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7.6.07

Report demonstrates coming crisis of Blanco budget

The Louisiana Family Forum has issued a report on the current fiscal situation in Louisiana. Authored by former Legislative Fiscal Officer Johnny Rombach, its enthusiasm sometimes gets in the way of its message, but regardless the latter is unmistakable: the state is headed towards a fiscal crisis, one potentially exacerbated by policy choices being made during this legislative session.

Rombach makes three points in particular. First, the proposed operating budget of the state creates commitments likely unsustainable in the long run. Essentially, the report argues that the injection of federal aid into the state as a result of the 2005 hurricane disasters has created what we social scientists call a “discontinuity” in the rate of growth of revenue-gathering by the state. It states that the budget was growing at a particular rate, but the presence of aid (here the report gets muddy because it identifies the “Stelly” tax swap – more about that is in the report – and higher oil prices also as contributory factors) manufactured a temporary increase in the rate.

According to the report, the problem will come because recurring spending commitments track that bump up and state government assumes the revenue “bump” will continue to be reflected in revenue-gathering even if the rate of growth goes back to its pre-disaster level. In other words, in their spending decisions (which Rombach points out that 96 percent of that increase over the next couple of years is recurring in nature) Gov. Kathleen Blanco and her Democrat legislative allies assume that extra shot of revenues is not a one-time thing but will continue indefinitely – an assumption the report correctly points out is reckless.

Second, the Stelly Plan – lowering sales taxes but increasing income taxes – the report notes has the perverse effect of increasing the most marginal tax rates among the middle categories of filers, with the worst starting for two-filing families around $65,000 and ameliorating in higher brackets. This is because of the elimination of deductions: the lowest income families take few if any, barely if at all lowering their already low marginal rate, while for the higher income families the amount of deductions that can be taken in almost all cases are relatively small compared to their total incomes, so the relative increase they faced was not as large.

Rombach recommends restoring these mortgage and charitable deductions – a move the Legislature seems prepared to take. Unfortunately, lost in the criticism of the Stelly Plan is an overall critique of the very progressive income tax structure in Louisiana (which the report notes in passing that the Stelly Plan exacerbated, and it does call for lowering tax bracket thresholds to improve this) which is probably a greater impediment to economic freedom and growth in Louisiana. This would emphasize why the Stelly increases were suboptimal – taking money out of the hands of the most productive citizens.

Third, the report investigates the state of secondary and elementary education spending in Louisiana, given that a justification for a good portion of the new budgetary commitments is for this area, particularly raising the salaries of teachers. Echoing a point made often in this space, by no means does Louisiana under-fund in this area, particularly given the dismal performance of schools on a statewide basis and with no means to ensure educator accountability, despite the fact that these implementing measures, such as merit pay, improves education quality.

While the report sometimes is a bit unclear in its assumptions and methodological details, its premise seems sound: Blanco’s current budget makes imprudent choices that will haunt the state fiscally for years to come.

6.6.07

Montgomery set to hand Blanco victory over his party

Democrat Gov. Kathleen Blanco looks ready to reverse her loss of months ago to Republicans to increase dramatically state spending – thanks to Republican (in name only) state Rep. Billy Montgomery and if she can get an all-points-bulletin out for Democrat state Rep. Romo Romero.
HB 3 is the enabling legislation to sell bonds to continue capital outlay funding in HB 2, but to pass requires a two-thirds vote of the seated membership of each Louisiana Legislature chamber. Last week, enough Republicans got together to prevent attaining those 70 votes, saying they would keep the bill from passing until Blanco and her Democrat leadership refrained from ramming through a portion of over a billion dollars in recurring spending increases in favor of increasing the relative pittance of tax cuts offered by the Democrats. The GOP is asking for a shift of about $350 million away from spending and into the people’s pockets.

Last December, a different, procedural move enabled Republicans to stop a similar move by Blanco. As the months progressed, their warnings about the cooling budget picture proved true making it prudent for the state to make minimal new commitments. But, true to their roots, the free-spending Democrats ignored the data and pressed on, forcing Republicans into a repeat attempt to slow the spending train down.

Given their current numbers, the GOP could not afford more than seven defections. But given that there are a few liberals among those elected as Republicans, and a few more who were elected initially as Democrats who switched to the GOP out of political opportunism, there remained plenty of opportunities for Democrats to pick off enough of these RINOs.

