Slide 1

Bobby Jindal

Governor

Paul W. Rainwater

Commissioner of Administration

Executive Budget

Fiscal Year 2011-2012

Joint Legislative Committee on the Budget

March 11, 2011

Bobby Jindal

Governor

Introduction and Overview

• Preserving Louisiana’s economic progress

• Addressing the shortfall while reducing reliance on

one-time revenue

• Reducing the size and cost of government

• Transforming government to improve services

• Protecting funding for education and health care,

improving outcomes

Louisiana’s Economic Progress

Recent recognitions of Louisiana’s progress include:

•In Decembe, Business Facilities magazine recognized Louisiana as

the 2010 State of the Year because of our recent business climate

reforms, business development success throughout the year,

innovative incentive programs, economic growth strategy, and

world-class workforce training program, Louisiana FastStart.

• Business Facilities also named Louisiana FastStart the nation’s best

workforce training solutions program.

• Site Selection magazine recently released its annual “Governor’s

Cup” rankings, and Louisiana’s national economic development

projects ranking improved 12 spots to 3rd best in the U.S. The

ranking was Louisiana's highest ever in the 23-year history of the

“Governor’s Cup” project rankings.

Louisiana’s Economic Progress

• For the second consecutive year, Southern Business and

Development named Louisiana “Co-State of the Year,” noting that

we attracted more significant business investment and job-

creating projects per capita than any other state in the South, two

years in a row.

• Pollina Corporate Real Estate released its rankings of top states for

business; and Louisiana earned the first-ever Most Improved State

designation based on its improved ranking from 2008 to 2010. In

just two years, Louisiana jumped 20 spots in the ranking of best

states for business (from 40th to 20th).

Credit Rating Agencies Maintain ‘Stable’ Louisiana Outlook

Fitch assigns “AA” rating to GO Bonds, citing:

• Louisiana has made progress toward increased economic

diversification

• State's financial management has been solid

• Continued timely action to maintain budget balance and

maintenance of solid financial balances

Moody’s Investment Service assigns “Aa2” rating, citing:

• State's strong financial position and healthy liquidity in recent

years

• State's speedy responses to downward revenue projections

• Healthy economic measures relative to the nation

• An improved business environment and active economic

development plans

Billion $

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

Addressing the $1.6 Billion Shortfall, Reducing

Reliance on One-Time Dollars

Balanced Approach: Spending Reductions, Holding the Line

on Increased Costs, Maximizing Available Funds

Major reduction and savings areas include:

• Department-by-department strategic reductions to the existing operating

budget: Approximately $410 million

• Reductions across the executive branch by annualizing FY 11 midyear cuts:

Approximately $110 million

• Reducing more than 4,000 fulltime positions across the executive branch:

Approximately $96 million

• Protecting MFP total funding at more than $3.3 billion, but not funding

certain increases anticipated at continuation, such as state employee

“merit” raises; absorbing inflationary costs, with reductions to others:

Approximately $200 million

• Reducing projected General Fund increases at continuation through

funding efficiencies: Approximately $225 million

Addressing the $1.6 Billion Shortfall, Reducing

Reliance on One-Time Dollars

Reducing reliance of one-time revenues for recurring

expenses by more than $1 billion

One-time money utilized in the current fiscal year (FY 11):

$1.6 billion

For FY 12:

One-time revenues for recurring expenses:

$474 million

Recurring revenues to address one-time expenditures :

$57 million

Net total of one-time revenues for recurring expenses:

$417 million

COMPARISON: FY 10-11 Budgeted to FY 11-12 Executive Budget

(Totals Including Additional Funding Related to Hurricane Disaster Recovery)

(Inclusive of Contingencies) (Exclusive of Double Counts)

As of

12/01/2010

Budgeted

2010-2011

Executive

Budget

2011-2012

Executive

Budget

Over/(Under)

