Trends, creative policy obviate Caddo jail expansions

When the Caddo Correctional Center opened in 1996, not only was it state of the art in terms of design, it greatly increased the capacity of the parish to hold inmates. A dozen years later, statistics show it’s bursting at the seams and the parish and Sheriff Steve Prator have to deal with this public policy issue. Understanding why this has happened reveals the best way of doing so.

Actually, when reviewing some indicators, it seems odd that there is overcrowding when one might expect the opposite. Despite the rhetoric of politicians, the largest contributor to aggregate crime has little to do with policy: it’s demographic factors. Simply, people of a certain gender – male – and of a certain age grouping – young adults – are significantly disproportionately likely to commit crime. To specify, the proportion of males 18-24 years old in a population explains much of the variance in terms of commission of crime.

As crime rates in America fell in throughout the 1980s and 1990s and politicians took credit for it, what went unmentioned was the main reason was the dramatic decrease of young adult males relative to the rest of the population. They comprised 6.65 percent in 1980, but by 1990 only 5.52 percent and in 2000 were down to 4.93 percent. The estimate nationally for 2006 ticked up to 5.07 percent but 2010 projections fall to 5.05 percent and to 4.75 percent by 2015. Louisiana mirrors the trend: 5.25 percent of its population fell in this category in 2000 but only 5.12 percent is projected by 2010. So does Caddo Parish: its proportion of the category was only 3.93 percent in 2000 and was estimated at 3.72 percent in 2006.

Good tax cut, after dodging red herrings, finally likely

In the wake of the presumptive tax cut coming the way of the majority of Louisianan payers, it’s important to understand what was debated in the House of Representatives, why it got there, and the implications of the passage of the bill in its final House form.

SB 87 by Republican state Sen. Buddy Shaw came out almost the way it went into the legislative process, but it took a tremendous detour to get there. Originally, it would have raised the individual income taxation threshold at which people begin paying the state's top 6 percent rate from $25,000 to $50,000 for single filers and from $50,000 to $100,000 for joint filers. This would expand the middle 4 percent rate from a range of $12,500 to $50,000 for single filers and $25,000 to $100,000 for joint filers while the lowest 2 percent rate would remain in the ranges of $0 to $12,500 for single filers and $0 to $25,000 for joint filers. These would have taken effect for the 2008 tax year.

Instead, the Senate, apparently unopposed by Republican Gov. Bobby Jindal, changed it to wipe out all individual income taxes in a decade. Many “supporters” cynically wanted this change to poison the bill so much as to force Jindal to veto it if it made it that far. The House was left with the task of dealing with it, shaped by Jindal’s announcement, who initially had opposed it, to support it in its original form. But the one concession made was that it was to take effect in tax year 2009, since both Jindal and the House leadership helmed by Republican Speaker Jim Tucker worried about the short-term impact on the budget when deficits are forecast for the next few years.

Adley finding tough sledding on outlay, gas contract

State Sen. Robert Adley has had a bit of a rough time lately, and it might get worse as the 2008 Regular Session of the Louisiana Legislature rolls on.

For years, Adley has wanted to change the capital budgeting process of Louisiana which presently involves a chaotic, hyper-political, and unrealistic production of items which allows for only a small portion of what actually is requested to get funded and ends up leaving the real decision into what gets funded effectively in the hands of the governor. Adley wanted to simplify the process with his SB 1 which would create a more rational categorization system, force a five-year plan, and ensure most are state items and for those that aren’t mandate local support of most.

But his bill got shunted aside by SB 808 authored by the guy who leapfrogged him (Adley is vice chairman) to be chairman of the Senate Revenue and Fiscal Affairs Committee, state Sen. Rob Marionneaux. This bill was pretty similar but Adley proposed tow changes. One would have legislative committees vet requests going to the State Bond Commission for final approval. Since in the past the Legislature sends a bloated capital outlay bill to the governor, in practice he brings forward to the Commission, on which a majority of his allies sit, the “official” list that is at or under the current mandated $200 million limit (adjusted by funds not spent for prior-approved projects, and by inflation which put last year's figure at about $267 million). This is why the governor has so much power over the final composition of the bill, and Adley’s idea was to check this by this provision; SB 808 has no such requirement.

