million Faculty Pay Raises for Higher Ed. — $90 million. This estimate includes both faculty and professional staff. The faculty portion alone would cost roughly $65 million

39. 39 Resolving the Medicaid Provider Tax Issue Addressing the Disproportionate Share Hospital (DSH) Cap Top Budget Issues Facing the State of Louisiana FY00 — FY04

40. 40 State Employees Group Benefits Insurance Program Increases in Prison Population Top Budget Issues Facing the State of Louisiana FY00 — FY04

41. 41 Finding appropriate ways to fund Local Capital Outlay Projects State Employee Pay Raise Issue — 1990 was the last time state employees received a cost of living increase. The state employee turnover rate was 15.3% in FY94 and rose to 21.5% in FY98. Top Budget Issues Facing the State of Louisiana FY00 — FY04

42. 42 Health and Hospitals

43. 43 Medicaid’s Current Year Funding Problem

44. 44 Main Fiscal Issues in the Current Year Increased demand for services $72 Increased child enrollees $36 Pharmacy inflation $31 Executive Order cuts $76 Tobacco Settlement shortfall $34 Other Shortfalls $14 TOTAL$263 *In millions.

45. 45 The Looming Disproportionate Share Cap

46. 46 DSH Forecast In billions.

47. 47 The Medicaid Provider Tax Dispute Act 259 implemented a grant program for nursing home residents. Act 260 levied a nursing home provider fee to be used as Medicaid matching funds. 1992 Legislation

48. 48 Provider Tax Issues HCFA equates the grants to rebates of the Medicaid provider fee and considers this illegal under federal law. HCFA estimates Louisiana may owe $300 million to the federal government. Current provider fees account for $244 million (7%) of Medicaid’s budget.

49. Corrections Services

50. 50 The following chart shows the growth of the Corrections budget over the past four years. For FY 00, the budget stands at about $571 m. The light-colored bar on the chart shows the portion of the Corrections budget which comes from the State General Fund. Over the four-year period shown, the SGF portion of the Corrections budget has averaged over 90 percent each year.

51. 51 Corrections Budget Trend In Millions

52. 52 The next chart illustrates a brief history of the most important dynamic in Corrections — growth of the offender population. As indicated by the arrows, the number of incarcerated adult inmates grew by nearly five times from FY 75 to FY 95 — from just over 5,000 to nearly 25,000. This growth trend is projected to continue into the future.

53. 53 Incarcerated Adult Population Trend + 20,000

54. 54 The next chart shows the projected future growth of the adult inmate population. If this projection is accurate, by FY 05 the state could have an inmate population which has nearly doubled in size since FY 95. Why? The state is not only locking up more offenders, it is also housing inmates for longer periods of time. (Truth-in-Sentencing). As long as the inmate population continues to rise, the Corrections budget will continue to grow.

55. 55 Adult Population Projection

56. 56 The next chart shows the projected operating cost for Corrections based on anticipated inmate population increase to FY 03. The bar for FY 01 is higher than the other years shown because Corrections is to receive nearly $27 million in federal funding for capital construction at Hunt Correctional Center... … This funding will allow Corrections to place more inmates at Hunt. Since it costs the state more to house offenders at state institutions, the operating costs will be higher for that year. This chart shows figures on a per-year basis. The four-year cumulative total is $89.6 million.

57. 57 New Operating Cost Projection In Millions

58. 58 Currently, about $137.5 million is budgeted for Sheriffs’ Housing of State Inmates. Corrections estimates annual increases in Sheriffs’ Housing to be about $20 million per year (at existing per diem rate). Adding $1 to the per diem adds an extra $6 million per year. Approximately 43 percent of all state inmates are housed in local facilities in Louisiana. Louisiana is the only state in the South with such high percentage and population levels. The next closest state is Tennessee, which houses 26 percent of its state inmates in local jails. The Southern average is about 4 to 6 percent.

59. 59 Sheriffs’ Housing of State Inmates Sheriffs’ Per Diem is currently $23, as a result of the 1999 Legislative Session. In Millions

60. 60 Why does Louisiana place so many inmates in local jails when other states don’t?