Budgeted

Percent

of Change

GENERAL FUND, DIRECT

$7,735.5

$8,264.2

$528.7

6.84%

GENERAL FUND BY:

FEES & SELF-GENERATED REVENUES

$1,722.1

$1,959.2

$237.1

13.77%

STATUTORY DEDICATIONS

$4,675.0

$3,731.9

($943.1)

-20.17%

INTERIM EMERGENCY BOARD

$1.1

$.0

($1.1) -100.00%

TOTAL STATE FUNDS

$14,133.7

$13,955.3

($178.3)

-1.26%

FEDERAL FUNDS

$11,921.4

$10,975.0

($946.3)

-7.94%

GRAND TOTAL

$26,055.0

$24,930.4

($1,124.6)

-4.32%

TOTAL POSITIONS

82,208

72,109

(10,099)

-12.28%

NOTE: Positions are authorized, not filled positions. For Higher Education, 6,004 T.O. that are funded from 100%

Restricted Funds are now reflected as off-budget for FY12. Dollar amounts are represented in millions.

FY12 Net Adjustments in Authorized Positions

Executive

-55 Children & Family Services

-313

Veterans Affairs

5 Natural Resources

0

State

-18 Revenue

-18

Justice

-23 Environmental Quality

-42

Lt. Governor

-4 Workforce Commission

-28

Treasury

-2 Wildlife & Fisheries

0

Public Service

0 Civil Service

23

Agriculture & Forestry

-41 Retirement Systems

0

Insurance

-2 Higher Education

-862

Economic Development

-4 Other Education

-24

Culture, Recreation & Tourism

-65 Dept. of Education

-28

DOTD

-30 Health Care Services Div.

-286

Corrections

-918 Other Requirements

0

Public Safety

-184 Ancillary

-173

Youth Development Services

-58

Health & Hospitals

-945 TOTAL

-4,095

Position Reductions to Date

• Following prior reductions of 6,362 fulltime,

appropriated positions through budgetary actions,

approval of the 4,095 net reduction recommended

for FY 12 would mean a total reduction of 10,458

fulltime, appropriated positions—or more than 12

percent—since the beginning of the Jindal

administration.

Transforming Government Initiatives

•The Louisiana Department of Children and Family

Services, Department of Health and Hospitals, Office of

Juvenile Justice, and Department of Education are

developing a Coordinated System of Care, an integrated

approach to provide services for at-risk children. This system

will leverage $65.8 million in existing state general fund to

draw down a total of $101 million in additional Medicaid

dollars, providing the state with estimated total state

savings of $16.3 million through fiscal year 2013.

Transforming Government Initiatives

•The Department of Transportation and Development is

undertaking a major departmental reorganization and streamlining

of operations, consisting of:

Eliminating the Office of Public Works and Intermodal Transportation,

consolidating the organization by eliminating the executive position of

Assistant Secretary of Public Works and Intermodal Transportation,

integrating the staff and functions into other areas of DOTD ($130,000

in savings). Relocating current operations of the Public Transportation

Program into the Office of Planning and Programming.

Moving legal services and real estate sections to DOTD’s main campus

on Capitol Access Road, thus eliminating building rental fees

($400,000 in annual savings), and moving the aviation, public

transportation, ports, marine, and rail sections to the main campus by

July 2011 ($200,000 in annual savings).

Transforming Government Initiatives

•The Department of Children and Family Services is

continuing to consolidate offices around the state, resulting

in reduced leases, travel, and office supplies, at a savings of

$2.66 million. In addition, DCFS will reduce 307 positions,

mostly through attrition and the elimination of vacant

positions, at a savings of $4.6 million in this budget.

Transforming Government Initiatives

• Louisiana State Police, the Governor’s Office of Homeland Security and

Emergency Preparedness, and the Office of Juvenile Justice will

consolidate and share back-office functions such as human resources,

information technology, and finance for the three agencies. This

consolidation will help coordinate similar agency functions and reduce

duplicative resources needed to manage them, while achieving estimated

savings of $1.2 million and the reduction of 16 positions, and maintaining

a high level of service in these areas.

