Yesterday, a boondoggle to the state of Louisiana got derailed with the State Bond Commission voting not to put state money behind a money-losing sugar mill, but mostly for the wrong reasons. Today, a proposed special session spinning out of control might get sidetracked and again mainly for the wrong reason. In the process, it demonstrates an interesting and desirable side effect of term limits.
The biggest supporter of the mill, Sen. Pres. Don Hines, today transmitted a letter to Gov. Kathleen Blanco who had planned to call a special session over the weekend starting next Friday (which she must do in order to have it start that soon) which requested for her not to call the session. He mentioned it in that its timing was bad (too close to Christmas with other senators planned to be away) and that he thought the items she contemplated were too broad to be completed adequately.
Both complaints ring true but, if she wanted to, Blanco could ignore them. If she could get the Revenue Estimating Conference together, which she or her representative could call, and have declared roughly $1.6 billion declared ready to spend in different ways, with that much largesse to dole out, probably enough senators wouldn’t mind a midwinter’s gathering. However, one other part of the letter contained Hines’ real threat, when he said the state had only $331 million that it could spend before hitting its Constitutionally-imposed limit, requiring a two-thirds vote to override.
That’s because Hines as president is one of the four members of the Conference, and all members must agree that a surplus exists before it can be spent. This was Hines’ way of saying he was going to veto any such declaration, knowing that having just $331 million lying around may not jazz enough senators to want to stick around Baton Rouge to have a full session – the Constitution only allows a governor to call a special session with a specified agenda; it does not force the chamber to do anything and it could adjourn almost immediately. (This is even if he allows it to meet; as the current Conference chairman, he makes that decision.)
In a news conference concerning the letter Hines made obvious the genesis of the threat. “I’m not mad about the syrup mill; I’m just going to get even, that’s all,” he said. Yes, that’s absolutely petty and immature, making it about par for the course for the good-old-boy populist politics in Louisiana.
Still, the fact remains that Blanco’s idea of a special session and the right way of doing exist far apart from each other. Blanco sees it as an early Christmas, giving away all sorts of presents to the electorate to take the wind out of the sails of potential opponents to her reelection next year, especially Democrats who may challenge her, making it logistically difficult and philosophically problematic because the issues of tax cuts, credits, spending priorities, and the like deserve much more of a hearing than less than a couple of weeks can provide. Doing it right would mean a longer session, which would turn off legislators, or a much more limited agenda, which does not serve Blanco’s political agenda.
So Hines may end up doing the right thing, scuttling the unrealistic, political session, for the wrong reason, a temper tantrum because his son-in-law and other cronies didn’t get what they wanted. Even more fascinating, this assertion of legislative power relative to the governor may have happened because of something most legislators lament, term limits coming due with next year’s elections.
Hines is term limited, as is over a third of the Senate. It doesn’t matter so much to them to disperse the goodies because it serves them no real political gain without voters to impress. That incentive devalued to them, the governor loses leverage over the body. And it provides a piece of validation for term limits if that ends up causing a realistic special session to occur or prevents an unrealistic one from doing more damage to the state.
30.11.06
Mill rejection lacked political courage, but got job done
Not entirely for the right reasons, and in a convincing display of a lack of political courage, a request to throw away likely $67.5 million of Louisiana’s money was scuttled by the State Bond Commission.
The Commission turned down a deal that would have had the state back half of the $135 million cost to build a sugar mill in Bunkie. Most economic studies showed it had little chance of making any kind of profit, meaning the state would be liable for the bonds’ cost, and the one study that did so that was riddled with a number of problems. The facility well may not be built as a result of the vote.
The key figure in the vote was Gov. Kathleen Blanco, who by formal powers as governor such as line time vetoes, and informal powers such as arranging for the heads of Legislative committees, could pressure legislators, who comprise a majority of the Commission, to vote the way she liked. Representatives from her office comprise another two votes, while the other four come from other state elected executives.
The dynamics of the vote broke into three camps. First, apparently from previous comments, only one of the negative voters – the only Republican on the panel new Secretary of State Jay Dardenne – had the courage to vote against it because of what the deal truly was, bad for the state. (At the meeting, Treasurer John Kennedy began to imply this as well when he wondered whether other alternatives could assist farmers.) The supporting votes came from state senators led by its President, Don Hines – whose district is where the proposed mill and whose son-in-law would stand to profit directly from being able to use the mill. Hines, usually a Blanco loyalist, has as much input into the Senate careers of these senators as does Blanco.
All the other opposing votes seemed to be based upon the theme of there not being enough “information” about the mill, that a number of sugar farmers were against the deal, and/or that there were other ways such a tax credit (suggested by Blanco’s representatives) to help farmers. These were politically safe things to say – for example, allowing Blanco make herself appear as a fiscal reformer yet seeming concerned about sugar farmers – but disguise that those like Blanco who fell back on these explanations, if they believe them, do not understand the larger issue.