61. 61 Avg. Cost Per Day Per Offender Average Daily Cost Per Inmate Bed In Adult Facilities (LESS Administrative, Health Care, and Vo-Tech Costs) $30.59 Average Daily Cost Per Inmate Bed In Adult Facilities (WITH Administrative, Health Care, and Vo-Tech Costs) $35.77

62. 62 Transportation and Development

63. 63 Transportation Tax Revenue FY 74 to FY 01 Tax doubled from 8¢ to 16¢ in 1984 TIME Program 4¢ increase in 1990

64. 64 TIME Projects (In millions) TIME Projects Spent to Date: TOTAL $799.1 TIME Projects Authorized: TOTAL $2,534.2

65. 65 Only four of the 16 TIME projects have been completed. Three of the four completed are in the New Orleans area.

66. 66 The following chart illustrates the significant backlog problem in DOTD. As of right now, DOTD has over $5.8 billion in various projects that could be undertaken if funding was available. An additional $1 billion in bridge projects is also waiting on the books.

67. 67 Current Highway Needs (Costs X $1000) Reconstruction$1,198,278 Isolated Reconstruction$ 203,385 Capacity Improvements$3,387,429 Minor Widening$ 59,536 Minor Widening & Isolated Reconstruction$ 106,688 Resurfacing & Isolated Reconstruction$ 114,213 Resurfacing$ 755,652 Shoulders Only$ 2,712 SUB-TOTAL$5,827,893 Bridges$1,000,000 TOTAL$6,827,893

68. 68 Education: K - 12

69. 69 MFP State Funds $1.82 1.86 1.97 2.09 2.18 2.26 Fiscal Year 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 Change From Prior Year 1.29% 2.18% 5.79% 6.01% 4.51% 3.52% MFP State Funds and Total Louisiana State Funds (in billions) Louisiana State Funds $4.85 5.22 5.94 5.88 6.00 6.01 Change From Prior Year 7.11% 7.54% 13.81% -0.94% 2.03% 0.16%

70. 70 Funding Growth: MFP vs. State (State Funds Only) $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 9091929394959697989900 Fiscal Year Total MFP FundsTotal State Funds State 10 Year Growth: 38.6% MFP 10 Year Growth: 47.7%

71. 71 Fiscal Year Annual Increase Cumulative 2000-01$77,883,121 $77,883,121 2001-02$64,111,471$141,994,592 2002-03$67,349,013$209,343,605 2003-04$69,322,978$278,666,583 MFP New Funds Projections: (SCR 159)

72. 72 12 districts below local support target: ($8.2) Million 54 districts above local support target:$487.6 Million 1998-99 Hold-Harmless Systems 12 systems ‘overfunded’: $95.5 Million 1997-98 MFP Level I Local Support

73. 73 Administration Other Staff Teachers October 1 Membership 1994-95 4,002 43,611 46,752 782,859 1995-96 4,033 45,444 47,647 781,344 Louisiana School Systems Staff and Membership Trends (all staff figures are Full-Time Equivalents) 1996-97 4,131 46,148 48,031 777,570 1997-98 4,263 46,740 48,249 765,383 1998-99 4,326 47,140 48,773 753,722

74. 74 Student Membership and Teacher Staffing Trends 45,500 46,000 46,500 47,000 47,500 48,000 48,500 49,000 1994-951995-961996-971997-981998-99 735,000 740,000 745,000 750,000 755,000 760,000 765,000 770,000 775,000 780,000 785,000 790,000 TeachersMembership

75. 75 Salary Growth: Louisiana vs. SREB 85% 87% 90% 91% $25,000 $26,500 $28,000 $29,500 $31,000 $32,500 $34,000 $35,500 $37,000 $38,500 $40,000 1995-961996-971997-981998-99 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% LouisianaSREBLA as % of SREB Total SREB Growth: 10% Total LA Growth: 18%

76. 76 1997-98 Average Teacher Salaries for SREB States 33,129 33,397 33,697 30,692 31,592 30,090 28,692 34,133 34,475 34,613 35,340 36,654 37,569 32,818 42,439 41,739 DEMDGAVATNKYFLTXSCWVNCALAROKLAMS State SalariesSREB AverageNational Average 39,454 34,425

77. 77 1998-99 Average Teacher Salaries for SREB States 42,256 43,164 34,244 39,675 37,475 36,500 36,098 35,916 35,820 29,530 31,149 32,510 32,350 35,526 35,041 34,506 DEMDGAVATNNCFLALKYTXSCWVLAAROKMS State SalariesSREB AverageNational Average 40,582 35,795

78. 78 An Overview of Louisiana’s Budget February 3, 2000