•The Office of Juvenile Justice is reducing Day Treatment Services,

provided through an alternative school, for a savings of $9.4 million.

•The Department of Corrections is expanding technology enhancements to

save $1.35 million by expanding use of video court and telemedicine, and

by equipping additional prisons with security cameras and shaker fences

that will replace manned towers.

Transforming Government Initiatives

•The Department of Corrections is converting Dabadie and Avoyelles

Correctional Centers to privately operated facilities, in addition to

selling the Avoyelles, Allen, and Winn Correctional Centers.

DOC will convert J. Levy Dabadie Correctional Center in Pineville

from a 580-bed minimum-security state operated prison facility

to a privately operated 300-bed minimum security facility.

Offender work crews will still be provided to Camp Beauregard

and for litter clean up, and most of the offenders transferred

from Dabadie will be placed in other work release facilities. The

conversion of Dabadie is projected to save the state $4.8 million

in State General Fund in FY 11-12, and $5.9 million in FY 12-13.

The current cost at Dabadie is $48.94 per offender per day, and

the per diem for correctional services under the agreement with

the private operator will be at least a 38.7 percent reduction.

Transforming Government Initiatives

DOC will also convert operations at Avoyelles Correctional Center in

Cottonport from a 1,564-bed medium security state operated prison facility

to a privately operated facility. The conversion of Avoyelles is projected to

result in a savings of $2.6 million in State General Fund in FY 11-12, and

$6.0 million in FY 12-13. The current cost at Avoyelles for each offender

amounts to $42.82 per day. The per diem for correctional services under

the agreement with the private provider will be approximately a 26.4

percent reduction.

Legislation will be offered to sell Allen, Winn, and Avoyelles Correctional

Centers via a competitive bid process for the purchase of the facilities and

the correctional operations to ensure that the state receives the most

efficient and cost effective services. The Allen and Winn facilities appraised

for $32 million each. DOC conducted a request for information in early

February, and has received information on the proposed per diem for

operating the facilities from seven responders, with per diems ranging from

$31.50 to $45.00. Once the legislation for the sales is enacted, a request

for proposal will be issued for the sale of the facilities. The highest

qualified bidder will be awarded the facility and a 20-year contract.

Transforming Government Initiatives

•The Department of Environmental Quality relinquished two floors

and a large portion of its first floor office space in its Galvez

building headquarters for $1.8 million in rental savings in FY12

budget.

•In Augu, the Department of Education began implementing a

reorganization plan to downsize the agency and redirect human

resources on service, functions, and activities in advancement of

nine critical goals, all centered on student achievement, through

three consolidated critical goal offices: Literacy; Science,

Technology, Engineering and Math (STEM); and Career and College

Readiness. Correspondingly, the department’s FY 12 budget

includes reductions in contracts, travel, and other operating

expenses, with cost savings of $2.7 million, while preserving and

protecting critical programs.

Transforming Government Initiatives

•The Department of Public Safety has increased outsourcing

of road skills testing to third party providers at a savings of

$817,000, and is outsourcing the OMV International

Registration Plan, which will allow for the reduction of nine

positions. In addition, the State Police Crime Lab

implemented an efficiency improvement project in the DNA

laboratory (Lean Six Sigma), which resulted in DNA case

turn-around-time being reduced by 50 percent and doubling

productivity.

Transforming Government Initiatives

•The Governor’s Office of Homeland Security and Emergency

Preparedness (GOHSEP) is consolidating the state’s first responder and

emergency management training, through the Louisiana Command College

for Homeland Security and Emergency Preparedness. The Command

College will be the first of its kind in the country to bring together a

flagship university with active homeland security and emergency

management personnel to better equip local government to respond to all

hazards. The estimated annual savings from this initiative is $300,000.

