Budget hawks disavow one-time money but use it anyway

A glimmer of hope has emerged from the posturing surrounding disposition of Louisiana’s fiscal year 2013 budget, with irony and hypocrisy again playing leading roles in the product.

When the legislative regular session commenced, the budget was balanced using $230 million in “one-time” money, which are nonrecurring dollars available for a particular purpose that may come from a number of sources, but mostly from a “funds sweep.” With around 300 constitutional and statutory dedications, almost 70 percent of revenues from state-collected sources are funneled to specific purposes, not all of which are appropriated now or, in some cases, will be even in the distant future. For just about all of these, as long as a positive balance remains after subtracting budgeted funds to be spent for the actual purpose of the fund (if there is one for the state; some are essentially agency accounts for public or quasi-public entity), the state may scoop money out of them and supplement the general fund with this.

In the course of the session, however, a later revenue forecast, on which the budget legally must be based, plus some smaller adjustments eventually pushed another $220 million of deficit into the budget. This created a political problem, because of a House of Representative rule that reads with a decline in year-over-year general fund spending (as in this case), the use of one-time money may be only be up to the amount of the increase in general fund receipts, which was then $377.5 million, unless authorized by a two-thirds vote. Not only did the new amount of $450 million as gap exceed the previous cutoff point if only one-time funds were used with no cuts, the point itself dropped by the forecasted lower amount of $210.5 million, meaning just $167 million could be used without the supermajority.

And, in this past week’s budgetary deliberation, not only did the supermajority prove not forthcoming in the House, a significant portion of it, most of the Republicans, decided to swing for the fences and get rid of all one-time money of this nature in the budget by a separate simple majority vote. In addition, in a major sign of progression, they actually started to show some political responsibility and courage in doing it in injecting some specificity into the solving for the shortfall of current general fund revenues.

Typically in the past, legislators would evade as much as possible any blame for reductions that would occur by simply plunking an amount of unspecified cuts to occur and ordering the commissioner of administration to make them. Then they could proclaim they had balanced the budget, perhaps even made cuts in its size, but still deflect the practical consequences onto the executive branch by telling complaining constituents that it decided on those. That happened again earlier in this year’s process, with a passage in the general appropriations bill HB 1 directing the commissioner Paul Rainwater to slice $43 million out.

Yet this time they took minor responsibility in actually specifying some areas and dollar amounts which, after subsequent amendment, left the options (dollar amounts in parentheses) of reducing proposed enhancements ($16,128,267), reducing funding for vacant positions ($44,241,500), out-of-state and conference travel, supplies, acquisitions ($41,616,055), reducing professional, personal, and consulting service contracts ($75,000,000), furloughing employees for two calendar days, as presented by appointing authorities and approved by the Department of Civil Service ($16,000,000), reducing employee overtime pay ($19,750,000),  and incorporating a five percent reduction to personnel costs for those employees who rank in the top fifty percent of salaries within the organizational unit in which the reductions will be made with priority given to those who are eligible for retirement, if such retirement benefits will yield ninety percent of their current salary, or if they have less than five people that report directly to them ($55,000,000). This totals the roughly $267.7 million identified as one-time money.

OK, but if you back out what had been $230 million in one-time money and added $220 million more, you’re still $182.3 million in the hole. To deal with that, the House lopped off 10 percent of the legislative budget as contained in HB 1044, or $6.9 million (at least on this it practices what it preaches). With the previous $43 million and $10.2 million of premium savings from privatizing administration of the state’s Preferred Provider Organization for its employees and retirees, this left $122.2 million.

This remainder was filled by … guess what, one-time money. Even as self-proclaimed fiscal conservatives railed against its use and tried to convince the public (and appeared to fool Sen. David Vitter) to think they had eliminated it, they kept two glaring examples of that kind of money in it. In a sleight-of-hand maneuver featuring HB 822, they shifted $35 million projected from the sale or lease of the New Orleans Adolescent Hospital into the budget. They also instructed the commissioner to reduce “the appropriation out of [sic] state general fund by statutory dedications out of each fund by 10% of the appropriation from such fund contained in the Original version of this Act, and incorporated in the statutory dedication calculation in the official forecast as recurring revenues, to effectuate a total reduction of $70,751,629,” and then listed several funds that were exceptions to this rule (or else it would have been quite a bit higher). That’s a funds sweep by any other name, with the remainder being made up of leftovers from the bill dedicated to that, HB 1059, and HB 822.

All right, yet what’s a little hypocrisy when you get the job done? But the problem is that the job wasn’t done.  Rainwater identified some holes in the tactical cuts authorized presently in HB 1. He argued that, for example, funding of vacant positions already largely had been eliminated, and that the contract cut represented 80 percent of those funded through the general fund. (For his part, Treasurer John Kennedy cheered these on, as they represented a manifestation of the intent behind a pair of bills he supports that passed out of House committee this week.) So there’s a real question of the practicality of cuts being made in a way, to paraphrase HB 1, that no “critical” services are eliminated.

Unfortunately, it all comes back to a number of individuals in the House who hold themselves out as budget hawks but who in reality are chicken hawks on this issue. Instead of actually doing the necessary reform work – risky for their reelection chances because they will alienate some constituencies in the process and will have to take greater public responsibility for budget-cutting decisions they make – they rail against a system they could change but don’t because of the hard choices it involves. This episode – sackcloth-and-ashes obloquies against one-time money, yet obscuring its use in a way that tricks the public, mainstream media, and other politicians – shows just one more example of this tendency. Worst of all, by tolerating the present straitjacketed system, they only assist in perpetuation of the myth that Louisiana does not collect enough revenues, when in fact it collects more than enough of them but in an inefficient way that does not match money to priority properly.

If these self-anointed fiscal conservatives really want to walk the walk and not just talk the talk, if they want to be the solution rather than generate sound bites to further their political careers, they would, in the next three weeks, admit and announce their willingness to use some one-time money this year, with the provision between now and next year they will review the most questionable of dedicated funding streams with the goal of eliminating many in next year’s session in time for the following fiscal year’s budgeting. Further, this pledge will notify the state that they will take seriously and continue this process annually courtesy of the law that is to encourage this review. With not as much incoming money diverted away from the general fund to places where it just sits, or not collected from the nongovernment world for nongovernment purposes, more will be available to be steered to activities of genuine need. That HB 1 contains a mini-version of this approach with the 10 percent fund retraction may indicate legislators finally are getting it through their heads to take this course of action.

In the meantime, the commissioner can follow the practical instructions in HB 1 to make reductions in noncritical, lower priority activities, up to the $167 million level left for one-time money usage. Better would be for the $43 million instructed as unrestricted cuts to be rescinded and replaced with more one-time bucks requiring a two-thirds assent or from the Budget Stabilization Fund (it also requires a two-thirds vote for usage) as these also will produce some problems in implementation (a subject for another post).

One can appreciate the desire of many in the House – perhaps numbering a majority – to tackle the slimmer but still bloated state government’s size. A dieting strategy resulting from slow growth of state revenues will get the job done if designed intelligently. But inducing starvation neither is an intelligent approach nor should serve as cover to avoid difficult decisions in a quest to burnish political images.