It’s not that Louisiana has run out of money (or, as one breathless headline asserts, is “broke”) to pay for capital improvements, it’s that it faces a constitutional limit on what it can spend on them, compounded by slow growth in state revenues. And this points to the key to resolution, entirely within the spirit of the concept of the limitation.
The Constitution
places a debt ceiling of six percent of state-generated revenues, as
ascertained most recently by the Revenue Estimating Conference, on the total
amount of debt outstanding at any given time, this put into place after the
blatant end-run around the Constitution by former Gov. Buddy Roemer and the
Legislature with its creation of the notorious Louisiana Recovery
District that enabled
debt to be spent on current operations. The problem that has come to the
state is the slower, near zero, growth in these revenues have not kept up with
the rate of increase in capital spending, creating a coming crunch predicted to
hit the ceiling by the end of the legislative session.
In other words, the state take hasn’t increased as fast as its capital
outlays, and the limit will choke off adding any more debt necessary to start
or complete projects until current receipts can pay back to eat into the
overall level. This seems to have caught everybody by surprise; last year at
this time, Treas. John
Kennedy issued the annual
report on debt capacity which showed a comfortable cushion for a couple of decades
to come, as well as a level of debt $30 million lower than actually transpired
for this year. Even in the breach, several solutions present themselves, but
almost all go against the grain of fiscal conservatism preached and, even if
not always nevertheless often, practiced by the Republican-led Legislature and Republican
Gov. Bobby
Jindal.
And one of them is not to do nothing and wait for some debt to get paid
down. The problem with that is that delay for certain projects underway will
add to costs, either because contract stipulations won’t be met and might
entice contractors to withdraw, adding more costs still, or they are in
positions where the halt in work would create more costs in its resumption,
including for maintenance while idle. That can be part of a strategy, by
delaying starts and completion where financially feasible, but it can’t be the
only response.
One would be to bust the cap, by a two-thirds vote in each chamber. Not
only does that violate fiscal prudence in a state trying to keep debt under
control while facing huge potential spending challenges down the road (such as
with its unfunded
accrued liabilities in pensions), it might not go down well politically for
conservatives who run state government. To this day, Jindal gets criticized by
populist conservatives for his spending
of surplus nonrecurring revenues at the beginning of his first term on
capital items because it exceeded the state’s spending cap (even as they
erroneously draw a comparison between him and his predecessor Gov. Kathleen Blanco for her
efforts in spending
beyond the cap on recurring items). Given these factors, any attempt to go
over the cap would have to have significant mitigating factors for it to be
successfully sought and received.
Another is to exclude
selectively certain kinds of debt, done by Blanco and the Legislature after
the hurricane disasters of 2005, which actually presently adds over $300
million to overall debt and makes the actual percentage figure currently at
nine percent. But the extenuating circumstances then were compelling for this
exception, and nothing about the present situation comes close to justifying,
in both terms of fiscal prudence and politically, a redefinition to skirt under
the limit and the two-thirds vote in each chamber to get there.
Perhaps the longest shot would be to amend the Constitution to raise
the limit. Not only would that not happen in time, but for the same reasons of
prudence and politics not only may legislators hesitate to give the two-thirds
vote needed to get it on the ballot, but it’s questionable that a majority of
the voters would approve it.
Still another would be using current revenues to pay for capital
projects, bypassing debt altogether, or to pay down existing debt – in theory.
In practice, with the state struggling to pay for current operations as they
are without large reductions, this is not realistic.
Finally, the state could refinance debt in order to reduce the overall
overhang, by establishing lower interest rates, then voluntarily paying more
that would reduce principle more quickly. Whether this could be done any time
soon, whether any holders would agree, and whether the conversion costs would
be too high to make this feasible all are big question marks.
Yet, something must be done, and the best chance is a most-of-the-above
amalgam as a strategy. Refinancing (a recent
instance of which that cost the state dearly reduces leeway here) might
enable shaving off a bit. Delays also might accomplish a bit more of that. But
it’s unlikely these together will be enough.
If so, then breaching the cap should occur, but done responsibly in the
form of a promise to the state’s citizenry that shows a good-faith effort to
live up to the spirit of the cap. That is, along with any vote to breach, the
Legislature should have as part of that resolution (backed by a law also
passed) that identifies certain assets to sell, whose proceeds would be
diverted to paying down debt. This demonstrates that the state will correct the
imbalance as soon as possible and an admission that it, even if inadvertently,
was living beyond its means as far as capital goods went. The implicit
admission and demonstrated rectifying should be taken as a sign of good faith by
the public and earn its support of the exception that would be made.
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