•The Department of Revenue has streamlined operations at its regional

offices, collapsing them into three administrative regions serving north

and central Louisiana, southwest Louisiana, and southeast Louisiana.

Instead of eight regional administrators for statewide customer service,

there are now only three.

Transforming Government Initiatives

•The Louisiana State Employees Retirement System (LASERS)

provides retirement benefits for most state government

workers. Currently, employees contribute 8 percent of their pay

to cover the future cost of their benefits, while the state

contributes an amount equal to an additional 22 percent of

employees’ pay to cover pension benefits. As such, employees

contribute less than 27 percent of the cost of their retirement,

while the state’s share of the cost exceeds 73 percent.

Out of 45 states surveyed, Louisiana ranks third highest in the

nation for employer contribution rates as a percentage of

payroll, and is one of only 17 states that pay more than 70

percent of the overall contribution towards employee

retirement.

Transforming Government Initiatives

In 1987, employees in LASERS paid over 40 percent towards

their own retirement whereas now they pay only 27

percent. To get back to historical norms in terms of employee

and employer contribution rates, we are proposing to keep the

employer contribution rate at close to the FY11 levels of 22

percent, while the contribution rate for non-hazardous duty

employees in LASERS will increase by 3 percent. In FY12, this

proposal will save approximately $24 million in taxpayer-

supported General Fund revenue that would have to be spent

to cover the increased costs of state employee retirement.

Transforming Government Initiatives

• The Office of Group Benefits is responsible for providing health care

services to state employees and retirees.

OGB issued an RFP on February 4 for a financial advisor to assist with

assessing the market value of OGB and negotiate on behalf of OGB for

the procurement of health care services, including the sale of both the

PPO and HMO plans. We plan to continue to provide an HMO and PPO

product with the same or better benefit structure of those currently

offered. No proceeds from this transaction are included in the FY 12

budget.

This partnership will unlock value and mitigate risk by providing the

state with instant access to state-of-the-art technology improvements, a

higher probability for reduced claims costs, and additional flexibility in

program management. More importantly, this partnership will allow the

state to focus on oversight as opposed to the day-to-day activity of

running a large health insurance enterprise. This transition is expected

to result in the reduction of 149 positions, and recurring savings of $10.2

million, which could increase in future years.

Transforming Government Initiatives

•The Office of Group Benefits will adopt the “Employer Group

Waiver Plan” (EGWP) methodology and transition from a fiscal year

to a calendar year. As an EGWP, OGB will receive reimbursements

of up to 67 percent of prescription drug costs for retirees enrolled

in Medicare, increasing the amount of funding OGB receives from

the Centers for Medicare and Medicaid Services (CMS) by an

estimated $31.5 million per year. Approximately $8 million of this

increased funding is attributable to a federal catastrophic

reinsurance program built into the EGWP. However, in order to be

eligible for this funding, the plan must be based on a calendar

year.

Education: Increased Flexibility, Improved Outcomes

K-12: Minimum Foundation Program

• The MFP will increase from $3.31 billion in FY11 to $3.38 billion in

FY12.

• While funding to other programs has been reduced by 26 percent

over the last three years, funding for the state’s MFP — the state’s

largest allocation of education funding — has increased by 6.2

percent, from $3.12 billion in FY 08 to $3.31 billion in FY 11. From

FY 08 to FY 11, our state’s appropriated student count allocation

increased from $4,735 to $5,038 per student, representing a 6.4

percent increase. Taking into account the new dollars committed

to the MFP in this budget, the MFP will have increased by 8.2

percent since FY 08.

Education: Increased Flexibility, Improved Outcomes

Investments in K-12 Education

• $29 million for the Ensuring Literacy for All (ELFA) program

designed to ensure every student is reading and writing at or above

grade level by 3 rd grade. This benefits almost 222,000 students

during 2011-2012 school year.

