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Blanco's borrowing urge detrimental to state recovery

Be very wary of Democrat Gov. Kathleen Blanco’s idea to borrow the state’s way out of revenue problems caused by the recent hurricane disasters.

When former governor Buddy Roemer instituted the Louisiana Recovery District in 1988 to dodge the state’s requirement that borrowing not be used to fund continuing operations, it created a debt problem that took almost a decade to solve. At one time, debt per capita for Louisianans was among the nation’s highest as a result. The district borrowed $1.3 billion, while more than the $959 million figured bandied about now is about the same when figured in constant dollars. While the amount contemplated for borrowing at this time seems less, chances are the deficit will zoom higher in 2006 and the urge to do it again will return.

It’s a temptation well worth resisting. Roemer’s scheme cost the state hundreds of millions of dollars in interest and only now are debt levels in Louisiana per capita at ordinary levels, ranking 29th among the states and District of Columbia by 2001 ($1,786 per person). Having extra debt to drag down the state’s economy only could hamper any recovery.


Hines' remark illustrates coming battle for Louisiana's soul

Let the battle for the soul of Louisiana begin, with the 2005 First Extraordinary Session of the Legislature.

On one side, you have those that perceive the opportunity to break the state from its past populist, good-old-girl government represented by Gov. Kathleen Blanco and a large swath of Democrats, plus a few Republicans, in the Legislature. They see government as the main engine of economic growth and manifest this by arguing for more taxes to support greater-than-necessary spending and are reluctant to change past wasteful spending habits. To them, government is a tool designed to redistribute the people’s resources in the manner they deem appropriate, primarily as an avenue to promote political careers.

On the other, you have progressive reformers that want to minimize the resources government takes from the people, mostly Republican legislators but with a few Democrats thrown in. To them, government is an institution to facilitate the ability of individuals to pursue their own ends using their own resources with as little interference as possible, which in the aggregate makes all better off.

The hurricane disasters have created the conditions that can wake up the electorate to the follies of current regime, by putting the state in the position where the saner approach of its opponents now seems more compelling. The dire necessities of the state invites the questioning of long-held ideological maxims, with the shortcomings of the current regime now much more clearly magnified. With the impact more than ever directly affecting the people, the opportunity is there for many to be receptive to education on the stark choices between these two worldviews, giving the opposition a chance to set the foundation to enact its policy preferences for years to come.

On some fronts, they already are winning. Orleans Parish schools have been in crisis years before the disasters, so it doesn’t surprise that the session’s call contains necessary dramatic action already has been contemplated by loosening local control of Orleans education, and even government control, of these schools.

On other fronts, a fight looms. One such titanic struggle ahead features the philosophy of priorities and prudence in spending versus the establishment’s free-spending with politics rather than need as the primary requisite. Thus, Senate President Don Hines argues that the state can control its gaping deficit, at least temporarily, by amending the Constitution to take monies that should go to the Budget Stabilization Fund to spend, and then to drain the Fund entirely. And he illustrates his ideology perfectly when he acknowledges the role of the people in the process, fretting that “We have 290,000 voters displaced. We are going to have to figure out a way to hold those votes.”

Translation: “A disproportionate number of people who would have gone along with our antiquated ways have left the state. We have to figure out some way to enable them to provide us the strength to continue our agenda based on failed ideas.”

Indeed. Considering that potentially even larger deficits loom on the horizon, bypassing present constitutional protections reeks of imprudency. Instead, there are changes and cuts that can be made right now that will reduce the problem. Two examples are changing policy regarding long-term health care through alterations of reimbursement rates to nursing homes to bring them to national norms and substituting home-based care of nursing home care, and by ridding the state of the Urban and Rural (slush) Funds. On an annual basis, these would save more than half the amount that Hines would want redirected from the fund to current spending. But don’t hold your breath waiting on Hines or any other Democrat legislative leader to suggest these things.

(And if legislators yelp about eliminating the funds, which are used to pay for projects in their districts at the discretion of the governor, she could get them to redirect funds from the Louisiana Agricultural Financial Authority and/or Agriculture Commissioner Bob Odom’s sugar mill for their use – seems the need for that pretty much has been superseded by the planned opening of a new plant by the private sector backed by many of the same co-ops who would have benefited from the state’s largesse.)

As such, it can be argued that, as important as the special session will be to get the state through rough budgetary times ahead, historically it may have greater importance as the watershed event that finally turned Louisiana into a modern state whose government truly matured into putting the people first.


Potentially troubling items in session call

The formal call for the First Extraordinary Session of the 2005 Louisiana Legislature is out, and with it some potentially dangerous items:

  • #19 – this would allow the total unlocking of the Budget Stabilization Fund for its immediate use; currently, only a third of it could be used this year. While these are emergency conditions and that is the purpose of the fund, with so much uncertainty about real revenue losses, there should not be any temptation created to exhaust it until next year.
  • #27 – this would allow funds that ordinarily would be put into the Fund to be loosed for this again; again, a bad idea for the same reason above as the state should now concentrate on budget-cutting, not revenue enhancement.
  • #55 – this would force property insurers to insure everywhere in the state or not at all, which either would drive some of them out of the state or force them to raise premiums in non-hurricane/non-flood-prone areas to subsidize the much higher rates they may be unable to get in hurricane or flood-prone areas.
  • #56 – by forgoing the annual canvass of voters, depending upon state and federal laws get passed that could override current absentee/early voting provisions and rollback of certain election dates (and including call item #4, a special election day for any constitutional amendments that may come out of the session), the fraud potential multiplies.

