Replenishment, UAL should precede I-49 S completion

No sooner has the good news come in than various parties wish to divide up the fatted calf. Some suggestions to do so are better than others, and they do not include allocating it to more spending on existing programs nor on the idea to expedite completion of the southern segment of Interstate 49.

Louisiana’s Department of Revenue came up with a firm estimate of what it thinks the state’s first round of tax amnesty will hit. The $435 million figure of course must fund the $200 already allocated, plus expenses of $78 million. And since some creditors paid in film tax credits, which represents money that might have been paid in without these but not definitively, as much as $67 million more represented by these could disappear from the final total.

That leaves $90 million, and it is in addition to a projected surplus for this fiscal year just ended estimated at $163 million. But given that the Revenue Estimating Conference, the state board with the authority to determine whether the money represents recurring revenues and therefore rules on whether it can be spent on operating expenses, has signaled it is unlikely to declare the entire lot of it as recurring, this excess probably will be put into the nonrecurring category, limiting its use to a small set of items focused on capital items and long-term liabilities. While creative accounting could try to wash that money into recurring form as previously has been done, alerted to that possibility policy-makers risk raising the ire of any one member of the REC (a decision must be made unanimously or the money never can be used) by such a brazen move, so probably they will accept its declaration as nonrecurring. Again, not using these for operating expenses simply makes good prudent sense, especially as some good portion may have beggared future projected revenues.

Of the small menu of choices for these monies, Treasurer John Kennedy has recommended any extra dollars laying around should go towards completion of I-49 south, intended to bring up to interstate highway standards essentially U.S. Highway 90 that goes from Lafayette to New Orleans through Morgan City. He already has stumped for the majority of the fiscal year 2013-14 surplus to go to this, and that additional capital outlay should be dedicated to it, as about 60 miles of the 160 miles stretch remain uncompleted which could be done at its least expensive for $3 billion even as that means it would still be at least a decade before completion. Kennedy calls this an example of making good priorities.

But while such a suggestion is good politics – Kennedy is mulling a run for the governorship in 2015 and better than half of the state’s voters live from 25 miles south to 75 miles north of the corridor in question – it’s not a good priority. U.S. 90 already in most places is upgraded to a status near to or equal to that of an interstate highway. And it’s essentially duplicative for Lafayette to New Orleans travelers that would slightly relieve traffic congestion going over the Mississippi River Bridge and a few miles to the south in Baton Rouge and the corridor in Jefferson Parish. While that’s improvement, it comes at an extremely high price, both in absolute terms and relative to other priorities, especially as cheaper alternatives exist.

That doesn’t mean finishing the south segment shouldn’t be done ever, just that there should be no rush (unlike with the alacrity concerning the north part, running from Shreveport to the border to connect with the interstate in Arkansas that required a massive upgrade of a two-lane road without any duplicative, alternative route). Instead, a much higher priority item exists – fulfilling a legal requirement that the state refill its “rainy day” fund.

Because of legal machinations that drained money from the Budget Stabilization Fund in a way later determined constitutionally questionable, the state is obligated legally over the next two budget cycles to deposit $330 million into that account. If in fact the surrendered film credits over the next two years end up that they would have shielded their entire face value from being collected (and the REC recognizes them as such), the surplus from last fiscal year and what is anticipated to be left over from this year’s amnesty can pay for this deposit. Even if the returned credits don’t get accounted in this way, future amnesty proceeds can help accomplish this. And whatever is left over then can be put forward to finishing I-49 South.

Wrapping that up quickly is the flashy political solution. But the prudent fiscal solution is to put that on the backburner and use any surplus proceeds over from the past year and next three (the amnesty provision comes into effect again each of the next two years) to address much more pressing needs such as the BSF deposit requirement, or perhaps next in line the unfunded accrued liabilities the state faces for its pension systems, at $19.3 billion now (even as market gains and state hospital operation privatization have reduced that amount from where it could have been, it’s a long ways to go and cost-of-living-adjustments contemplated for those drawing them would reduce the margin for error). And any action on operating expenses should wait until the future and regular budgeting process when any trend of increased overall revenues that appears to have begun becomes more well-defined.