• $7.2 million for Science, Technology, Engineering, and Math

(STEM) allowing 30,000 students to benefit from enriched science

and math programs.

• $76 million for Cecil Picard LA4 Early Childhood Program to allow

almost 17,000 “at risk” 4-year-olds to be enrolled in LA4 during the

2011-2012 school year.

Education: Increased Flexibility, Improved Outcomes

Investments in K-12 Education

• $3.95 million in TANF for dropout prevention programs (Jobs for America’s

Graduates and EMPLOY) to allow more than 4,000 students to participate

in these programs during the 2011-2012 school year.

• $17.6 million for Career and Technical Education (CTE) to allow almost

170,000 students to benefit from the promotion and integration of career

and technical concepts within the academic and counseling framework of

schools to prepare them for immediate and successful entry into the

workforce or enrollment in post-secondary institutions.

• $21.6 million for High School Redesign to support programs contributing to

achieving an 80 percent graduation rate, including Accelerate Student

pathway, Attendance Recovery, Credit Recovery, Everybody Graduates,

High Schools that Work, Louisiana Virtual School, New Tech Network, and

Senior project.

Higher Education: Protecting Funding, Improving Outcomes

Higher Education Funding

• After replacing ARRA, there is no change in funding for Higher

Education. This funding does not include $98 million in additional

revenues that schools will be able to generate through initiatives

included in our Higher Education legislative package for the

upcoming session.

• The FY 12 budget provides $82.5 million in funding, which includes

$39.9 million in additional new funds, plus $92 million from a

proposed constitutional amendment, for total funding of

$174.5 million, to fully fund Taylor Opportunity Program for

Students (TOPS) awards.

• The FY 12 budget protects funding for Go Grants in the upcoming

fiscal year at $26.4 million.

Higher Education: Protecting Funding, Improving Outcomes

Improving Higher Education Outcomes

• Updating Expectations for Credit Hours. A change in the tuition cap will

discourage excessive class dropping, that sees many students currently sign up

for 17 or 18 hours and drop down to 12 hours midway through the

semester. This means that schools are paying for professors and classroom

space that are not used. Legislation will raise the cap on per credit hour

tuition from 12 to 15 hours and also require that schools implement tougher

course drop policies. This will help keep tuition affordable while more

accurately reflecting the operational costs of schools, providing an additional

$74.5 million in revenue.

• Covering Mandated Costs. To help meet the ever-growing bill of mandated

costs, we have proposed legislation that updates and indexes the Operational

Fee, which was designed when it was passed to cover mandated costs by

charging an operational fee of four percent of the 2004 tuition. The legislation

will set the fee at four percent of the current tuition. This will not cover all

increases in mandated costs, but it will generate $13.1 million in revenue for

universities.

Higher Education: Protecting Funding, Improving Outcomes

Improving Higher Education Outcomes

• Supporting Community and Technical Colleges. Currently, the cost to attend a

community college is determined solely by geography. The state’s community college

tuition is a function of the date when the school was created by the Legislature, so

older schools tend to be less expensive than newer ones. Since tuition increases

authorized by the Legislature recently have been percentages, these older schools

have no way to catch up to other schools.

• In order to bridge this disparity, this legislation will provide the authority to phase in

the standardization of community college tuition across the state to that of the

highest allowed rate, which is still below the SREB average for two-year schools. The

average increase would about $190 per student.

• This reform will be especially important at Louisiana’s technical colleges where

current tuition leaves a lot of federal dollars on the table. Roughly 70 percent of

technical college students qualify for Pell Grants, yet technical college tuition is just

21 percent of the average Pell Grant award. With this legislation, schools will have the

authority to phase in an increase to 55 percent of the average Pell Grant, which is still

lower than the 62 percent SREB average. An additional $10.7 million in revenue will

result from these reforms.

Health Care Funding

• The health care budget for FY 12 is proposed at $8.13 billion –

down from the appropriated amount for FY 11 of $8.27 billion, for

a total net reduction of $142.8 million, or 1.7 percent.