Last week’s vote showed the Democrats were close. Theoretically, they were two short when assuming those seven who were absent would vote by party. Two of the three Republicans violated that, meaning no further defections could be tolerated.

But in yesterday’s vote, as I predicted opportunist Montgomery flipped his vote (three Republicans were absent but that is like a negative vote so it did not harm their position). That would have given the Democrats 70 votes – except that Romero missed the vote, temporarily saving the House GOP’s effort to cut taxes and spending, buying it a little more time to bargain.

However, with Montgomery, who is running for the Senate in the fall being term-limited out of the House, now off the reservation, if Blanco can get all of their supporters to show up, Montgomery will earn a dubious distinction. His was the crucial vote to increase net taxes across the state in 2002, and now likely his will be the crucial vote that prevents meaningful tax cuts – something Senate District 37 voters should keep in mind as they head to the polls this fall.

5.6.07

Can electoral considerations save LA ethics bill?

No doubt that certain “supporters” of HB 730 amended it on the Louisiana House of Representatives floor last week, along some members who approved them and the bill as a whole, had the sole intention of trying to sink it later in the legislative process. But their efforts may backfire.

This bill by state Rep. Michael Jackson was to create simple, even innocuous, reporting requirements of legislators. Basically, all it would require them to do is to report contacts or ownership, directly or indirectly, with entities that deal with the state. It was next to nothing in ethics standards, but better than nothing.

On the floor, several amendments broadened the scope to include all state and local officials, even appointed ones, as well as candidates to offices by speeding up the effective date to Aug. 15. It made this a stronger bill, but the motive for many was to make its requirements seem so onerous and unworkable as to give political cover to legislators trying to defeat it.

Surely many House members who didn’t want even the original minimal requirements knew that its next stop was the Senate and Governmental Affairs Committee, which has gained a reputation in recent years under the chairmanship of a regular violator of ethics statutes state Sen. Charles Jones as a graveyard of ethics reform and incubator of measures that serve to increase the amount of potential corruption in the state political system, such as its support of laws designed to impair ballot security at higher taxpayer cost. They hope this committee will do their dirty work for them.

But will it? Senators know that voting against this will look bad to constituents, so anyone gunning for reelection with be hesitant to do so.

If you look at the committee’s composition, only three of its members, Chris Ullo and Noble Ellington with Jones, are term-limited – and Ellington plans to run for a House seat. Reviewing other committee members, it’s unlikely that ex-bagman Cleo Fields would support ethics legislation, but others are running for reelection. It’s possible that since five members are running for election of some sort in the fall, the votes would be there to pass the bill on.

Thus, it may be up to Jones himself to end the life of ethics reform. As chairman, unless the committee majority prefers otherwise, he can simply never bring up the bill. It also could be yanked out of committee by the entire Senate, but while committee and Senate majorities may vote for the bill if presented to them, but they won’t lift a finger to get the vote in front of them. Expect Jones to use his position to strangle even this mild ethics reform, with the blessing of many senators.

4.6.07

Shortfall response testifies to Blanco's lack of leadership

Is there any better illustration about the lack of leadership and refusal to take responsibility by Louisiana state government than how Democrat Gov. Kathleen Blanco proposes to “solve” the Road Home funding crisis?

The program for individual homeowner hurricane recovery looks to be $4.3 billion short, mostly because the state tried to pull a fast one on the federal government by surreptitiously expanding the program beyond the federal government’s intent to fund and shifting federal aid in ways federal law prohibits (the state claims it actually knows federal rules better than federal officials do and that the federal government should have known of these things). Despite being snookered, outraged federal officials and lawmakers kindly have taken the position that a bailout will occur if the state puts up some earnest money.

Blanco, who resisted that idea despite withering criticism, this weekend once again closed the barn door and ran after the horse, suddenly deciding to pledge to make up the shortfall with $718 million of funds – from the state in name only. Turns out they are mainly redirections of other federal funds for other purposes and also the recently waived matching requirement from the federal government for some of the over $60 billion the state has received from the federal government so far in recovery monies.

She complains that the state already has forked over $4.6 billion in its “own” funds to aid in recovery – itself a distortion of the truth. Take the sales tax money collected off the federal tens of billions of dollars, then slice out the state income tax proportion from all the imported workers assisting in the recovery, and you’ll find that’s close to that figure – it became the state’s money to spend only because the federal government made it available in the first place for the state to collect through taxation.

