Most of the panel’s business, comprised of most
statewide elected officials, select legislators, and the commissioner of
administration, involves allowing local governmental units to issue debt for
capital expenditures, approving of election items to fund these, and permitting
units to issue short-term debt for operating expenses backed by highly
predictable revenue streams, such as a property tax. But at last week’s
meeting, it veered off into controversial, if not dangerous for taxpayers,
territory.
It approved a request
by the Lafayette Parish Convention and Visitors Commission to issue 10-year
notes totaling $1 million for continuing operations. Calling it “emergency financing”
due to the economic dropoff born of the Wuhan coronavirus pandemic, the quasi-public
agency said it needed the money for “continuity of essential government
functions.” It said it would need funds by the beginning of next month, having
already seen nearly $600,000 fewer in revenues for the year to date and
expected a forecast revenue loss even higher over the next 12 months.
To back the repayment, which it estimated as over
$129,000 annually at a 5 percent interest rate, it pledged proceeds from the 90-95
percent of the funding it receives through a 4 percent parish-wide hotel
occupancy tax. Occupancies fell dramatically as the pandemic took hold. It saw
revenues down a third year and a tenth next year, which would lead to a forecasted
$235,000 deficit this year even after cutting program expenditures by $1
million.
But the agency also had over $2.5 million in cash
lying around, with
that and more unrestricted in its use. It could use just a tenth of that to
supplement this year’s budget, not borrow, and save an estimated $290,000 over
the life of the notes.
However, after only minor discussion, mainly
Republican Treas. John Schroder
warning about the risk of letting this go to market, the matter sailed through.
In the past, Schroder has questioned some of the short-term, revenue anticipation
measures as well. It’s not a great idea to permit any kind of current
operations paid for by debt, but at least in these cash flow instances it’s more
like a brief loan right before a paycheck with a near-certain amount exceeding
the amount owed.
Not so in this most recent incident, which not
only exhibits much higher risk – the hotel business in Lafayette, especially as
its oil-based economy weathers the current energy market doldrums, might stay
depressed for some time – but also seems bad fiduciarily. You could argue it’s
not local taxpayers taking a hit directly if the agency defaults, since few
stay in area inns, and the agency could dip into its substantial reserves
(nearly equal to the annual revenues it had expected) to stave off default, but
why send that extra money out the doors to bondholders and brokers placing that
instrument?
Even if local taxpayer risk seems nonexistent here,
it still blazes a threatening trail. Units with greater local taxpayer exposure
unwilling to cut costs or do a better job in revenue collection can come
forward and point to this decision as a reason to let them issue debt for
continuing operations, discouraging good government.
This should have been nipped in the bud by turning
down the agency, but, regardless, the Commission should treat this as a one-off
mistake. And the Legislature should see to that by changing statute to cap at
one year debt based on revenue for current operations.
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