• The revenue reduction for DHH in FY 12 is largely due to a

significant drop in the state’s Federal Medical Assistance

Percentages Match Rate from the current rate of 79.6 percent to

69.34 percent, which amounts to a $428.5 million need in General

Fund to fund the Medicaid program and fill this federal gap.

• To offset the decrease of $130.6 million as a result of the DSH

Audit Rule, $35.6 million in General Fund is provided to the 10 LSU

state hospitals, as well as $62.4 million from the Upper Payment

Limit (UPL) Program and $30 million in savings from the Low

Income Needy Collaboration (LINC) model. The reduction in all

General Fund revenue sources provided to the hospitals, as a

result, is just 4.5 percent.

Health Care Funding

• With the 2012 budget, the state will have successfully paid

off two disallowances from the federal government – one

related to Medicare Upper Payment Limit (UPL) payments in

the nursing home program and one related to

disproportionate share hospital (DSH) payments to LSU

hospitals.

• The nursing home UPL disallowance of $121.8 million has

been settled and was paid in full effective Dec. 31,

2010. The DSH disallowance will cause the state to pay $239

million. By the end of this fiscal year, CMS will have

recouped approximately $96 million from Medicaid. The FY

12 proposed budget pays out the remainder of the

outstanding DSH disallowance.

Improving Access and Affordability of Health Care

• To transform health care services and improve outcomes, the state is

instituting a plan to change the way Medicaid services are delivered

from the current fee-for-service system to Coordinated Care Networks

– or CCNs. In a CCN, patients are linked to a network that will be

responsible for coordinating their care with the goal of ensuring

better access to primary and specialty care, while reducing

unnecessary ER usage and hospitalizations.

• Under the Making Medicaid Better initiative, Coordinated Care

Networks will be set up with the responsibility of managing the care

of Medicaid enrollees. DHH has developed two models equally

balanced in the CCN effort. The pre-paid CCN is a managed care

model in which a health plan receives a monthly fee for each enrollee

covered, while also assuming the risk to cover all necessary expenses

for each individual’s needed core benefits and services. The entity

handles authorizations and claims payments directly.

Improving Access and Affordability of Health Care

• The shared-savings model is an Enhanced Primary Care Case

Management plan in which the network receives a monthly per-

member fee to effectively coordinate care, with opportunities for

providers in that network to share in the resulting cost savings.

• This budget reflects full implementation of the CCN reform before

the end of FY 12 with the first “Geographical Service Area” phased

in on January 1. A pure comparison of costs, after transition costs,

for claims from a fee-for-service model to a coordinated care

model shows savings for the partial year implementation is about

$24 million, and savings from coordinating care grow considerably

in FY 13 to $135.9 million.

Protecting Critical Health Care Services

• This budget proposes no cuts in Medicaid private provider rates, no

reductions in eligibility, nor elimination of services.

• The FY 12 budget also incorporates $139 million ($49.5 million of which is

state General Fund) to cover the carryover increase in utilization costs

from FY 11. DHH projects that without the funding for this carryover

utilization increase, physicians, specialists and hospitals could lose

significant amounts of money from the Medicaid program. For example, if

this utilization funding was not included, hospitals could lose (all in total

dollars) $31 million, nursing homes $26.9 million, pharmacists $32.5

million, physicians $14.1 million, Early and Periodic Screening, Diagnosis

and Treatment ( EPSDT ) $8.1 million, and long-term personal care service

providers $6.1 million. Additionally, programs that support independent

living for the elderly and citizens with developmental disabilities would be

threatened as the NOW and Elderly and Disabled Adult waivers alone could

stand to lose as much as $16 million combined.

Budget Information Online

Budget and Supporting Document

www.doa.louisiana.gov/opb/pub/ebsd.htm

Online State Spending Database

www.latrac.la.gov