    The public will have to watch their elected officials carefully to make sure these items do not become vehicles for the creation of unwise policy.
  • 31.10.05

    On special session call, "b" stands for "Blanco" but not "bold"

    “Bold,” to Gov. Kathleen Blanco, is a political organization and doesn’t describe the contents of her call for a special session beginning Nov. 6 – which it needed to be.

    There’s plenty of the pedestrian – draw down the Budget Stabilization Fund, accelerate equipment tax cuts and corporate franchise tax reductions on debt (but only in “affected” areas of the hurricanes), tepid ethics tightening, etc. Only a couple of items even hint at the boldness required here, and they don’t even really address the catastrophic financial aspect – the possibility of state-run charter schools in Orleans Parish and consolidation of levee districts (Orleans being the worst but no doubt better off with a change in its leadership). For example, the legislature may tinker with the Minimum Foundation Plan for education, but real educational improvement and what would ideally meet these emergency conditions of short supply, vouchers, are off the table.

    What you don’t see are avenues in the call’s outline to some good specific solutions that make the necessary extensive alterations to current fiscal practices. Nor will we see the necessary change in philosophy, both in terms of economic and development and fiscal priorities that can bring the state’s economy back and transform it.

    Louisiana has been blessed and cursed with a very creative Legislature, where programs and policy can come out of nowhere. Perhaps it’s too much to ask for, but maybe enough legislators will find the requisite courage and wiggle room when the call comes out to do what’s really necessary for the state’s well-being in this time of crisis – cut the budget peripheral needs and lay the foundation for a commerce friendly state economic environment.

    Government planning will not reconstruct New Orleans

    The moderately liberal Brookings Institute has delivered a report speculating exacerbating factors prior to the Hurricane Katrina disaster in New Orleans and suggesting public policy directions for Louisiana after it. It analyzes how we got to this point well, but then provides policy advice that, if anything, will make matters worse.

    The report does a comprehensive job in identifying the factors which multiplied the destructive power of the storm’s aftermath, flooding. It identifies economic problems that tended to make the city poorer, concentrated that poverty among racial minorities, and will make recovery more difficult. Further, it shows how federal policy decisions in housing, highways, and flood protection opened up vulnerable living areas to mass settlement.

    But it provides a blueprint for failure when it comes to many of its policy prescriptions to reconstruct the city in a “transformed” way. Its first recommendation – “make the region a paragon of high-quality, sustainable development” – is sketchy at best because the solutions it offers involve a high degree of government intervention in the process. As anybody who studies economics knows through the definitive work of F. A. Hayek, at best government can provide limited signage to point the private sector in the right direction, but heavy-handed involvement creates inefficiency, if not tyranny. Hayek shows that self-organizing institutions, such as the free market, do a far better job of promoting the liberty that leads to optimal economic development that any central planning such as by government.

    Still, we can give this array of policy strictures the benefit of the doubt given a lot of government intervention will have to occur just to rebuild the area and set the stage for anything else. Its specifics make sense even if the philosophy behind it has problems ameliorated only by the drastic nature of the situation. Unfortunately, its other two broad set of recommendations utterly disappoint because of this flawed ideology.

    When the report argues to “replace neighborhoods of poverty with neighborhoods of choice and connection,” it assumes that is a “problem” that a fair degree of residential segregation existed in New Orleans, along the overlapping cleavages of race and wealth. As a result, its solutions call for government policy to deliberately mix within neighborhoods families of different income levels (which to a smaller degree also would mix their racial compositions).

    In short, it treats economic/racial segregation in living arrangements as if it were a flaw in a free market economic system that government should attempt to correct. In reality, this is a consequence of different attitudinal mindsets – at the one extreme, a very future-oriented mentality that promotes hard work, thrift, and lack of excess in conduct that subverts the acquisition of wealth; at the other, a present-oriented mentality that gives in to appetites of the immediate that prevents any meaningful wealth acquisition. Or to put it another way, people closer to the former mentality tend to congregate in similar neighborhoods, while those of the latter do likewise, with their levels of wealth being the discriminating factor.

    This notion reminds us of the persistent inability of liberalism to understand the true nature of poverty. It’s not because the poor lack resources (because, liberals would argue, the free-market economy is biased against them), it’s because many of the poor ascribe to attitudes (despite all cues to the contrary) and behave accordingly that prevent them from acquiring resources. Liberals fashionably deny this truth, but many people in poverty are poor for long periods because, whether consciously, they choose to be poor, whether that be from engaging in certain detrimental behaviors (crime, drug use, multiple pregnancies with different partners, etc.) or neglecting to follow salutary behaviors (obtaining more education, making wise spending choices, etc.)

    Some people never will be wealthy because of their limited abilities to contribute to the economy which rewards people with wealth in proportion to the contributions they make to society. But the least government can do for these people is to provide services and programs that allow them to live in situations separate from those who willingly squander their greater human capital. Simultaneously, higher achievers should not have their tax dollars (of which they pay almost the entire amount collected) used to try to encourage those with low-achieving attitudes to live around them where they are likely to engage in behaviors that devalue high achievers’ life prospects and property.

    This same ignorance short-circuits Brookings’ idea to “transform the region from a low-wage economy to a high-road metropolis.” The specific policy recommendations again treat poverty as consequence of lack of resources, not of inferior attitudes. To do so sanctions behavior that is contrary to producing a higher-wage economy (such as by giving cash benefits that sap productivity).

    New Orleans will need much infrastructural spending by government to allow for its transformation to come out of this tragedy better than it was. But beyond that, government policy must focus on promotion of individual liberty and economic choice – not planning and social engineering – in order to bolster the free market that it and it alone only can cause this transformation. It’s a concept new to the New Orleans held down by three-quarters of a century of economic populism and liberalism, and hopefully policy-makers at all levels of government will have the foresight to facilitate this rebirth.