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Balancing the FY04 Budget

• The total means of financing for FY04 is roughly $16.8 billion, which constitutes approximately $6.5 billion in State General Funds. As the session commenced, the outlook for the budget looked grim at best. The state was facing a significant structural deficit - the difference between available revenue and the continuation budget in this case - of roughly $600 million.
   
• As the session progressed and budget negotiations continued, it became obvious that cuts of the aforementioned magnitude would seriously impair the ability of health care agencies to provide vital services and that constructing a "workable" budget would require an additional $250 million to $300 million in revenue just to fund minimal budgetary requirements.
   
• On the same day the House Appropriations Committee passed out a very lean budget proposal, Congress passed a Federal Fiscal Relief package to assist states in meeting budgetary constraints. The relief package contained nearly $300 million dollars specifically earmarked by formula for Louisiana. The Legislature proposed utilizing the entire amount of the state's relief package over both the FY03 and FY04 budget cycles mainly to offset potential major budget reductions primarily in the Department of Health and Hospitals and LSU Health Care Service Division (HCSD), the Charity Hospitals.
   
• As a result of the influx of federal dollars, the state was in a position to adopt a three-year $95.4 million defeasance plan instead of the two-year plan in the amount of $66.4 million. The plan provides for prepayment of debt service on selected bonds for FY's 04, 05, and 06. The defeasance plan will reduce debt service costs that must be paid by the State General Fund in the amounts of $46.4 million in FY04, $30 million in FY05, and $21 million in FY06 (actual debt service savings total roughly $97.1 million). Monies utilized to provide for the defeasance include: balances in the Mineral Audit Settlement Fund - $66.4 million; FY02 surplus in the amount of $13.5 million; non-recurring revenue as recognized by the Revenue Estimating Conference in the amount of $6.1 million and $9.4 million available in general fund cash in FY03 due to the influx of Federal Flexible Grants.
   
• Striking a balance between Higher Education enhancements and, in fact, any enhancements versus base Health Care funding dominated budget discussions throughout the session. After significant adjustments, DHH received a major restoration that left it with moderate budget growth to cover significant unfunded mandates. Higher Education, which started out in the Executive Budget with approximately $74 million in enhancements, ended the session with roughly $57 million in remaining enhancements.
   
• The final budget balancing mechanism implemented was an across the board cut of $17.3 million in State General Fund. This cut translates into a percentage reduction of approximately 0.8%. The cut will be applied proportionally to all departments based on the amount of discretionary general fund dollars included in their operating budgets.
   
• A sampling of significant Senate action taken on the Executive Budget included the following:
  • an additional $30 million for a $100 million state debt defeasance plan (a compromise plan worked out during conference committee between the House and Senate called for a reduced amount of an additional $25 million which provided for a $95.4 million state debt defeasance plan);
  • restoration of $35 million in the Health Care Services Division,
  • a total of $8.7 million, of which $6 million was in General Fund dollars, for the LSU Health Sciences Center - Shreveport;
  • funding for Medicaid Outliers payments to hospitals program in the total amount of $17.5 million ($4.5 million State General Fund);
  • funding for DNA testing in the amount of $4 million;
  • restoration of $500,000 to the Councils on Aging and Senior Centers;
  • and, restoration for the operation of regional crime labs in the amount of $500,000.
     
• The following sections highlight some of the primary budget issues during the recently ended session. Please refer to our upcoming recap of the budget due out by the end of the month for a more detailed analysis.