In addition, Adley wanted to set a cap of 140 percent on the mandated limit (which would increase by the rate of inflation) in another attempt to curb gubernatorial discretion by limiting the potential amount of choices the governor in practice would make; no cap currently exists and neither does SB 808 have one. Adley tried and narrowly failed to amend SB 808 into this form, sulkily declared the final product “fluff,” and was one of three senators to vote against it.

But Adley’s pique was more about cosmetics than any real issue. His plan had real separation of powers issues that might have proven unconstitutional in practice. Further, the Legislature already has the power to control completely the capital outlay process: it simply should include projects only up to the limit, leaving the governor only with the option to exercise a line-item or full veto, both of which can be overriden. Adley was trying to legislate willpower into the Legislature using dubious constitutional means.

And it might get worse for him, as a pair of little-known bills threatens to put his relationship to a number of state entities into a potentially uncomfortable spotlight. HB 1221 by state Rep. Brett Geymann and SB 767 by Marionneaux would allow a local government to withdraw expeditiously from participation in the Louisiana Municipal Natural Gas Purchasing and Distribution Authority. The bills were brought precisely because one such government is trying to leave the 67-member organization (109 Louisiana local governments provide gas utilities) which is dragging its heels on that.

The organization contracts out its management to Pelican Gas Management, owned and operated by … Adley, for going on 15 years. Westlake thinks Pelican’s management leaves too many liability issues due to its small size. This didn’t seem to concern a majority of the Authority’s members; in fact, this spring (a month after the Legislature’s special session devoted to ethics) it skipped sending out bids for the management contract and went with a no bid contract renewal for Pelican, despite concerns from some members that they could get a better price through competitive bidding and whether Adley’s involvement ran afoul of the new ethics laws.

Instead, as other entities have begun expressing desires to leave the Authority, one member chastised others for referring to Adley as “Sen.” – even though the organization’s communicated materials are replete with references to his title. To make matters more interesting, the Authority actually is a creature of the Louisiana Municipal Association which represents the state’s municipalities – whose member governments must go through Adley’s committee to get capital outlay funds and whose employees, for ethics purposes in dealing with the Authority, are considered public employees.

Adley’s fiduciary relationship and activities with the state appear perfectly legal and ethical. At the same time, this raises questions of propriety that a state senator, the vice chairman of a committee with power over local governments no less, whose company is involved in a noncompetitive contract of substantial size ($400,000 last year) with groups comprised of these governments, ought to be in this kind of relationship. Whether Adley wants it, this question may surface as these bills make their legislative treks and as the Authority’s membership controversy continues.

Panels disapprove tax rebate, approve hiking debt limit

There is a fair amount of sentiment in favor of raising Louisiana legislators’ salaries among them. But it’s hard to justify them earning what they currently do when they end up making bonehead decisions about the mechanics of their job in the first place, as illustrated in recent committee decisions.

The House Appropriations Committee rejected the idea behind HB 834 by state Rep. Rickey Nowlin, which would give lawmakers a seventh option for dealing with declared nonrecurring surpluses of money from a forecast by the Revenue Estimating Conference. Presently, such money cannot be used for a direct rebate to taxpayers (there actually are cumbersome indirect ways to do it dependent upon the state having debt, but these violate the spirit of the Constitution).

The bill would have allowed it, yet the panel shot it down amid discussion about how pressing needs for spending the money were elsewhere. But what in the world was wrong with giving future legislators at least the option of doing this? It’s not like the bill would put a gun to the heads of legislators to force them to utilize tax rebates. Further, it was to be a constitutional amendment requiring affirmative vote of the people, so why not pass it and give them the opportunity to determine whether legislators should have the option? It’s almost as if present legislators were scared of being given the freedom to and having to make the choice to return the people’s money to them.

To make matters worse, other representatives wanted to allow the state to play a shell game with reporting the amount of debt the state owed as well as finding a away to circumvent the state’s debt ceiling. SB 796 by state Sen. Joe McPherson would remove from official debt calculations, which are used to determine how much debt can be issued subject to a six percent limit of revenues estimated by the Conference for the year of all outstanding debt during that year, any debt that has a dedicated revenue stream courtesy of a statewide vote. Practically speaking only the TIMED program for highway construction fall under this criterion presently, financed by a four cent a gallon sales tax, but that comprises roughly half of the debt currently being issued every year.