And that is, the state must reject inefficient spending designed to aid only a few and commit it to much more serious, higher priority projects such as (in the case of capital projects like this one) working down the transportation backlog (that $135 million could knock out over 1 percent of the estimated $12 billion needed for this). Public aid to sugar farmers ultimately is a wasteful exercise because there is too much sugar already being produced – hence the quota system imposed by federal law. Rather, the market should be allowed to work freely and permitted the shed the least efficient producers in the state, before any kind of aid would make sense; nobody has the right to impose a cost on others just because they want to pursue a certain occupation.
Interestingly, the supporters of the mill inadvertently latched onto this logical shortcoming most of the opponents expressed in their reasons for their negative votes – that it is not a question of the manner of aid, but rather whether aid should be given at all given other priorities. They argued the tax credit regime might end up being more costly and less effective to solve the presumed problem, transportation costs of cane and unrefined sugar. They implied that if Blanco really did care about the costs in committing the state’s money, her crew would not have suggested this. (Bad publicity – maybe even from bloggers – they blamed as the true reason for the negative votes; if only, they must lament, there was no freedom of speech and press things like this wouldn’t happen!)
The Commission made the right call, but mostly for the wrong reasons. And while the decision gives Blanco more room to try to get off the hook concerning accusations that she does not really diverge from the good-old-boy populist model of Louisiana politics where decisions are made more to satisfy certain constituencies than the public as a whole, no doubt she will try to present this action in her reelection campaign as evidence to demonstrate she is a reformer.
The Commission turned down a deal that would have had the state back half of the $135 million cost to build a sugar mill in Bunkie. Most economic studies showed it had little chance of making any kind of profit, meaning the state would be liable for the bonds’ cost, and the one study that did so that was riddled with a number of problems. The facility well may not be built as a result of the vote.
The key figure in the vote was Gov. Kathleen Blanco, who by formal powers as governor such as line time vetoes, and informal powers such as arranging for the heads of Legislative committees, could pressure legislators, who comprise a majority of the Commission, to vote the way she liked. Representatives from her office comprise another two votes, while the other four come from other state elected executives.
The dynamics of the vote broke into three camps. First, apparently from previous comments, only one of the negative voters – the only Republican on the panel new Secretary of State Jay Dardenne – had the courage to vote against it because of what the deal truly was, bad for the state. (At the meeting, Treasurer John Kennedy began to imply this as well when he wondered whether other alternatives could assist farmers.) The supporting votes came from state senators led by its President, Don Hines – whose district is where the proposed mill and whose son-in-law would stand to profit directly from being able to use the mill. Hines, usually a Blanco loyalist, has as much input into the Senate careers of these senators as does Blanco.
All the other opposing votes seemed to be based upon the theme of there not being enough “information” about the mill, that a number of sugar farmers were against the deal, and/or that there were other ways such a tax credit (suggested by Blanco’s representatives) to help farmers. These were politically safe things to say – for example, allowing Blanco make herself appear as a fiscal reformer yet seeming concerned about sugar farmers – but disguise that those like Blanco who fell back on these explanations, if they believe them, do not understand the larger issue.
And that is, the state must reject inefficient spending designed to aid only a few and commit it to much more serious, higher priority projects such as (in the case of capital projects like this one) working down the transportation backlog (that $135 million could knock out over 1 percent of the estimated $12 billion needed for this). Public aid to sugar farmers ultimately is a wasteful exercise because there is too much sugar already being produced – hence the quota system imposed by federal law. Rather, the market should be allowed to work freely and permitted the shed the least efficient producers in the state, before any kind of aid would make sense; nobody has the right to impose a cost on others just because they want to pursue a certain occupation.
Interestingly, the supporters of the mill inadvertently latched onto this logical shortcoming most of the opponents expressed in their reasons for their negative votes – that it is not a question of the manner of aid, but rather whether aid should be given at all given other priorities. They argued the tax credit regime might end up being more costly and less effective to solve the presumed problem, transportation costs of cane and unrefined sugar. They implied that if Blanco really did care about the costs in committing the state’s money, her crew would not have suggested this. (Bad publicity – maybe even from bloggers – they blamed as the true reason for the negative votes; if only, they must lament, there was no freedom of speech and press things like this wouldn’t happen!)
The Commission made the right call, but mostly for the wrong reasons. And while the decision gives Blanco more room to try to get off the hook concerning accusations that she does not really diverge from the good-old-boy populist model of Louisiana politics where decisions are made more to satisfy certain constituencies than the public as a whole, no doubt she will try to present this action in her reelection campaign as evidence to demonstrate she is a reformer.
29.11.06
Blanco opposing mill deal right and politically beneficial
Even if Agriculture Secretary Bob Odom is the most powerful man in Louisiana, tomorrow’s State Bond Commission meeting may give Gov. Kathleen Blanco the opportunity to show she is the most powerful person in the state.
