Edwards outlay strategy complements tax hike desire

Yesterday this space reviewed a motivation for Gov. John Bel Edwards’ declaration that he would aim for only larger projects, not local ones, comprising Louisiana’s capital outlay spending for the future. He may have another related one up his sleeve.

By making this proclamation, Edwards may acknowledge political realities, in that, unlike past governors, he has no guarantee that he can summon majorities on the State Bond Commission. If unable to do that, he cannot use his influence over the body to have it decide as he wishes, meaning he cannot promise project approvals to specific legislators in exchange for their support on other issues. Thus, he may accrue more political capital by declaring his unwillingness to trade projects for other legislation in favor of concentrating on whittling down the considerable statewide project backlog.

But by making this switch, he also bolsters the chance of achieving another policy objective of his, growing government. Constitutionally and statutorily, Louisiana only may borrow up to six percent of its net tax supported debt, defined as revenues that flow into the general fund and from all dedicated revenues that go into their particular funds but not including federal funds or undedicated self-generated revenues. Two-thirds majorities of both legislative chambers may override the limit for a specific project.

Therefore, while policy changes such as increases in higher education tuition and fees would not count for the computation, higher tax rates would. So by emphasizing greater urgency in reducing the queue of projects, Edwards creates another justification for tax increases, arguing this would produce larger borrowing power. He gets two-for-one expansion this way: government building more things and faster, and more resources to back more government activity, such as greater ability to redistribute wealth.

He maximizes the possibility by stumping for the larger statewide projects. Local projects typically need less financing, so with a lower limit having more available smaller projects juggling among them to stay under it becomes easier. Replace many of these with a few large ones and it becomes more difficult to fit in those. This issue has developed recently as Louisiana has found it necessary to borrow close to the limit given the necessity, due to the sheer bulk of needs and aging of assets, to finish as many as quickly as possible.

So by throwing his efforts behind large projects, Edwards creates more pressure for tax increases that would grow government both in operating terms and in capital outlay terms. If the state begins to bump up against its dollar limit – which can decrease if the eligible revenues fall as a result of declining economic fortunes or if refinancing to capture money now for recurring expenses inflates future debt, as Edwards just did with legislative approval – he can argue tax increases instead of parsimony in borrowing could alleviate the difficulty.

Look for this strategy coming from the Capitol’s fourth floor in the future. The Edwards Administration will not admit it publicly, but this idea will guide its pronouncements that the state needs to eat more quickly into the approved list of $3.7 billion than allows the couple of hundred million typically allocated annually over the past few years. Economic growth would provide a better source of borrowing capacity, and that won’t come through higher taxes.