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Change process to clear up "one-time" money confusion

Critics of the budget recently delivered by Gov. Bobby Jindal decry that it relies too much on “one-time” money and that it should have cut state government more deeply. To which these commentators need to have asked of them, what is the immediate danger in using one-time monies? That’s if they even understand the question.

The fact is, few people outside of a small coterie of state officials and legislators understand the one-time funds concept. In its broadest sense, it includes money coming from the federal government unrelated to any formulaic grant. More narrowly, it refers to money sitting around in state funds of various kinds, and, in the sense that it can be applied to budgeting, it means those bucks otherwise unencumbered for another purpose. This cash appears because some law or the Constitution forcibly dumps it into a fund, and only specific legislation appropriation, with varying degrees of specificity, can make it usable for a purpose other than its legal (constitutional is another matter) function (often tucked into Act 11, the operating budget, or any supplemental act).

At the end of last fiscal year, across 225 non-major (that is, not the General, Bond Security and Redemption, and Educational Quality Trust) funds they totaled around $5 billion dollars, or about 12 times the amount the proposed budget angles to use.
And it’s not like they’re in any danger of going away any time soon, as a review of several of the more significant ones over the past few years. Reviewing the state’s Comprehensive Annual Financial Reports (the latest here) shows a number of funds with balances in the tens of millions don’t fluctuate that much in fiscal-year-end balances. Money flows in and then it flows out; in the aggregate, unreserved, undesignated funds have totaled $5.45 billion at the end of fiscal year 2007, $5.9 billion at the end of 2008, and $5.76 billion at the end of 2009.

One example of the many showing how these funds metamorphose into one-time bucks lies in the 2010 budget. Referring back to p. 120 of the operating budget bill HB 1, we find the arrangements to fund the variety of activities of administration of the Department of Health and Hospitals. On the next page, we see the means of financing these activities: lots of general fund dollars, lots of federal funds transferred in, some fees and self-generated money – and almost $3 million directed to be appropriated from something called the Telecommunications for the Deaf Fund.

R.S. 47:1061 explains for us this fund: “There is hereby levied a tax of five cents per month on each residence and business customer telephone access line of the local exchange companies operating in Louisiana…. the treasurer shall pay the remainder of such funds [the preceding phrase being the standard technical language saying state revenues are encumbered to debt service first] into a special fund which is hereby created within the state treasury and designated as the “Telecommunications for the Deaf Fund.” The monies in the Telecommunications for the Deaf Fund shall be used solely to establish, administer, and promote a statewide program to provide accessibility services and assistive technology for persons who are deaf, deaf/blind, hard of hearing, speech impaired, or others who are similarly handicapped, in the amounts appropriated each year by the legislature to the Louisiana Commission for the Deaf.”

But some of that money clearly went to DHH administrative functions, not only having nothing to do with dealing with deafness, but it’s not even in the same department of government, as the Commission functions through the Department of Children and Family Services. And in the 2010 CAFR, we find there’s plenty of money to take out for this purpose: $5.479 million (and some will come in from the charge). So, with just the simple majority needed to pass HB 1 in Act 11, the Legislature can raid many (some have other stipulations) of the funds for whatever amounts it likes (keeping an eye on their defined uses and expected inflows). Intone your favorite magical incantation here, and there appears “one-time” money.

The reason why such large balances end up in some of these funds, why across Louisiana state government sits on so much, and why they get raided, is the dizzying number of dedications that, to date, never get reviewed for not only the appropriateness of the amount they direct towards a certain activity, but also whether the state even ought to be in the business of collecting funds for that purpose. This extends not only to state programs receiving funding, but also to collections made by the state on behalf of some entity that performs something the state finds useful. Again, no recent effort has been made to vet any of this with the goal of ending such dedications, whether that results in redirection of the revenue stream or its termination.

Jindal once again has called for legislation to provide a review schedule that, if performed in the spirit intended, could alleviate the aggravating problem of locking in revenues to certain functions that only can be pared with difficulty and incrementally, greatly reducing the ability of budgeters from both majoritarian branches to set priorities. It becomes particularly problematic when mid-year cuts are needed, because the Legislature is not in session and the Constitution, unless emergency procedures as of yet never used are invoked, the state can redirect only limited amounts of money from these funds. This can be solved in part by legislation, and more comprehensively by a constitutional amendment.

That aside, if the state continues to raid fund balances at a rate faster than dedications bring in the bucks, because all other revenue sources cannot provide enough money to fund spending intentions, this makes for an untenable situation. Doing it temporarily, as has been done over the past couple of budgets (not so in fiscal year 2009-10 budgeting, which is reflected in CAFR balances), is tolerable. The practice is akin to the family with children near college age that, let’s say, gets a Haynesville Shale lease and says it will plunk the bonus and royalties into a college fund housed in a bank savings account. In tougher economic times they may raid the account for living expenses, but do that too often and for too much and soon they won’t have enough to pay for ongoing college expenses.

The real problem, again, is the misdirection of funds in the first place, and of the more fundamental problem of the creation of large balances in the first place suggesting too much is being collected in fees and taxes. If appropriate levels of diversion of funds from the people sequestered through methods promoting clear accountability existed, we’d be a lot better off through increased understanding of why these monies are collected, where they go, and in what priority rank-ordering. As such, this calls for a thorough revamp of the state’s fiscal processes that begins with the investigation into the funds and their sources and uses.

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