Taking a Fiscal Crisis Seriously: Lessons from Louisiana

At the second meeting of Louisiana’s new Commission on Streamlining Government (CSG) yesterday, The News Star reports that state treasurer John Kennedy candidly explained to commissioners that fiscal responsibility demands political will (emphasis mine):

Cutting state payroll is the easiest way to shrink the size and budget of state government, members of a state streamlining panel said Tuesday, but it has to be done strategically to preserve services.

But even some of those services could be on the chopping block if the Legislature would do it, said State Treasurer John Kennedy, a member of the Commission on Streamlining Government. The panel was created in this year’s legislative session with the backing of Gov. Bobby Jindal and is looking at ways to reduce state spending.

“There’s a lot of things we should do, and everybody knows we should do, but we can’t because of politics,” Kennedy said after chairing the overall panel’s Subcommittee on Efficiency. “The real issue is having the political guts to do it, and the jury’s still out” on whether state lawmakers are willing to make tough decisions.

The fairy godmother died,” he said. “She’s gone,” so no one is going to wave a magic wand and get the state out of the impending $4 billion budget hole over the next two years.

Kennedy is right that there are no magic solutions to the looming fiscal crisis, and hopefully this will serve as motivational fuel for policymakers to give serious attention to the reform and efficiency recommendations that ultimately emerge from the CSG process. For more on Louisiana’s Commission on Streamlining Government, see my write-up in Reason Foundation’s Annual Privatization Report 2009 and visit the official CSG website.

There’s an interesting presentation archived on the CSG site that details the state’s bleak fiscal picture and frames the work of the Commission. I already knew that Governor Jindal and the Louisiana legislature are already making strides towards keeping government sprawl in check, but the presentation added some new context:

  • The enacted FY 10 budget included a net reduction in the number of fulltime authorized positions across state government by 1,335.
  • This action follows 971 position eliminations associated with the FY 09 mid-year budget reductions, and 1,019 reductions previously implemented through budgetary action, for a total of 3,325 positions reduced since the beginning of the Jindal administration.
  • Between December 31, 2007 and July 3, 2009, the number of full-time employees in state government, including Higher Education and LSU’s Health Care Services Division, went from 89,371 to 89,091, a decrease of 280.
  • That net decrease of 280 factors in an increase of 657 full-time employees at LSU’s Health Care Services Division. During the same time period, the number of full-time employees at all other state agencies saw a net decrease of 937.

At first glance, some might dismiss the overall net reduction in state employees (280) as tinkering around the edges, but this would be a mistake in my mind. Outside of LSU’s Health Care Services, the rest of state government saw a reduction of between 1-2 percent over the last year-and-a-half. If policymakers can continue pruning the state workforce incrementally at this pace, then in just a few years the workforce will have already decreased around 5 percent, which represents real money.

But there’s also the very significant and less obvious factor of 3,325 full-time authorized positions eliminated in the budget, which represents nearly 4 percent of the total current state employee base. This figure likely represents a mix of currently-filled positions, positions currently unfilled and positions consolidated or recategorized. To a certain extent, this figure helps to illuminate the scale of the unseen reductions, as it involves costs both eliminated or avoided.

Further, if policymakers embrace the work of the CSG—which will develop recommendations on consolidation/elimination of functions, privatization of services, and the like—then we could reasonably expect the state’s “right-sizing” to accelerate even faster.

The importance of doing more with less in the state workforce should not be lost on readers. As a back of napkin estimate, I’ve seen estimates that the annual “all-in” cost of a full-time employee in various states, with pay and benefits, tends to average somewhere between $50,000-80,000. Let’s just pick a conservative figure of $60,000. For every 1,000 state positions reduced, the state would avoid costs on the order of $60 million per year annually. And that doesn’t factor in the indirect cost reductions related to equipment, overhead, etc. and reduced future pressures on state retiree pension and health care obligations.

Pelican State officials deserve credit for making significant headway on reducing the size of the state workforce. And this is just one element of a multi-faceted approach to reduce the overall size and cost of government involving the work of the CSG, newly-enacted statutory authority allowing policymakers more flexibility in cutting spending in protected “silos,” cutting dozens of unnecessary or inactive state boards, taking the first steps towards civil service reform, and several other noteworthy policy initiatives aimed at proactively getting a jump on the state’s looming fiscal crisis.

From my vantage point, Louisiana is now starting to emerge as a fiscal leader, and other states should be paying attention. As a former New Orleans resident for a number of years, the Louisiana I see today is a far different and much more receptive environment for government reform than it was even 5 years ago, and it’s showing. The sooner that other states follow Louisiana’s lead—and accept the reality that there’s no such thing as a fiscal “fairy godmother”—the better.

Reason Foundation’s Annual Privatization Report 2009
Reason Foundation’s Privatization Research and Commentary