At the meeting, Odom will ask for the state to issue bonds to support the boondoggle Bunkie sugar mill sale which seems unlikely to earn enough and, as a result, under Odom’s deal would cost the state up to $67.5 million with nothing in return. Because of his heft with the state Democrat Party and with a majority of the Commission’s members being Democrats from the Legislature (who share Odom’s love of big government for which bonds sales can pay for), in case any of them for some reason go against their instincts and vote against an Odom-backed proposal, he can threaten to withdraw his electoral support of them.
However, because Blanco as governor can do even worse things to them (such as delete spending for their districts from the budget), if Blanco chooses to exert herself, she can muster a majority on the Commission to deny Odom’s request. If they oppose each other, Odom’s recourse is the same as with any Democrat elected to state office who dares stand up to him, deny support of Democrat Party money, operatives, and endorsements (the last being perhaps his most important source of power).
At the meeting, Odom will ask for the state to issue bonds to support the boondoggle Bunkie sugar mill sale which seems unlikely to earn enough and, as a result, under Odom’s deal would cost the state up to $67.5 million with nothing in return. Because of his heft with the state Democrat Party and with a majority of the Commission’s members being Democrats from the Legislature (who share Odom’s love of big government for which bonds sales can pay for), in case any of them for some reason go against their instincts and vote against an Odom-backed proposal, he can threaten to withdraw his electoral support of them.
However, because Blanco as governor can do even worse things to them (such as delete spending for their districts from the budget), if Blanco chooses to exert herself, she can muster a majority on the Commission to deny Odom’s request. If they oppose each other, Odom’s recourse is the same as with any Democrat elected to state office who dares stand up to him, deny support of Democrat Party money, operatives, and endorsements (the last being perhaps his most important source of power).
28.11.06
Daniel should address own record before doubting others'
Perhaps as a coming attraction that a number of members of the Louisiana Legislature will try to duplicate next year during their elections, state Rep. William Daniel IV is trying to run, but cannot hide, from his voting record.
The House term-limited Daniel is trying to succeed new Secretary of State Jay Dardenne against physician Bill Cassidy, both Republicans – although Daniel is a recent convert to the party in the past year. Yet, he is trying to paint Cassidy as “soft” Republican by publicizing Cassidy’s $1,000 contribution to Democrat Gov. Kathleen Blanco’s campaign in 2003. Cassidy says he has moved on from that and now supports Rep. Bobby Jindal should he run for governor.
But Daniel is one to talk, according to his voting record courtesy of the Louisiana Legislature Log. Graded on a scale where 0 was the most extreme liberal/populist score and 100 was the most extreme conservative/reform score, in 2005 Daniel graded at a 57 – behind 27 Republicans although higher than all but 4 non-Republicans, where the House average was a 46 but the overall Republican average was a 64. In 2004, then a Democrat, Daniel scored a 60, behind 26 Republicans whose average as a whole was also a 64 while the House average was a 52.
What really drove his scores down these years was he missed a number of votes on key legislation without any excuses, which served as votes against good legislation such as failing to support lower cable prices in 2005 or in 2004 on an amendment to fund teacher pay raises without additional taxes, because absences are counted as negative votes, but this also calls into question his fidelity as a legislator. The record shows Daniel – when he shows up – votes pretty well for conservative and reform measures as most Republicans would, but that he somehow managed to miss unexcused a number controversial votes, even if he did vote on other measures the very same day.
Constituents in Senate District 16 probably want their senator to earn his salary by being there and who’s willing to cast the tough votes to show that he’s in step with their proclivities – Republican in this instance. Recent Democrat Daniel needs to concentrate on convincing voters that’s what he can do as a legislator, rather than criticizing an opponent on how he donated his money four years ago.
The House term-limited Daniel is trying to succeed new Secretary of State Jay Dardenne against physician Bill Cassidy, both Republicans – although Daniel is a recent convert to the party in the past year. Yet, he is trying to paint Cassidy as “soft” Republican by publicizing Cassidy’s $1,000 contribution to Democrat Gov. Kathleen Blanco’s campaign in 2003. Cassidy says he has moved on from that and now supports Rep. Bobby Jindal should he run for governor.
But Daniel is one to talk, according to his voting record courtesy of the Louisiana Legislature Log. Graded on a scale where 0 was the most extreme liberal/populist score and 100 was the most extreme conservative/reform score, in 2005 Daniel graded at a 57 – behind 27 Republicans although higher than all but 4 non-Republicans, where the House average was a 46 but the overall Republican average was a 64. In 2004, then a Democrat, Daniel scored a 60, behind 26 Republicans whose average as a whole was also a 64 while the House average was a 52.