That fact illustrates that much of the state’s huge budget surplus is itself a creation of a bubble economy that already is dissipating. In essence, it’s a one-time bonus, so wouldn’t it make sense to spend it on a one-time thing like the Road Home instead of the pie-in-the-sky budget with large increases in recurring spending being pushed through the Legislature? Remarks to the state Senate Finance Committee by Blanco’s Commissioner of Administration Jerry Luke LeBlanc show just out of touch with reality the Blanco Administration is on this point.

LeBlanc, when asked why not dip into the state surplus for the Road Home shortfall, said “We have 144 members of the Legislature to deal with on that issue ... You don’t know what consensus you can reach.” Perhaps he can be forgiven for having been out of the Legislature for three whole years after a service there of over a decade for forgetting this, but the governor does have something called a line item veto. I’ll walk LeBlanc through this to help him out: Blanco calls in legislative leaders, tells them they had better commit a few hundred million of the surplus to Road Home, or she’ll use her line item veto take out about that much spending (vetoes that will be sustained with GOP legislator help) and then they can all get together in a special session in the middle of election season to dedicate it to the Road Home. She’d have that money set aside faster than it takes her to change her mind.

That’s called leadership, something to which Blanco is unsuited totally. Instead, she and her ilk that comprise the legislative leadership are like bratty, ignorant children who have to be dragged kicking and screaming into place until they do the right thing. The federal government is going to have to be the parent again here, in this case laying down one edict: take the $718 million thus pledged, add the $400 million set aside for the German steel mill that predictably never came to the state, and then it’ll talk about coughing up the rest. So this requires one more dose of tough love for the state government that refuses to grow up and take responsibility for its own actions and fate, instead of blaming others and wanting them to do the real work.

3.6.07

Blanco, GOP play chicken again; will GOP blink this time?

Once again, in a different way than last December, a game of chicken has emerged between the Democrats that control Louisiana’s government and the minority Republican legislators. Last time Gov. Kathleen Blanco blinked. Will the same happen six months later?

In last year’s special session, even as they comprised only about 40 percent of the membership of the House, Louisiana Republicans managed to prevent huge new spending increases sponsored by Blanco and backed by her Democrat legislative leaders because the Louisiana people thoughtfully had amended the state Constitution to prevent growth of government spending faster than growth of the economy. To override this spending cap required a two-thirds vote, and with only a very few Republicans defecting, that spending was defeated.

Six months later, Blanco has used two dynamics to neuter this strategy as she again plans massive spending increases. First, her administration made estimates using methods questionable, if not outright violating, the Constitution to calculate a limit far in excess of the intentions behind that amendment. Second, she shifted monies into almost all of the almost two dozen dedicated funds parts of state spending practice, which do not count against the cap because they technically aren’t spent (but may be for the funds’ purposes starting Jul. 1) – a tactic not really available to her six months ago because the Jul. 1 start of the fiscal year was so far off.

This left the GOP with one recourse where as much as a two-thirds vote was needed – HB 3, the bill that permits the state to borrow money. They defeated it seven votes short of two-thirds, in essence holding over $5 billion in capital outlay requests hostage.

But that sounds more dramatic than it actually is. In reality, perhaps 5 percent of this authorized spending will occur within the next year because the state also has a borrowing limit. Still, it puts a project in a pipeline for money which, more often than not, means it eventually will get funded, even if it’s a decade later.

Drawing closer to state elections this fall than a year ago accentuating the electoral consequences of decisions, more defection among Republicans may occur before their leaders can broker a deal to reduce spending and increase tax cuts in exchange for letting HB 3 go through. The companion bill to it, HB 2, contains some projects that some of the “Republicans in Name Only” who were elected as Democrats who are running for reelection or for Senate seats, such as state Rep. Billy Montgomery, or liberal Republicans like the non-term-limited state Rep. Tom McVea.

Among the seven representative missing the vote, five were Democrats meaning if party loyalty held (not a single Democrat voted against it), there are 68 votes. Both Montgomery and McVea not only voted for HB 3, they also voted against an HB 1 amendment to cut back spending. If these two RINOs fall back into their liberal spending ways, Republicans lose. But if the GOP leadership can minimize the total defections to one, always having at least 36 opposed, they will win for a second time in six months – and again making the people of Louisiana winners against a reckless, out-of-control bloated state government.