Both sides right in politically-tinged surplus funds dispute

Take an isolated passage of an arcane bill, throw in even more arcane constitutional requirements, and stir in future gubernatorial politics to get a delightful concoction of controversy over the disposition of an apparent fiscal windfall coming Louisiana’s way.

Last month, the state reported that it expected that income tax collections would be up over $212 million over what was forecast for the past fiscal year, although when netting out other things the expected excess would be $130 million. In legal terms, this becomes reality only after the Revenue Estimating Conference recognizes it, with its next meeting set for the middle of December. Normally, as long as the bonus is from recurring sources and not over the state expenditure limit, as would be in this case, the state is free to spend it as it likes.

The Gov. Bobby Jindal Administration has plans for $94 million of it, to finance a gap in cuts triggered in the state health care system by a sudden decision by the federal government to stop paying the state excess Medicaid funds, just after the new fiscal year began Jul. 1. Unless $94 million materializes one way or the other, further cuts will have to be made that already have generated plenty of controversy. But a dispute has arisen over whether an appropriations bill to fund this year’s budget allows this.

Act 597 from last session, best known as the vehicle that allowed for the sweep of a couple of hundred million dollars of “one-time money” to balance this year’s budget, also included a provision intended to placate the opponents to another budgetary maneuver, tapping the state’s Budget Stabilization Fund or savings account. Section 4 instructs the state treasurer, to the tune of the $204.7 million of money disgorged from the BSF, to “deposit into the [Budget Stabilization Replenishment F]und the difference between the official forecast of revenue available for expenditures for Fiscal Year 2011-2012 adopted by the Revenue Estimating Conference on April 24, 2012, and actual collections of revenue  available for expenditures in Fiscal Year 2011-2012.” Anything this new vessel captured was supposed to go to back to the BSF, presumably at the end of a fiscal year.

The bill’s author, state Rep. Jim Fannin, pointed out that neither a portion nor the entirety of any recognized excess funds less than $204.7 million in the previous fiscal year could go to spending in place of the replenishment tactic. Commissioner of Administration Paul Rainwater disagreed, saying the provision expired at the end of the fiscal year relative to the money. To make matters even more interesting, Treasurer John Kennedy, almost a certain candidate for governor in 2015, concurred with Fannin.

Yet determining who is correct rests upon the intricacies of the REC’s functioning. Note again that any “difference” becomes reality only when the REC rules that way. It is composed of the Speaker of the House, the President of the Senate, the governor, and a university faculty member in economics, or the designees of all except the latter. There’s nothing that requires them to recognize any thing at any time, and historically their panel has not done so when it has determined a wait-and-see attitude was appropriate.

So, Rainwater could be correct, if the REC decided when it was going to act on the matter to recognize the excess revenues in fiscal year 2012-13, rather than FY 2012, despite the fact it seems they came in temporally before Jun. 30, 2012. Whether the REC would shunt the funds a year ahead is another matter, but it would be entirely legal for it to do so. Or, it could wait many months and see how the revenue picture developed, to figure out whether the $94 million might get made up in FY 2013 excess funds, before recognizing this $130 million as FY 2012 thereby plopping that into the fund.

Whether the REC would pursue these options is another matter. Pressure by fiscal conservatives in both chambers who had stumped for the section in Act 597 may cause the chamber leaders not to want to front-date revenues or to wait on recognition. The independent economist James Richardson may look askance at the creative timing involved, and REC decisions must be made unanimously. Still, this would mean that Jindal, or in reality Rainwater as the commissioner typically attends REC meetings, as the gubernatorial designee, could veto any attempt to recognize the money in FY 2012 or, more likely, press for delay.

By delaying, which carries no budget consequences as balances are sufficient to carry the state the entire year and legally the REC has until the end of the fiscal year to recognize for that fiscal year, either the problem solves itself or pressure could be put on the Legislature to pass a statute in next spring’s session undoing the relevant part of 2012’s Act 597. So, the only way this could blow up for Jindal would be if at least one other member of the REC insisted on FY 2012 recognition throughout FY 2013, and the Legislature refused to undo, and state revenues did not pick up $94 million worth (or another figure, depending on how reductions worked, which also if they end up saving more than anticipated could moot the issue) by Jun. 30. 2013.

Perhaps most interesting will be Kennedy’s reaction to the unfolding drama. No doubt he was stung by a recent (and way early) poll of the next governor’s contest that had him with a number of also-rans far behind the two frontrunners, one of which, Sen. David Vitter, if he chose to run looks like a solid favorite in the race. In order to gain any traction against Vitter, or if the senator stays put in Washington then to separate himself from others, Kennedy may have to employ a tactic familiar to him, publicize all sorts of issues that are tangentially- to un-related to his current office prior to any formal announcement that he will run for something else. Thus, we may be hearing a lot out of him on this, and probably the longer it drags on, the more of it.