Preserve fiscal bonus to pay looming LA debts

So, you get handed around nearly $700 million and are told you can spend almost half of it on anything over the next year starting Jul. 1, and the rest you can spend now on capital items and/or defeasance of various obligations. Louisiana has encountered such a bonus, and must act wisely with it to avoid future fiscal catastophe, which runs against type.

Last week’s Revenue Estimating Conference meeting approved fiscal forecasts of a $357 million surplus for this fiscal year and of $320 million for the next. The lagniappe came from better-than-expected, even if relatively weak, revenue collection from very conservative past estimation taking into account the impact of the Wuhan coronavirus pandemic.

The Democrat Gov. John Bel Edwards Administration wants to speak for the sums, but at least doesn’t want to fritter away all of it. As the larger amount can’t go towards recurring items, it recommends adding it to $45 million already apportioned by the House to make an initial $400 million payment on a hurricane and flood protection rebuild and enhancement in the southeastern part of the state. In the aftermath of the hurricane disasters of 2005, the state pledged to pay for 35 percent of the cost of repairing this system that would be interest-free for another year if making a payment of that amount by the end of September.

Another option would issue bonds to cover the amount, but then interest would come due on that and reduce capacity for other projects. The worst option delays payment and eats the interest, but if pursued to its permissible end in 2050 it would cost just under $3 billion. The total principal due by Sep. 30, 2023 of $1.1 billion already has had over half a billion dollars in interest shaved off.

With the Democrat Pres. Joe Biden Administration and a compliant Congress led by Democrats doing its best to spend crazily, which already has begun pushing inflation historically higher with interest rates starting to follow, debt unlikely will get cheaper for some time to come, meaning a borrowing strategy might work out better and the windfall best used elsewhere. At the same time, no interest is hard to top, and the recommendation sounds sensible.

This stands in stark contrast to suggestions for the other stash. Edwards and legislators would like to blow it on adding still more to unwise pay raises, and the governor would like to slather more onto the corrections department, state museums, Louisiana Public Broadcasting and other agencies.

That approach ignores the estimated $400 million gap (taking into account the new forecast) that will exist next year when special one-time federal aid loosely related to the pandemic already baked into the budget currently floating around the Capitol disappears. But chunking next year’s surplus into a fund set aside for spending contingencies over the next year, already scheduled to receive nearly $700 million, would create a billion-dollar backstop that, combined with other efforts, could reduce dramatically the fiscal peril ahead.

From that pot over the next year, Louisiana could pay off both the remaining federal government infrastructure debt and even (depending upon economic circumstances unfold next year) its debt, interest free, to the federal government’s unemployment trust fund. Removing the raises and unnecessary increases to the Taylor Opportunity Program for Students, eliminating the counterproductive state Earned Income Tax Credit and chopping considerably from the wasteful Motion Picture Investor Tax Credit makes the coming fiscal cliff vanish.

This good fiscal luck, if managed properly, can get Louisiana out of tight pecuniary spots, if only policy-makers resist falling back onto old bad habits of needless spending sprees.