McPherson asserts that the change will not substantially increase the amount of debt the state would be able to issue. This is because the bill in essence creates a higher ceiling allowing the issuance of more debt, but that issuing too much debt should not be a concern since the state is well under the six percent ceiling presently and that its self-imposed limit (currently about $267 million) of per-year non-emergency general obligation bonds which is how capital outlay projects are other than TIMED projects are funded, so provisions like these will keep a lid on things.

But what McPherson doesn’t mention is that the Legislature could get rid of its self-imposition at any time since the general obligation bond limit is by statute unlike the six percent constitutional limit and then go on a borrowing spree facilitated by this change. Further, projections are that, especially with disaster relief-related bonds issued in the past couple of years and in the future, by 2015-2016 the state will be close to bumping up against the limit. Changing the definition would allow billions more of debt to be issued beyond the current limit as TIMED, which historically has run well behind schedule, may well continue past this date.

But as objectionable is the fact that, for legal purposes, the bill would try to call something a thing that it isn’t. As House Ways and Means Committee Chairman state Rep. Hunter Greene told McPherson, “debt is debt.” No matter how it is funded, borrowed money is just that and it is semantically irresponsible to call it anything but. For his part, McPherson railed about “irresponsibility” of some lawmakers’ statements but mainly of reporters who would file stories about the state’s per capita debt that included TIMED debt, saying it misrepresented the situation.

Actually, it is McPherson whose idea here would misrepresent. Greene, among others, subtly suggested that maybe reports issued by the state should include debt as presently defined and then broken down into revenue-supported and not, but in the end while he and several committee members voted against the bill, it eked out an 8-6 win. The good news is that if such a division translates into the House vote, it will fail as changing the definition according to the Constitution would require a two-thirds vote.

Still, it is disappointing that legislators to date would act to limit their options that could increase chances of the people retaining their own money while simultaneously practicing subterfuge concerning the real amount of debt issued by the state. Both separately are more than sufficient reasons to explain why legislators do not deserve a pay raise, if not to question whether they deserve to be paid at the rate they draw presently.

Bills distract from necessity of disability spending reform

Nursing home operators, long the taxpayers’ worst nightmare in Louisiana, continue to fight behind the scenes to protect their power and privilege by supporting bills this legislative session that could distract policy-makers from the necessary goal of spending a greater portion of long-term health care dollars on less-expensive, more effective community- and home-based care and less of it on inefficient institutionalization care.

HB 1273 by House Speaker Jim Tucker would have the Department of Health and Hospitals study waiver programs to Medicaid that allows for home- and community-based care instead of institutionalization, as well as implement decisions The waiver programs cost substantially less and for all but the most incapacitated people provide more opportunity for individualized, superior care than by being institutionalization in private sector nursing homes, and produce even greater savings for most than residence in a state-run developmental center.

The bill asks for formulation of cost-savings measures in operation of the waiver programs. No doubt a study would provide some good information in this regard in terms of ensuring only those who truly have substantial, qualifying disabilities receive waivers and that agencies providing for these needs do so efficiently. But Tucker and other lawmakers seem oblivious to the real problem of escalating costs in nursing home payments and they ignore the Louisiana Legislative Auditor’s report of a few years ago that showed back then just a few simple changes to reflect best practices in reimbursement would save the state nearly $100 million. (Instead, the Legislature responded by writing the wasteful standards into law.)

If Tucker and lawmakers are serious about controlling the costs of health care provision to our most vulnerable citizens, they would pass legislation instructing these kinds of guidelines be formulated and implemented by DHH for institutionalized care in the state. There’s still time to amend HB 1273 to do so but nursing home interests would fight this because in its present form it takes the heat off of them.

The same logic applies to HB 914 by Rep. Jim Fannin. It would alter last year’s successful legislation that automatically deploys a portion of a declared non-recurring budgetary surplus to working on funding the backlog of New Opportunities Waivers that allow for the more severely disabled to receive residential care outside of institutions and to be able to work as a result, contributing their talents to society, productivity to the economy, and tax dollars to the state Treasury. Last year’s law mandates surplus money goes to create new slots to work on the backlog approaching 12,000; this change would allow these funds to be used also to support previous slot commitments meaning the backlog not necessarily would be addressed.

There is a rationale to the bill, as current law does not provide a new revenue source to sustain the new slots after they come into being paid for the first year by the one-time surplus money. Thus, the Legislature would have discretion in choosing whether to add new slots or fund existing one. But it would only perpetuate the same problem of not encouraging the state to wean itself from more expensive institutional-based care – the goal of nursing homes – and allowing the fix to the underfinanced waiver system to continue to be based on one-time funds. (The state is legally compelled to make this transition by its settlement in the Barthelemy case.) For this reason, HB 914 really does nothing and should be dispensed with.