What really drove his scores down these years was he missed a number of votes on key legislation without any excuses, which served as votes against good legislation such as failing to support lower cable prices in 2005 or in 2004 on an amendment to fund teacher pay raises without additional taxes, because absences are counted as negative votes, but this also calls into question his fidelity as a legislator. The record shows Daniel – when he shows up – votes pretty well for conservative and reform measures as most Republicans would, but that he somehow managed to miss unexcused a number controversial votes, even if he did vote on other measures the very same day.
Constituents in Senate District 16 probably want their senator to earn his salary by being there and who’s willing to cast the tough votes to show that he’s in step with their proclivities – Republican in this instance. Recent Democrat Daniel needs to concentrate on convincing voters that’s what he can do as a legislator, rather than criticizing an opponent on how he donated his money four years ago.
27.11.06
Change law to prevent fund hijacking for boondoggles
The madness must stop: since Louisiana Agriculture and Forestry Commissioner Bob Odom continues to use taxpayer dollars on dubious deals, it’s time to cut off the mother’s milk around which Odom bases his political career, money.
In addition to the questionable prospects for the existing sugar cane mill at Lacassine, threatening that the state will have to pay loans backed by it in the event of its failure, it turns out that the deal meant to prevent state exposure, a promissory note to own it from a Colombian former cement maker, is financially poor as well. Consider that the note is for $60 million, payable out over 44 years at 3 percent interest, but with payments of only $100,000 for the first four years. Yet expenses so far to the state seem to be over $58 million so they may well exceed the note’s value. In addition, the 44-year length and 3 percent interest rate are (well) beyond and below, respectively, marketplace-based loans, meaning the state is locked into an inferior rate of return for a longer period. (For example, a more realistic 5 percent rate would get the state a whopping $276 million additional, over double the future value of the actual deal). Finally, the initial four year grace period costs the state a total of $12 million in forgone interest payments.
Why is the state allowing Odom to structure deals that cost taxpayers much more than any benefits brought? Because it’s the law: Odom gets use of $12 million a year coming from next taxable slot machine proceeds which may be used by the Louisiana Agricultural Finance Authority for “economic development” programs. Politically, Odom, who sits on the Authority, controls enough votes on it.
In addition to the questionable prospects for the existing sugar cane mill at Lacassine, threatening that the state will have to pay loans backed by it in the event of its failure, it turns out that the deal meant to prevent state exposure, a promissory note to own it from a Colombian former cement maker, is financially poor as well. Consider that the note is for $60 million, payable out over 44 years at 3 percent interest, but with payments of only $100,000 for the first four years. Yet expenses so far to the state seem to be over $58 million so they may well exceed the note’s value. In addition, the 44-year length and 3 percent interest rate are (well) beyond and below, respectively, marketplace-based loans, meaning the state is locked into an inferior rate of return for a longer period. (For example, a more realistic 5 percent rate would get the state a whopping $276 million additional, over double the future value of the actual deal). Finally, the initial four year grace period costs the state a total of $12 million in forgone interest payments.
Why is the state allowing Odom to structure deals that cost taxpayers much more than any benefits brought? Because it’s the law: Odom gets use of $12 million a year coming from next taxable slot machine proceeds which may be used by the Louisiana Agricultural Finance Authority for “economic development” programs. Politically, Odom, who sits on the Authority, controls enough votes on it.
26.11.06
Blanco unlikely to avoid circling electoral sharks
Given her sagging, stagnant poll numbers, Gov. Kathleen Blanco will take any ray of sunshine regarding her reelection attempt in 2007. But she better not look too closely at them or she’ll be blinded from the truth of her precarious position.
She might be tempted to take heart in that the incumbent Democrat governors of Michigan and Illinois were reelected earlier this month despite having popularity numbers similar to hers. But she needs to face reality. For one thing, Republicans in both states self-destructed in their choices of candidates (for Illinois, their second one since the frontrunner withdrew after questions were raised about his personal behavior). This is unlikely to occur in Louisiana since one juggernaut of a Republican opponent (Rep. Bobby Jindal) has all but declared his candidacy, and another who would be favored against Blanco (state Sen. Walter Boasso) has expressed interest.
The other thing is that 2006 was a “perfect storm” year for the Democrats, one unlikely to be repeated for a long time. Certainly next year won’t be especially because Blanco will be unable to replicate the national Democrats’ strategy of running against everything without being for something. Voting behavior is such that national electoral forces can trickle down extensively to state elections, and embattled Democrat governors benefited. But without national elections in 2007, attention will squarely be on the Blanco record, and it isn’t pretty. If anything, given demographic changes, 2007 will edge closer to being a Republican storm in Louisiana, although probably not perfect.
Blanco also might be encouraged by New Orleans Mayor Ray Nagin’s comeback win earlier this year. Nagin, along with Blanco, was seen by many as negligent in disaster preparation and response, yet he eked out a reelection victory.
