LA Treasurer John Kennedy Accidentally Destroys His Own Argument

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On Tuesday afternoon, as legislators grappled with how best to solve Louisiana’s current $957 million budget shortfall and next year’s projected $2 billion shortfall, State Treasurer (and U.S. Senate candidate) John Kennedy continued his campaign to convince anyone who will listen that Louisiana “has a spending problem and not a revenue problem,” appearing as a guest on WWL’s Garland Robinette’s radio show.

Last week, in his statewide “Republican response” to Gov. Edwards’ televised primetime speech on the budget crisis, Kennedy claimed to have outlined 400 ways to cut spending and solve the shortfalls without increasing taxes. But critically, he didn’t reveal that his 400-point plan was based on a hodgepodge of recommendations made in reports that have been mothballed since 1995, 2001, and 2010, back when Louisiana operated with surpluses and well before the impact of the Jindal administration’s policies hit the state’s balance sheets. No doubt, it was embarrassing for Kennedy when the Governor himself, in an address to the entire state legislature, singled out politicians who rely on “studies that are 15 and 20 years old” and elected officials who care more about running for their next job than in doing the one they were hired to do. But, in my opinion at least, it was righteous truth-telling.

Tuesday, Treasurer Kennedy doubled-down on his “spending problem” rhetoric, and this time, perhaps having learned his lesson about old studies, he referenced a report issued just last year by the Louisiana legislative auditor. Quoting from WWL (bold mine):

The cutting waste versus new revenue debate continued on WWL today with Louisiana State Treasurer John Kennedy insisting there is a lot for government to gain by running a tighter ship.

“The legislative auditor last year did 36 audits,” Kennedy told WWL’s Garland Robinette. “The total amount of waste and inefficiencies that the legislative auditor in these 36 reports identified just last year, in 2015, is 1.745 billion dollars.

Immediately after I read Kennedy’s statements on WWL, I asked the governor’s office for a copy of the report to which he was referring. The Treasurer, it turns out, had sent them a letter shortly before he went on the air with Robinette.
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Download the report here: Kennedy Legislative Auditor 2-16-16.

As you’ll quickly gather, the vast majority of the legislative auditor’s findings pertained to sloppy paperwork and the failures of state agencies to follow proper procedures in allocating federal monies. It’s hardly a ringing indictment against government waste, fraud, and abuse. To be sure, the auditor identifies instances in which the state overpaid for services and instances in which it paid for things for which it could not account. Primarily, though, it’s a laundry list of the ways in which the state government, under the Jindal administration, acted incompetently, not criminally.

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But what caught my eye, in particular, was that $1.1 billion of the nearly $1.8 billion identified in the report concerned the state’s temporary exemption on taxing horizontal drilling from 2010-2014. Put another way, more than 60% of the “wasteful spending” that Treasurer Kennedy hails as the cause of our budget crisis wasn’t actually spending; it was uncollected revenue. So, when he suggests Louisiana has a spending problem and not a revenue problem, he’s apparently counting the $1.1 billion in uncollected revenue from horizontal drilling, or fracking, as “wasteful spending.”

Here is a perfect breakdown:

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According to the report,  revenue losses from fracking amounts to $1.148B,  of which the majority, $1.106B, was revenue lost due from fracking on gas wells. There was an additional $42 million in oil money in oil severance. Initially, when the technology was still in development and the land hadn’t been fully understored, the temporary moratorium on horizontal drilling was hailed as the best way to encourage to with what-was-then experimental drilling. It did work, to the tune of billions a year. In the meantime, despite the robust returns, the severance tax for horizontal wells remained in place, costing the state over $1B in revenue.

Ironically, when State Treasurer Kennedy suggests that has identified $1.8B (more precisely $1.745B) as a prime example of wasteful spending and in an effort to bolster is claim that Louisiana doesn’t have a revenue problem, the very study to which he refers argues that 61% of the state’s “waste and inefficiencies” are the result of a “revenue problem.”

This begs the question: Does Treasurer Kennedy support severance taxes for horizontal drilling? It’s a pretty easy question. According to the very report he referenced, the bulk of the problem is due to an unwillingness to lift exemptions and increase and collect taxes on horizontal drilling, probably one of the largest taxes increases in state history.

If so, he will need to rework his talking point about Louisiana not having a “revenue problem. By his own admission, it’s undeniable true.