The real problem, of course, is that the state’s nursing homes want to keep the gravy train rolling for them by continuing to have people who could be better and more inexpensively served by waiver programs to be warehoused into nursing homes. Supporting this legislation in its current form attacks the competing, more efficient use of taxpayers’ dollars in order to prop up their overbuilt industry. If they really want to provide most effectively to the state’s neediest and most efficiently to taxpayers, legislators need to understand this and to alter HB 1273 accordingly while letting HB 914 quietly expire.

Argument against tax cut misunderstands economics

While the Public Affairs Research Council of Louisiana often has intelligent things to say about public policy in the state, it’s clear not only that it doesn’t know a whole lot about economics and human behavior and/or cannot think logically about these issues, but that it may see itself more as a representative of big business interests than it does the people of the state.

That’s the best one can make of its recent statement that Louisiana would act unwisely in passing SB 87 by state Sen. Buddy Shaw into law. The bill would cut taxes for middle class taxpayers and his estimated to reduce in its first year government personal income tax revenues by about $300 million (as it is intended to be amended when it appears on the floor of the House this week).

PAR says that would create a risky gap in a budget that is forecast to lose overall revenues and faces some increased spending over the next few years, an assessment consistent with past estimations of the Gov. Bobby Jindal Administration. That surface analysis, however, lacks sophistication and logic.

Part of PAR’s problem may be that its analysts do not accept the economic verity of what has come to be called the Laffer Curve. The straightforward idea is that overall taxation after a certain point becomes onerous enough that marginal increases in taxation levels begin to exceed the marginal increases in revenues derived. This is because higher rates discourage use of money for productive purposes because they reduce the rate of return investors/producers feel are necessary to offset the risk of the incremental investment. The reverse implication is that a reduction of rates can produce, as lower rates remove funds from less-efficient government use and increase relatives rates of returns, over time more revenues for government from taxation of a larger economic base than higher rates would squeeze from a base made smaller because of those higher rates.

Crucial to appropriate policy for Louisiana would be where the state resides on the curve presently – either on the left side where taxation is so low that it wouldn’t discourage investment much or put too much money into inefficient government, or on the right where taxation that is too high does discourage and remove too much money from the private sector. One indicator is whether tax policy alterations change the rate of increase in individual income tax collections relative to the overall change of the rate in increase in gross state product – the economic output of the state’s production.

From 1990 to 2002, before the “Stelly Plan” change that raised taxes on all but the lowest level of taxpayers, Louisiana’s GSP went from $91.4 billion to $134.6 billion, while its individual income tax collections went from $677 million to $1.789 billion – increases of about 50 percent and over 250 percent, respectively. But through 2006, the increases to $193.1 billion and $2.512 billion are about the same rate, just above 40 percent. This means the state is on the “wrong” side of the curve, since lower taxes had the economy grow faster and thereby got income tax revenues to grow at a faster rate.

However, PAR may recognize that a cut in marginal tax rates for middle class families will, in a few years, increase revenues beyond what would have been collected at the higher rate. Instead, they may think that the relative variability of other revenues may be such that even a tax cut that recoups revenue in a few years might contain too much risk on the front end if other revenues sources prove unstable, such as severance taxes. This is an argument of greater validity but still wanting. Any difficulties would be short term in nature and there are devices to counteract them, such as tapping the Budget Stabilization Fund, or budget cutting which already is being discussed even in these apparent flush times.

Interestingly, PAR was all in favor of reducing business taxes during the second special session despite the misgivings it now seems to have in removing revenue from government. Even thought the amount believed to be forgone was lower at $110 million for next year, individual income tax cuts probably have the potential of greater growth for the economy since they go to residents while many benefits from the elimination of three business taxes will go to out-of-state sources. One wonders whether PAR has not confused itself with the leading lobby for business in the state, the Louisiana Association for Business and Industry.

Even if it has its identity straight, it certainly is confused on economics. The only reason not to pass the original SB 87 into law would be if the budget situation is so dire that it cannot be risked even in the short term, given the options to address it. No persuasive argument has been made by PAR or anybody else on this account. Thus we must disregard such arguments in light of the realities of economics that argue for passage of SB 87.