However, there was a simple election calculus present in New Orleans that will be absent at the state level. That is: (1) Nagin is black Democrat, (2) a majority of those present in New Orleans on election day were black Democrats, so (3) Nagin wins. This is untrue at the state level where likely only a quarter of the electorate a year from now in the state will be black Democrats – down in proportion from Blanco’s narrow win in 2003.
With these dynamics operating against her, unless Blanco can boost her approval ratings to the 50 percent mark, it would take a miracle for her to win reelection in 2007.
She might be tempted to take heart in that the incumbent Democrat governors of Michigan and Illinois were reelected earlier this month despite having popularity numbers similar to hers. But she needs to face reality. For one thing, Republicans in both states self-destructed in their choices of candidates (for Illinois, their second one since the frontrunner withdrew after questions were raised about his personal behavior). This is unlikely to occur in Louisiana since one juggernaut of a Republican opponent (Rep. Bobby Jindal) has all but declared his candidacy, and another who would be favored against Blanco (state Sen. Walter Boasso) has expressed interest.
The other thing is that 2006 was a “perfect storm” year for the Democrats, one unlikely to be repeated for a long time. Certainly next year won’t be especially because Blanco will be unable to replicate the national Democrats’ strategy of running against everything without being for something. Voting behavior is such that national electoral forces can trickle down extensively to state elections, and embattled Democrat governors benefited. But without national elections in 2007, attention will squarely be on the Blanco record, and it isn’t pretty. If anything, given demographic changes, 2007 will edge closer to being a Republican storm in Louisiana, although probably not perfect.
Blanco also might be encouraged by New Orleans Mayor Ray Nagin’s comeback win earlier this year. Nagin, along with Blanco, was seen by many as negligent in disaster preparation and response, yet he eked out a reelection victory.
However, there was a simple election calculus present in New Orleans that will be absent at the state level. That is: (1) Nagin is black Democrat, (2) a majority of those present in New Orleans on election day were black Democrats, so (3) Nagin wins. This is untrue at the state level where likely only a quarter of the electorate a year from now in the state will be black Democrats – down in proportion from Blanco’s narrow win in 2003.
With these dynamics operating against her, unless Blanco can boost her approval ratings to the 50 percent mark, it would take a miracle for her to win reelection in 2007.
22.11.06
Thanksgiving Day, 2006
This column publishes usually every Sunday through Thursday after noon (sometimes even before; maybe even after sundown on busy days) U.S. Central Time except whenever a significant national holiday falls on the Monday through Friday associated with the otherwise-usual publication on the previous day (unless it is Independence Day or Christmas when it is the day on which the holiday is observed bu the U.S. government). In my opinion, there are six of these: New Year's Day (becasue nobody is reading anything and the Sooners probably are playing), Memorial Day, Independence Day, Veterans' Day, Thanksgiving Day, and Christmas.
With Thursday, Nov. 23 being Thanksgiving Day, I invite you to explore the link above.
With Thursday, Nov. 23 being Thanksgiving Day, I invite you to explore the link above.
21.11.06
Blanco declares Christmas early ignoring reality, chasing votes
As Christmas approaches, just call Gov. Kathleen Blanco “Santa Claus” – as her popularity continues to slip ahead of an election year, she’s taken to promising everything to everybody.
Now she’s pledging that a roughly $827 million surplus from the past fiscal year – which can only be used on nonrecurring expenditures – will be matched by a similar amount in the present fiscal year. Further, she expects “surpluses” to recur over the next five years.
Of course, this begs the question, if we know already they exceed current budgetary projections and thus factor them into budget calculations, how can they be “surpluses?” Regardless, the anticipated 2006-07 surplus calls not for the doling out of goodies such as pay raises but uses that tackle long term fiscal problems facing Louisiana such as the backlog of road construction and unfunded accrued liabilities in the state’s pension systems. Even avowed populist and potential Blanco opponent Public Service Commissioner Foster Campbell recognizes that, as many economists have pointed out, any surpluses Louisiana experiences will be as a result of a “false economy” – an inflated economy as a result of tens of billions of dollars pumped into the state artificially by the federal government for recovery purposes that will not be sustained over the long run.
Yet Blanco wants to have any 2006-07 surplus declared as recurring, meaning it could be used for continuous expenditures such as pay raises for teachers, public service employees, and the like. This is a tried a true method of Louisiana politics to buy off certain voting blocs ahead of an election, by promising goodies. By asserting, without any real validity, that the “surpluses” will continue, she is trying to build a case to justify this transparent attempt to buy votes that puts the state’s fiscal condition at great hazard.
It’s an extremely risky and detrimental strategy that seeks to encumber recurring expenditures to what likely will be nonrecurring, if ever realized, revenues boosts. Much smarter would be a conservative strategy that recognizes these revenues for what they are, gifts from the American taxpayer that cannot be expected to reappear, usable only to reduce long term problems. But, from the Blanco perspective, as demonstrated in her choices of support for legislation over the past three years, trying to eat into the roads backlog or the pension liability in her view doesn’t gain her a lot of political mileage that will translate into votes, even if they are huge crises.
