SADOW: On The Fiscal Hawks And One-Time Money

Perhaps a group of mostly Republican state representatives who style themselves as purists for sound state budgetary practices and results finally are evolving from a politicized, “chicken hawk” approach to a true “budget hawk” position that genuinely can improve Louisiana’s fiscal situation.

Formally organizing their enthusiasms as the Louisiana Budget Reform Coalition in the past few months, more than a year prior to that various group members have criticized some long-standing budgetary tactics employed in the executive budget and ratified by the Legislature. Drawing their special scorn has been the practice of using “one-time” money to provide some funding, generally in the range of 1-2 percent, of operating expenses. “One-time money” has come to mean a lot of things, but generally as used it includes funds from one-off transactions such as sale of government assets or a windfall of some kind and monies dedicated for a certain purpose that gets used for another courtesy of a supplemental appropriations bill called a “funds sweep.”

But their problem to date has been they have used the idea mostly as a political cudgel that sounds great and scores points for election purposes, but actually prevented any real progress in improving the state’s fiscal structure. Their great bane, one-time money, they declared a pox upon in advocating it never be used to fund operating expenses, but never seemed to grasp it was just a symptom of the real disease wherein lay the true cause of budgeting distress.

They weren’t entirely wrong. While the Gov. Bobby Jindal Administration started out eschewing the use of such funding, in the past couple of years a few of its tactics in using it have gotten increasingly sketchy. For this current fiscal year, for example, it borrowed $20 million from a subsidiary state political subdivision to fund operations; for the upcoming one, it wants to take out $100 million more. Or, it is using a refinancing windfall of sorts to plug into current operations. While neither is as crass as borrowing money to pay for operating expenses – the “payback” to the unit will be in capital projects and the refinancing bonus comes courtesy of an instrument connected to the purpose on which the money will be spent – they really push the envelope and are verging on desperation to find funding.

Unfortunately, much of the remaining of this category of expenditure does not come from sources that are neither predictable nor recurring. The sweeps dip into a myriad of funds that have grown and grown because, unless government wanted to spend money just to spend money, their dedications produce far more revenue than there is practical defined use of them. In essence, this money becomes trapped, tied to a low-priority item where, in any rational or objective sense, they simply aren’t needed for that purpose. For example using the borrowing listed above, which is on behalf of the Ernest N. Morial Convention Center in New Orleans, unless we wanted to build a palace and staff it with people using $100 bills from its fund to light their cigars, it will never spend all the money it currently has stashed.

Many of the 300 or so funds in the state (and this example isn’t even one of the state’s, but is enabled by state legislation) resemble this, because when set up these dedications were neither viewed holistically relative to other funding mechanisms nor had any sufficient thought given to them in priority terms relative to all other state needs. This crazy system that segregates about three-quarters of all state-generated revenues from flexible use is what ends up starving areas of real need that exhibit genuine priority. Thus, the state is flush with cash, both in terms of current revenues and in that laying idle (to the tune of $2.3 billion at the end of fiscal year 2012), but because it gets misallocated from the start things like higher education funding crises occur.

Sweeps then become the necessary corrective, to get excess funds from where they aren’t needed to areas of higher priority – as long as we assume priority is high enough to justify the collection of that amount of money, regardless of how it got into the state treasury, in the first place. But until recently, the “hawks” refused to countenance the practice, trying in the last legislative session to prevent the practice for no other reason than the money being used was tainted by being obtained through a sweep. They never made any case to justify this redlining; they never demonstrated that it was not recurring and predictable and they never explained why it should remain idle when clearly too much was being collected for the stated purposes.

More to the point, the real problem stemmed from having too many dedications collecting in excess of actual need, thereby indicating the genuine solution came from loosening suspect dedications, in part by reducing their take or in their totality. Naturally, it would require political courage to do so, in bucking special interests who wanted that steady stream of cash and in having to make hard choices yearly instead of bleating about they had no control and abdicating all responsibility, then claiming to fix it all by cordoning off funds of illegitimate provenance.

Which is why it became too easy to paint them as political opportunists not really committed to improving the fiscal environment. As the actual problem was an ill-considered bookkeeping system combined with a thoughtless process for prioritizing, any suggestions for change that did not acknowledge these were the flaws needing correcting not only was unhelpful but also detracted from a genuine solution, by spreading the myth that all would be well if planners just didn’t use the dirty money. Yet many self-righteously went on in this mode for months, if not years.

Until maybe now. The state’s premier political analyst employed in the print media, the Times-Picayune’s/NOLA.com’s/whatever-it-is-now’s James Varney snagged an interview with the presumed leader of the group, state Rep. Brett Geymann, and in it suddenly things came out of his mouth that never before for public consumption had been uttered (credit to Varney here because he asked probing questions that the rest of the state’s mainstream media members seem to have neglected). For the first time, he acknowledged that statutory dedications were a problem, that as part of a solution that “that statutory indications [sic] can be undone.” He said to “put all that on the table” (just statutorily, not constitutionally dedicated) and apparently had this epiphany as a result of consultations across the state over the past several months.

He also appeared to back off the fatwa issued previously about one-time money. However, to justify the shifting stance he engaged in a bit of legerdemain, by saying (when Varney pressed him) that past opposition to using money out of dedicated funds was because “it’s never gone through the R[evenue] E[stimating] C[onference] process and it’s never been recognized as anything – it’s not recurring, it’s not non-recurring. So we have to call it one-time money, OK?”

Uh, no we don’t, at least not according to the law and Constitution. The REC never has been intended for use that way nor does the Constitution define “one-time money.” In fact, statute defines as not being nonrecurring in nature money which comprises “revenues received by the state from any source which has been available for the preceding two fiscal years or which will be available for the succeeding two fiscal years” – such as unappropriated dollars in dedicated funds that require appropriation for their use. That implies this funding actually is recurring, but even without that implication they definitively are not nonrecurring. So you logically can’t be against its use if you based your argument on how unwise it is to spend money that is neither recurring nor predictable in appearance.

This leads to two conclusions: either Geymann, in his third term in the House, is ignorant of the law and Constitution, or he is being disingenuous in the attempt to put a fig leaf over a change in philosophy and/or strategy. One-time money from funds sweeps already has been defined as nonrecurring, without needing the REC to intervene and bless it as such; trying to obfuscate this in an effort to save face doesn’t change that fact or that, regardless of statutory wordings, on its face obviously these were recurring bucks. A label in your mind might change, but the essence of the concept being described does not.

According to Geymann, it becomes all peachy-keen “if the REC would do what we think they’re [sic] supposed to be doing,” but even if it doesn’t – that is, does not at least annually go into each and every fund and declare how many recurring funds is in each of the hundreds of them – there’s no reason to abandon this apparently novel-to-them (if he speaks for all group members) understanding that one-time money is not the problem, it’s the fiscal structure that creates the necessity for its existence that is. If they stick to this reconceptualizing, real progress can be made, even if (in response to other Varney questions) Geymann abjured from committing to the biggest discussion of all – whether all the revenue currently taken is necessary to support current spending levels, given the legitimate objects of government and optimal use of the people’s resources by it.

This new outlook conjoined to the group’s other goals enhances their worthiness as objects of implementation. Let’s hope the conversion on this issue is sincere, for substituting a focus on the disease rather than its symptoms increases the chances for a successful cure.

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