More symptoms appear; LA instead must treat disease

Yesterday a number of policy developments around Louisiana demonstrated why the state lags the country in so many ways. Disparate as they were, they share they common element that temptation to treat symptoms lets the disease rage on.

A legislative panel was told that the special TIMED tax of 4 cents per gallon of gas collected for the past 20 years still will not be enough to finish the 16 special projects the extra tax is supposed to fund. It appears one cent now will have to be diverted from the regular 16 cents per gallon tax for the next 35 years and maybe even beyond to pay off bonds issued to complete all but two projects by 2013 – at least an extra $1 billion that could have gone to other roads, and it still leaves off two projects.

Another panel heard about how local government retirees were unlikely to receive cost-of-living-adjustments because of the chronic underfunding of many state retirement funds. The latest estimates put the combined figure in the neighborhood of $12 billion, which constitutionally must be eliminated by 2029. As part of that amendment, retirees can’t get a COLA if a certain proportional target isn’t met annually towards fully funding by the target date. This may be met by a combination of actuarial dynamics, transfer of additional money into the system by the Legislature, or superior investment returns. With investments doing poorly in the current market environment, this may prevent COLAs for years.

And announced by the LSU System was the full extent of budget cuts under the most draconian assumptions which were said to impair significantly the quality of higher education in that system. These are foisted onto higher education because of constitutional and legal restrictions relevant to deficit avoidance that make it, in relative terms of its portion of the budget at risk, the most vulnerable function of state government when revenues slack.

There are solutions to each of these difficulties. Money can be diverted from the regular road fund to TIMED. The Legislature can override the prohibition of a COLA in order to not make those about to retire victims of bad timing. Creative budgetary maneuvers can reduce the impact on higher education, but to go without cuts or even accepting cuts that are not significant, only tax increases could fill the gap.

But recognize that all of these palliatives address symptoms of the larger disease, which is and has been in Louisiana for the better part of a century poor choices related to the purposes of raising revenue and spending them by the government. These policy responses in no way address, and even exacerbate, this fundamental shortcoming to which only recently has come slow change.

In the case of roads, there is no way that monetary inflation alone can explain how a set of projects has better than quadrupled in cost over 20 years (one, the Huey P. Long bridge, is now 20 times more expensive – meaning every year since the project was on the boards its costs have gone up by the original total amount). Only a combination of mismanagement and/or fraud could explain this stunning escalation. And so much money that could have gone to roads has been wasted on idiocy such as reservoirs that allowed, the state alleges, local government officials and their agents to corruptly profit on this.

Regarding pension COLAs, the fact is until recently Louisiana offered extremely generous benefits particularly in the area of retirement, only some years ago being reduced to just very generous (not just in terms of amounts, but in coverage such as allowing part-timers like elected officials to be in it). Reckless promises were made, and since 1986 the Legislature has made little effort to shore up the unfunded portion despite full knowledge of it. Here again, rather than pay for horse barns money could have gone to real needs.

Finally, with higher education the legal constraints are just part of larger problem of a state set of ethics, regulatory, and fiscal structures which historically have created disincentives for economic development. This means state revenues that provide the majority of funding for it are lower than they could have been, constricting provision of this good and inviting a response of raising taxes to compensate – which only aggravates the situation by choking off growth even further and perpetuating the cycle of trying to feed the golden goose of economic development by killing it.

All of these problems are coming home to roost, and the only solution in the short term that will not create problems in the longer term is to tighten belts. In the long term, the slow shift of attitudes from big government being the solution to problems to big government being the problem must continue if not accelerate. This alteration may cause short-term pain, but would be more than compensated for by long-term gain.