It would be supremely reckless to make commitments to recurring spending out of any potential revenues that exist. However, we must understand that such policy pronouncements by Blanco are more about getting her another four years in office than a serious attempt to put Louisiana on a sound fiscal basis.
Now she’s pledging that a roughly $827 million surplus from the past fiscal year – which can only be used on nonrecurring expenditures – will be matched by a similar amount in the present fiscal year. Further, she expects “surpluses” to recur over the next five years.
Of course, this begs the question, if we know already they exceed current budgetary projections and thus factor them into budget calculations, how can they be “surpluses?” Regardless, the anticipated 2006-07 surplus calls not for the doling out of goodies such as pay raises but uses that tackle long term fiscal problems facing Louisiana such as the backlog of road construction and unfunded accrued liabilities in the state’s pension systems. Even avowed populist and potential Blanco opponent Public Service Commissioner Foster Campbell recognizes that, as many economists have pointed out, any surpluses Louisiana experiences will be as a result of a “false economy” – an inflated economy as a result of tens of billions of dollars pumped into the state artificially by the federal government for recovery purposes that will not be sustained over the long run.
Yet Blanco wants to have any 2006-07 surplus declared as recurring, meaning it could be used for continuous expenditures such as pay raises for teachers, public service employees, and the like. This is a tried a true method of Louisiana politics to buy off certain voting blocs ahead of an election, by promising goodies. By asserting, without any real validity, that the “surpluses” will continue, she is trying to build a case to justify this transparent attempt to buy votes that puts the state’s fiscal condition at great hazard.
It’s an extremely risky and detrimental strategy that seeks to encumber recurring expenditures to what likely will be nonrecurring, if ever realized, revenues boosts. Much smarter would be a conservative strategy that recognizes these revenues for what they are, gifts from the American taxpayer that cannot be expected to reappear, usable only to reduce long term problems. But, from the Blanco perspective, as demonstrated in her choices of support for legislation over the past three years, trying to eat into the roads backlog or the pension liability in her view doesn’t gain her a lot of political mileage that will translate into votes, even if they are huge crises.
It would be supremely reckless to make commitments to recurring spending out of any potential revenues that exist. However, we must understand that such policy pronouncements by Blanco are more about getting her another four years in office than a serious attempt to put Louisiana on a sound fiscal basis.
20.11.06
Market and government reform will solve insurance woes
Apparently a big part of any approaching special session will be discussion about not just how to deal with past insurance issues, but in how to avoid financial problems involving it in the future. If addressed, Louisiana needs to take the proper, free-market approach rather than give into the siren song of big government backstopping insurers.
Many insurers and politicians, including Louisiana’s Insurance Commissioner Jim Donelon if done at the federal level, support the idea of a catastrophic fund run by government that would pay out to insurance companies under conditions triggered by huge claims as a result of a natural disaster. Its most radical form would compel taxpayers from nationwide to pay into the fund, while less extreme versions would create a compact among states, or within states, where only ratepayers would subsidize the fund (which is close to how Louisiana’s Citizens Property Insurance Company works now in catastrophe situations).
But on both philosophical and practical levels, this plan has problems. Philosophically speaking, it violates taxpayers by forcing them to subsidize lifestyle choices made by others, instead of making people responsible for their own actions. Nobody forces anybody to live in a certain place, and it is immoral for people to ask for others with no connection whatsoever to them or their choice to be coerced into contributing to facilitate their ability to reside in a specific location when no common good is derivable from that. To ask others who buy homeowners insurance to do so also is illegitimate, since people should be free to choose what insurer to select (if they can afford it in the first place) and they would be punished even if they went with a company that made wise financial decisions to keep rates lower. (And, the notion is a total nonstarter among peoples in states where living entails lower casualty risk.)
It also invites government abuse. A government-run fund would put tremendous financial power in the hands of government rather than with individuals or corporations. Since government makes the least wise investment decisions (because they do not have to observe marketplace rules and the discipline and incentives to make optimal decisions) it would be less efficient and thus take more resources from the public or ratepayers than would reinsurers (in essence, private sector catastrophic funders). It also could wield these monies in a coercive fashion by its investment behavior, or be lax and allow these funds to be raided for other purposes, leaving the fund short when it is needed.
Practically speaking, catastrophic funds serve only to excuse lazy business practices among insurers, providing the industry disincentives to exercise good judgment and to use resources the most optimally, as the removal of some funds from the reinsurance marketplace would do. This would cause rates to rise overall. It also puts government in the business of competing with the private sector which discourages economic growth and tax revenues from it.
