Louisiana has a $1.6 billion budget deficit. The main reason for the shortfall is the political decision to spend more than we take in and make up the difference with one-time, nonrecurring money, mostly federal “stimulus” dollars, that is no longer available. Everyone agrees this was a bad idea and was fiscally irresponsible. So what’s the solution for next year’s budget? Do it again, only this time, hold a garage sale.
One of the chief proposals before the Legislature to plug next year’s budget hole is the sale of state assets. The first idea was to sell the lottery. (Never mind that a federal law prohibits that.) The next proposal was to sell state office buildings and lease them back. The most recent desperate suggestion is to let Goldman Sachs take over the state employees’ insurance program and to sell state prisons. Condos at Angola, anyone?
No, Charlie Sheen is not advising the state. These proposals originated with and are spurred by a cottage industry of investment bankers, lawyers and consultants that see opportunity in crisis. They are being promoted in other states besides Louisiana, including California, Arizona, Illinois and Georgia, and even abroad in England, Ireland and Russia, because the budget woes there make a good deal likely for the buyers of taxpayer assets.
Asset sales are not a new idea. In 2008, Chicago sold its 36,000 parking meters to Morgan Stanley, the Abu Dhabi Investment Authority and others for $1.15 billion. Over the next 75 years the new owners will collect $11.7 billion in meter fees (and more after rate increases go into effect). The present value of the income stream the city sold for $1.15 billion is $2.3 billion.
California recently considered selling 24 state office buildings for $2.3 billion ($1.3 billion after paying off the mortgages), and then leasing them back for $5.2 billion in rent over the next 20 years. This was basically a bridge loan to the state at 10% interest. California’s new governor declined.
This is not exactly the best time to sell real estate. If it were, and if Louisiana intended to use the proceeds of the asset sales to invest for long-term benefits, such as paying off state debt, shoring up underfunded public pension systems or building new roads, the idea might be worth considering. But that’s not how the money will be used. It will be dumped into the budget, spent and next year it will be gone.
A junkie can always pawn his TV or iPod to pay for his next fix, but to get well he must face his addiction. That’s what Louisiana must do. We rank first in the South in state government jobs adjusted for population. Twenty-two percent of our managers manage one employee. Last year taxpayers paid for 900,000 visits to expensive hospital emergency rooms for routine care. We have too many colleges offering the same programs and way more consulting contracts than we need.
Instead of selling valuable state assets for fire sale prices in a weak real estate market to put a Band Aid on the current budget shortfall, Louisiana should address its core problems. An asset sale as bridge financing is not the answer. It is a budget gimmick that will only worsen our structural deficit.
The correct answer is not complicated. Don’t spend more money than you take in, and when you do spend money make sure it is for things that taxpayers need, not that politicians want. Louisiana families and businesses do it every day.