That’s the trap state Reps. Thomas Carmody, Cameron Henry,
and John Schroder
have fallen into extending from their critique about one aspect of Gov. Bobby
Jindal’s proposed budget. It concerns two presumed bonuses the state will
collect with their proceeds going to fund higher education.
The state will take
advantage of artificially-low interest rates to refinance indebtedness to pay
off advancement of the tobacco settlement in 2001. Instead of taking some annuitized
payments, the state arranged to take 60 percent of the money up front, or $1.202
billion, three-quarters socked it away in a fund, the Millennium Trust Fund, and
promised to make periodic payments to lenders for getting it earlier. Refinancing
of the bonds to help pay for that will save $85 million, available within the upcoming
fiscal year.
Also, part of the payments coming from the tobacco companies had been withheld as they had accused many states of not doing enough to protect market share. That means they could pay a reduced rate to states like Louisiana, as the settlement payments vary according to sales of the participating companies. Thus, states must enforce vigilantly to make sure non-participants don’t get around tobacco sales payments, as that is grounds for reducing the payments.
But the dispute
was settled late last year, and Louisiana will take its share from escrow
this upcoming fiscal year of $90 million. From this it plans to divert $60
million to higher education, freeing up funds that can be used elsewhere, and
the same amount from the refinancing to do the same. This money would have gone
to paying off Taylor Opportunity Program for Scholars expenses.
This tactic has drawn the
ire of Carmody, Henry, and Schroder, who equate the move with using funds that
will appear only once for continuing operations instead of placing all of them
in the MTF. However, not only is that not actually what is happening, but also it
has them falling into a familiar habit of proposing policy that addresses the
symptoms of rather than the disease that in reality is what creates funding
difficulties.
Their characterization of
the money released from escrow as a one-time benefit is inaccurate. This was
money owed to the state but withheld pending litigation, part of a stream that
will continue until 2023. It is not a windfall, but a revenue stream of varying
predictability no less stable than any of the state’s tax and fee collections.
The only difference is some of it was held back that could have been spent in
previous years which was paid to the state but was not spent due to the
litigation. So while its uses for operating expenses may face political debate
and disagreement (even as it appears to be more
than adequate to service the debt in question), its definition as a
recurring revenue source is unquestioned.
By contrast, the refinancing
truly stands as a windfall: without that action, that money doesn’t appear, nor
will it ever appear again connected to this specific act. So the trio is
accurate on that account, and thereby brings up the question of whether its
expenditure on operating aspects constitutes wise policy. Although it’s not the
first time the state has used refinancing proceeds on this money to fund a
state government program, as the same was done in 2005 to provide money for
small businesses affected by the hurricane disasters. (Interestingly, Treas. John
Kennedy, a critic
of the tactic in 2013, seemed to have no
qualms about it in 2005.)
That question applies as
well to the escrow reimbursement, where the alternative answer provided by the
trio appears to be to place it in the MTF, as they claim otherwise TOPS will
run into deficit. This would be because one-third of the MTF provides some
funding to TOPS from interest derived from the expanding principle that
increases every year due to payments from the tobacco companies, plus all
monies above a $1.38 billion balance also directly flow to TOPS. As the MTF
balance has gone to the $1.5 billion
mark recently, this means the extra money deposited would pass directly through
to TOPS payments now or in the future.
Investments always can go
down, but that means at present $120 million remains available to be allocated
to TOPS, even without a $60 million infusion. Note also to some degree the
mutation of payments into the funds into monies spent on operating expenses
(i.e. TOPS) already has happened with the stricture that everything above the
cap becomes fair game for that. In other words, the idea that any money, regardless
of whether it is recurring, that gets deposited into the fund automatically
gets treated as available for operating expenses, so long as the fund in total
remains above $1.38 billion, has been legitimized already.
This means if Carmody,
Henry, and Schroder argue that, instead of spending the $60 million from refinancing
directly on TOPS that in essence cuts out the middleman of having to dump it
first into the MTF before appropriation, that it get dumped into the MTF and
then an appropriation gets made, they are not supporting some kind of
safeguarding of TOPS from “deficit,” they’re just adding an additional step to
the process. Only by saying it should go to the MTF and stay there (where it
can crank out more interest to pay for TOPS) does that differ in any material
way from what the Jindal budget proposes.
And if
this is the approach they champion, then they neglect proper consideration of
two factors. First, is it wise policy that the state sits on anything more than
$1.38 billion in order to crank out investment interest for use in specified
operational expenses? In fact, all three lawmakers seem to think not: they voted
for the bill that put the change on the ballot. So if they in fact agreed
that payments of any kind, even windfalls, that come into the MTF as long as it
is sufficiently funded, as it is now, should be treated as available to be
spent on operating expenses (given that the public approved of this
possibility), they need to explain why not now.
Second, one reason why these
funds could be crucial to future TOPS funding is that TOPS itself is an overly
generous and potentially unwise use of taxpayer resources. It’s more of an
entitlement program for high school graduates who can get into universities under
the most minimal standards than any scholarship program. As such, it wastes
dollars on marginal and/or unmotivated students, where increasing its standards
would provide much more efficient – and far reduced – expenditures.
Therefore, rather than just adopt
the attitude, as they have seemed to, that the TOPS Fund portion of the MTF
ought to be built up maximally to have its earnings pay for TOPS and leave it
at that, TOPS itself must be reformed to reduce the waste that comes from it
and lower that spending burden. The problem is not that TOPS funding demands in
the future means a more prudent use of the $120 million is to bank it than
spend it this year (the symptom), but that TOPS funding demands stem from
programmatic problems with it, and those need to be dealt with before locking
away any additional resources designed to enable its continuing inefficiency
(the disease).
To summarize, Carmody,
Henry, and Schroder claim $120 million of windfall bonus money is to be spent
on continuing operations, and decry this development as contrary to the health
of TOPS. That’s only true to a limited extent. Half of that money is recurring,
only delayed in its receipt. That and the other half, which is essentially a
kind of investment earning related to TOPS, they propose to be sent to a fund
where that deposit may be allowed to be spent on TOPS continuing operations, a
feature they blessed in concept, to continue to feed an inefficient program in
need of reform.
Ultimately, there is a bit of budget gimmickry involved with half of the
money. But at the same time, withdrawing even just that half does nothing to
make TOPS a better program to enable it to attain self-sufficiency. So while
there is a small degree of merit to their complaint, what they seem to suggest
is no better or wiser than the intended budgetary use. Critiques that aren’t
entirely accurate nor suggest wise alternatives just aren’t very helpful in the
policy-making process.
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