Rather than pursue this end, the best approach begins with the state setting land-use regulations in coastal areas, creating building codes and encouraging hazard mitigation – as explained by the Reinsurance Association of America, some things which Louisiana has started doing. But the key change would be to make reforms that encourage policy-writing in the state – less regulation of the industry in both structure and philosophy.
Structurally, the state is saddled with the Insurance Rating Commission, the only one of its kind which approves all rates above a certain level in addition to departmental review. Either it or the commissioner’s office should be abolished as they are duplicative and, theoretically, it’s better for the commissioner to stay because the Commission, being comprised of appointed officials, allows more room for meddling and agendas to discourage insurers, while the elected commissioner must face the voters who will punish him for allowing rates that are too high or also if they are set too low that would cause insurers to flee the state leading to undersupply of homeowners’ insurance.
Getting insurers to write policies is as simple as understanding that insurers remain in business if they have business on which they won’t go broke. Let rates go to their natural levels and there will be plenty of eager insurers patrolling the state. Greater flexibility in rates, which may anger some consumers because they historically they have underpaid dramatically commensurate to the risk they choose to shoulder in their residential choices and would see rates skyrocket under regulation more faithful to the marketplace, if put in place and not altered in response to populist pressures will encourage enough insurers that the vast majority of the state’s ratepayers will pay no mores, or even less, than they do now.
Only a private sector-oriented approach along these lines can solve permanently the vicious cycle of fewer insurers and higher prices. Resorting to big government schemes like catastrophic funds only means higher prices for most with no stable, ultimate solution for Louisiana taxpayers and ratepayers.
Many insurers and politicians, including Louisiana’s Insurance Commissioner Jim Donelon if done at the federal level, support the idea of a catastrophic fund run by government that would pay out to insurance companies under conditions triggered by huge claims as a result of a natural disaster. Its most radical form would compel taxpayers from nationwide to pay into the fund, while less extreme versions would create a compact among states, or within states, where only ratepayers would subsidize the fund (which is close to how Louisiana’s Citizens Property Insurance Company works now in catastrophe situations).
But on both philosophical and practical levels, this plan has problems. Philosophically speaking, it violates taxpayers by forcing them to subsidize lifestyle choices made by others, instead of making people responsible for their own actions. Nobody forces anybody to live in a certain place, and it is immoral for people to ask for others with no connection whatsoever to them or their choice to be coerced into contributing to facilitate their ability to reside in a specific location when no common good is derivable from that. To ask others who buy homeowners insurance to do so also is illegitimate, since people should be free to choose what insurer to select (if they can afford it in the first place) and they would be punished even if they went with a company that made wise financial decisions to keep rates lower. (And, the notion is a total nonstarter among peoples in states where living entails lower casualty risk.)
It also invites government abuse. A government-run fund would put tremendous financial power in the hands of government rather than with individuals or corporations. Since government makes the least wise investment decisions (because they do not have to observe marketplace rules and the discipline and incentives to make optimal decisions) it would be less efficient and thus take more resources from the public or ratepayers than would reinsurers (in essence, private sector catastrophic funders). It also could wield these monies in a coercive fashion by its investment behavior, or be lax and allow these funds to be raided for other purposes, leaving the fund short when it is needed.
Practically speaking, catastrophic funds serve only to excuse lazy business practices among insurers, providing the industry disincentives to exercise good judgment and to use resources the most optimally, as the removal of some funds from the reinsurance marketplace would do. This would cause rates to rise overall. It also puts government in the business of competing with the private sector which discourages economic growth and tax revenues from it.
Rather than pursue this end, the best approach begins with the state setting land-use regulations in coastal areas, creating building codes and encouraging hazard mitigation – as explained by the Reinsurance Association of America, some things which Louisiana has started doing. But the key change would be to make reforms that encourage policy-writing in the state – less regulation of the industry in both structure and philosophy.
Structurally, the state is saddled with the Insurance Rating Commission, the only one of its kind which approves all rates above a certain level in addition to departmental review. Either it or the commissioner’s office should be abolished as they are duplicative and, theoretically, it’s better for the commissioner to stay because the Commission, being comprised of appointed officials, allows more room for meddling and agendas to discourage insurers, while the elected commissioner must face the voters who will punish him for allowing rates that are too high or also if they are set too low that would cause insurers to flee the state leading to undersupply of homeowners’ insurance.
Getting insurers to write policies is as simple as understanding that insurers remain in business if they have business on which they won’t go broke. Let rates go to their natural levels and there will be plenty of eager insurers patrolling the state. Greater flexibility in rates, which may anger some consumers because they historically they have underpaid dramatically commensurate to the risk they choose to shoulder in their residential choices and would see rates skyrocket under regulation more faithful to the marketplace, if put in place and not altered in response to populist pressures will encourage enough insurers that the vast majority of the state’s ratepayers will pay no mores, or even less, than they do now.
