On Monday morning, the first full day of the Louisiana legislative special session, Commissioner of Administration Jay Dardenne announced more bad news: The current year’s fiscal deficit wasn’t $940 million; it was actually $957 million, due to $17 million in FEMA money from Hurricane Gustav that is still outstanding. A few hours later, the president of the University of Louisiana system said that Nicholls State may have to close temporarily for two weeks during the spring semester, even under a “best case budget scenario.” And at the end of the day, the Plaquemines Parish Public Defenders Office announced it’d be closing its doors on Wednesday. “It’s run out of money,” Julia O’Donoghue of The Times-Picayune reported on Twitter.
We also learned on Monday, in a report by the legislative auditor, that, due to the accounting gimmicks of former Gov. Bobby Jindal and the Bond Commission (which is chaired by Treasurer John Kennedy), Louisiana will incur $71 million in interest from the use of bond premiums and $160 million in interest from the use of a short-term bond defeasance, both of which were completely avoidable. Quoting:
During fiscal years 2011 through 2016, the Commission used bond premiums and executed bond defeasances to help address and reduce General Fund deficits by $545 million. As a result of these measures, the state will have to pay $231 million more in interest over the next 20 years. These practices have also pushed the state closer to its debt limit, which will limit the state’s borrowing capacity for capital outlay projects in the near future and increases the risk that the state’s credit rating will be downgraded by ratings agencies.
I’ll try my best to put this in layman’s terms (with the caveat that I am not an accountant): Under Bobby Jindal, year after year, Louisiana faced a budget deficit, but the law says you can’t use one-time or non-recurring money to pay for operational expenses. Jindal, with an assist from Kennedy and the Bond Commission, found a way around it, though.
The state can issue bonds for capital projects, and it has the option of agreeing to pay a higher interest rate in order to immediately capture money up-front; that’s called a bond premium. We could and should have used that up-front money, $210 million on a $2.3 billion general obligation bond, on actual projects; after all, that’s what the bond was supposed to be for. Instead, Gov. Jindal used it to plug shortfalls in the budget. Now, we’re on the hook to repay both the $210 million in premiums and an additional $71 million in interest payments over the next twenty years, with nothing to show for it.
“Ordinarily, bond proceeds are used to invest in capital outlay projects that have long-term benefits for the public such as roads and bridges,” the legislative auditor notes. “Thus, in future years when the state has to repay what it borrowed with interest, the citizens of Louisiana have the benefit of long-lasting capital improvements. In contrast, using bond premiums to reduce General Fund deficits burdens the state with paying back the premiums with interest without the added benefit of long- lasting capital improvements.”
But that’s not all. Monday’s report (which was actually sent out last Thursday) also revealed that Louisiana taxpayers would be on the hook for an additional $160 million in interest payments, which was also completely avoidable. Last year and the year before, we took $335 million that had been identified as a non-recurring surpluses (remember, you can’t use non-recurring money for operational expenses) and enacted a short-term bond defeasance. The bond defeasance allowed the Jindal administration the ability to use that money, once again, to plug a general budget deficit. “Act 55 of 2014 ($210 million) and Act 56 of 2015 ($125 million),” the report notes. “Each defeasance, respectively, used non- recurring surpluses from fiscal years 2013 and 2014 to set money aside during fiscal years 2014 and 2015 to make debt payments due in fiscal years 2015 and 2016.”
In the immediate short-term, the use of bond defeasances helped Gov. Jindal maintain his anti-tax pledge and his talking points on the presidential campaign trail. But as the legislative auditor points out, the net result is that Louisiana is now on the hook, in the long-term, for $160 million in interest payments. Again, we have nothing to show for it.
Under Jindal’s administration, according to the report, the Bond Commission “approved new projects faster than it can sell bonds to pay for them. Consequently, the new administration and legislature will face a $3.7 billion backlog of approved spending on capital outlay projects resulting in a reduced capacity for new projects until fiscal year 2024.”
When critics accused Gov. Jindal of “kicking the can down the road,” this is precisely what they meant. He boasted about slashing taxes and providing incentives for businesses, arguing that it would bolster the state’s economy. When it proved to be a failure and when the state no longer collected the revenue necessary to pay its bills, he shouldered us with long-term debt with the hopes of covering his tracks on the way out of the door.
As I mentioned in a previous piece, Louisiana should no longer be considered a laboratory for disaster capitalism. It hasn’t worked. It won’t work. We cannot build a sustainable economy or create an optimal climate for business investment if we’re too broke to pay for infrastructure, education, and health care for disabled children, the elderly, and the indigent.
Something else happened on Monday: The Louisiana Republican Party debuted a 30-second hit piece on Gov. John Bel Edwards, which apparently will soon air statewide. The ad strings together snippets of Edwards on the campaign trail last year.
“Tell Gov. Edwards to keep his word,” the narrator implores. “Don’t raise taxes.”
Of course, it is undeniably true that Gov. Edwards said he didn’t “have a plan to raise taxes” when he was campaigning, because he didn’t. It’s also undeniably true he said he supported “growing the economy,” which is sensible. And he said all of these things months ago, well before the true nature of the state’s budget crisis ever came into focus. Indeed, as we learned on Monday morning from Commissioner Dardenne, the crisis continues to grow bigger by the day.
In the midst of the largest budget crisis in the state’s history, the Louisiana Republican Party hopes to flood the airwaves with an attack ad against a governor who has been in office only a month. The LA GOP, the party whose leaders are responsible for steering the state on the verge of financial calamity, is willfully refusing to confront reality and is engaging, instead, in a propaganda campaign intended to derail the only legitimate chance the state has to save itself from fiscal disaster. They’re accusing the new governor of being a liar, conveniently leaving out the fact that his assumptions about the state’s budget were informed by misleading projections and false estimates produced by his Republican predecessor.
As President Bill Clinton noted in his 2012 speech at the Democratic National Convention: “Now people ask me all the time, how we go four surplus budgets in a row? What new ideas did we bring to Washington? I always give a one word answer: Arithmetic.”
Today, the Louisiana Republican Party is proving that it doesn’t care about arithmetic.
It is cynically hoping that it can win with the same message that has buoyed them in the past: No new taxes. It’s a rigid orthodoxy, and in times like these, it’s also dangerous. Because when they attempt to convince the public to believe there is a way to solve the state’s financial crisis without additional revenue (i.e. taxes), they aren’t just acting in bad faith.
They’re behaving like suicide bombers, ideologues who are willing to blow up the entire state government on the altar of sacrifice to their anti-tax beliefs.