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A Tale of Two States

March 9, 2015

By: Stephen Waguespack

There are two states of Louisiana right now.

One Louisiana is the private sector economy. This state is on the verge of sustainable growth not seen in generations. As I travel the state to visit with LABI’s business members, most of them are optimistic that Louisiana is growing in the right direction and that the future is bright. The state has billions of dollars in new projects, a record number of private sector employees and we expect to reach 2 million non-farm workers for the first time in history this year. Louisiana is projected to average an increase in 75,000 jobs per year for the next decade, with a third of those positions being new jobs we have not had before in Louisiana. We lead the nation in export and manufacturing growth and our GDP is at historic levels. Sure, Louisiana has its challenges like any other economy, but the people of this state are benefiting from the opportunity that comes with an improving private sector economy.

The “other” Louisiana is the state government. This Louisiana will dominate the headlines for the next few months as the Legislature puts together a state budget during the fiscal session that begins on April 13. This state budget is roughly $9 billion higher than just a decade ago and the current deficit will require some smart, strategic and tough decisions to balance everything out. 

Fixed costs in the budget continue to place an increasing strain on state government. For example, state pension costs to fund the current system have increased 80 percent over the last decade and teacher pension costs over that same period have increased 124 percent. Collectively, these escalations contribute to just under $2 billion in annual costs. These escalating costs hit our educational institutions especially hard and will continue to do so until we reform Louisiana’s legacy retirement system like the private sector and other states have already done. This is only one example of the perennial fixed costs in the state budget that weaken the effectiveness of ever taxpayer dollar.

Some argue the easy choice is to throw sand in the gears of the private sector economy in order to lubricate the cogs of government. They say we have no choice but to sacrifice one Louisiana for the other. They question why the private sector is growing when state government needs more money. Some argue the size of government should drive the state of economic growth in Louisiana as compared to economic growth driving the size, role and focus of government. The truth is, we can have our cake and eat it too.

We don’t have to jeopardize one Louisiana for the other, but it requires us to think differently than we have in the past to do so. For example, instead of repealing the inventory tax credit to invest $375 million in higher education, a better path is repealing the tax itself to invest $465 million in higher education. This approach would put more dollars in our classrooms and send a clear signal to the job creators around the country that Louisiana is a great state to place their inventory, workforce and capital investment. Implementing this viable option would require working responsibly with local government to construct a new path forward for them to grow in accordance with today’s economy.

In addition to this approach for freeing up additional dollars for higher education, we should also begin giving increased autonomy and accountability to our schools to let them compete in the market. We spend a great deal of time hiring well-credentialed, capable leaders to run our systems and campuses, and then immediately tie their hands the second they start working here. This has to stop. 

We need to give these innovators the necessary tools to controls their own costs, overhead, and revenue in return for accountability measures to protect the taxpayer.

Accountability should focus on reigning in outdated programs and departments that don’t prepare our students for today’s economy; improved retention and articulation efforts that are common denominators found in high-performing systems across the country; reducing the bureaucracy and overlap that occurs with a multi-layered system like we have; and better encouraging our kids to enter campuses and programs that best match their skillsets and high-demand jobs.

In the past, we have typically viewed state budget challenges as an excuse to burden an ever-evolving private sector in order to fund the rarely evolving form of state government. Let’s try a different approach this time. 

Let’s focus not only on how many dollars we invest in higher education, but how we allocate them, what tools we give them to succeed and the results in which they should be held accountable. Instead of just dropping new taxes on our residents and job creators, let’s examine ways we can reduce the costs to state government and eliminate outdated taxes that stifle economic growth and saddle state coffers with costs. Instead of viewing the guardrails of our populist past as the only path going forward, let’s identify the options available to us due to the rapidly-changing global economy and design a new approach to government that is more effective and economically viable.

We can walk and chew gum. We can have our cake and eat it too. We don’t have to rob Peter to pay Paul. We can produce a state budget that is efficient, effective and funds priorities appropriately without sacrificing the growth we are seeing in the private sector. Our two states can finally become one Louisiana, if we decide to make it our mission this time around.