Only a private sector-oriented approach along these lines can solve permanently the vicious cycle of fewer insurers and higher prices. Resorting to big government schemes like catastrophic funds only means higher prices for most with no stable, ultimate solution for Louisiana taxpayers and ratepayers.
18.11.06
Session call shows Blanco has caught jailhouse religion
“Jailhouse religion” runs rampant among the incarcerated, where many more prisoners than actually have done so claim they have reformed their ways, in order to obtain reduced sentences or privileges. As the election year 2007 looms, Gov. Kathleen Blanco in her special session call for the end of this year shows she has caught it in an attempt to make Louisiana voters forget that she often has passed on opportunities for lower taxes and sensible spending. (“Call” is in parentheses above because it is not official and may not even be constitutional in that form, when a formal call comes.)
Just to name some examples, about 18 months ago Blanco was all about raising taxes on health care consumers by creating an new tax on health care facilities that would have passed the cost through to consumers, instead of steering the state away from its bias on institutional care which on Medicaid reimbursements alone would save the state nearly $100 million a year. (Then, she quietly led for the repeal of this tax after the realities of it in the post-disaster environment sunk in.)
Another was concerning the $12 billion backlog in road repairs (despite a special tax levied almost 20 years ago to address this) which she now claims she’ll have addressed in the special session. But only months ago, even as she denies it, she tried to float an idea about slapping tolls on roads to fund this, in part because she has allowed very low-priority but politically well-connected capital spending going on in other areas such as funding horse barns and creating reservoirs that assist a select few in the state. Had she mandated sensible spending, the road backlog already would have been whittled by hundreds of millions, perhaps billions, of dollars by now.
In addition, she has had plenty of opportunities in the past to address the huge and growing unfunded accrued liability in the state’s retirement accounts, another session call. But every time she had the chance, she preferred spending operating funds on programs favoring the interests of certain individuals rather than tackle perhaps the biggest ticking time bomb the state faces.
And, the Blanco record is chock full of instances where she cared more about distributing benefits to a favored few than to the people of Louisiana. This year, she signed onto sweetheart deals for the politically-connected, increased prices at the pump for consumers (while creating an imperfect mechanism to prevent that), prevented a reduction in cable television prices for consumers, and supported perks for lawmakers until great public outcry got her to reluctantly cast a veto of them.
Does anybody seriously believe that if next year were not an election year and that Blanco’s approval ratings weren’t in the tank that she would not behave in the tax-and-spend manner she has in the past, bloating up the state budget? Her call contains good ideas and, if implemented properly, they will do more good for the state than the sum total of her contributions to date by far. But, informed voters next year will recognize the expediency and convenience of her conversion to supporting these ideas and would do better to support for governor genuine reformers such as Rep. Bobby Jindal or potentially any of a number of other candidates for Blanco’s job.
Just to name some examples, about 18 months ago Blanco was all about raising taxes on health care consumers by creating an new tax on health care facilities that would have passed the cost through to consumers, instead of steering the state away from its bias on institutional care which on Medicaid reimbursements alone would save the state nearly $100 million a year. (Then, she quietly led for the repeal of this tax after the realities of it in the post-disaster environment sunk in.)
Another was concerning the $12 billion backlog in road repairs (despite a special tax levied almost 20 years ago to address this) which she now claims she’ll have addressed in the special session. But only months ago, even as she denies it, she tried to float an idea about slapping tolls on roads to fund this, in part because she has allowed very low-priority but politically well-connected capital spending going on in other areas such as funding horse barns and creating reservoirs that assist a select few in the state. Had she mandated sensible spending, the road backlog already would have been whittled by hundreds of millions, perhaps billions, of dollars by now.
In addition, she has had plenty of opportunities in the past to address the huge and growing unfunded accrued liability in the state’s retirement accounts, another session call. But every time she had the chance, she preferred spending operating funds on programs favoring the interests of certain individuals rather than tackle perhaps the biggest ticking time bomb the state faces.
And, the Blanco record is chock full of instances where she cared more about distributing benefits to a favored few than to the people of Louisiana. This year, she signed onto sweetheart deals for the politically-connected, increased prices at the pump for consumers (while creating an imperfect mechanism to prevent that), prevented a reduction in cable television prices for consumers, and supported perks for lawmakers until great public outcry got her to reluctantly cast a veto of them.
Does anybody seriously believe that if next year were not an election year and that Blanco’s approval ratings weren’t in the tank that she would not behave in the tax-and-spend manner she has in the past, bloating up the state budget? Her call contains good ideas and, if implemented properly, they will do more good for the state than the sum total of her contributions to date by far. But, informed voters next year will recognize the expediency and convenience of her conversion to supporting these ideas and would do better to support for governor genuine reformers such as Rep. Bobby Jindal or potentially any of a number of other candidates for Blanco’s job.
Subscribe to:
Posts (Atom)