SADOW: The Fiscal Hawks Are Making Another Mistake

Almost two years ago this space predicted that a desire by many Louisiana House Republicans to posture as budget reformers, leading to adoption of House Rule 7.19, would continue to haunt them. Another spectral appearance of the rule is about to cause them more grief.

This week, the House Appropriations Committee takes up the operating budget HB 1. As introduced, it contains in its roughly $24 billion (with a several hundred million more in ancillary and supplementary appropriations elsewhere) nearly $500 million in “one-time” money. There are two kinds of this kind of funding, one that is recurring where this money comes from other excessively funded dedicated accounts not diverted into the general fund, and a nonrecurring kind, which comes from one-off events such as property sales, settlements, and lending from other state-created special funds.

A number of representatives, almost all Republicans, wish to excise these monies from the budget. And the leverage they can use to cause this is the rule, which states that (in a year such as this where the operating budget of this year exceeds the prior year) any one-time money budgeted beyond a growth factor requires a two-thirds vote to be inserted into the budget. This year, the computation reveals that about $199 million may be implanted without triggering the rule. The Senate has no such rule.

When first adopted two years ago, the rule put the House GOP into immediate trouble. With vociferous advocates comprising roughly 35 members, they had enough effectively to cast a veto over the use of funds beyond the factor. The problem was it decreased their power while giving the moribund Democrat caucus new life. Those Democrats almost to a member have argued long and loud for tax increases if not more spending, and the rule creates powerful pressure for the former.

As some Republicans, even some of the group that favored the rule who have named themselves “fiscal hawks,” do not want to see spending decreased in the general fund from the belief that, principally, health and higher education functions, even with major restructuring, have seen enough reductions, then if one-time monies are sliced out the only alternative to balance the budget would be tax increases. This plays right into Democrats’ hands both ideologically and politically, with the latter aspect providing an opportunity to resuscitate the party if they can claim a Republican-controlled legislature (even with their assistance) raised taxes.<

So far this session, that bullet has been dodged, as Republicans have rejected tobacco tax increases that did not go entirely to nonrecurring purposes and resisted the siren song of expanding Medicaid coverage, which next year actually would boost state revenues but over the long run trap the state into higher costs. And in the past couple of years they have avoided it as well, courtesy of the Senate, the actions of which get around and neutralize the rule. For example, last year the Senate essentially restored money that the “hawks” had leveraged out of the budget and the House passed it to the governor that way, over the objections of them; in fact, nearly every of the 40 votes against it came from Republicans. Note that by their actions, the balance of budgeting power in the House shifted to Democrats.

But with HB 1 looming on the horizon as a whole Republicans risk political defeat that would enliven Democrats further, courtesy of “hawk” plans to come up with an alternative that raises taxes, because their fatwa against both the recurring and nonrecurring kinds of one-time money puts their party (minus Democrat Speaker Pro-Tem Walt Leger and no-party state Rep. Dee Richard who have aligned with group) in a politically unpalatable situation.

Any plan that does not cut expenditures any and cuts $500 million of revenues out will necessitate tax increases of some kind. While there has been talk of removing state tax exceptions, courtesy of his past year’s Revenue Study Commission, the fact is there isn’t that much out there that constitutes credits. That is, there aren’t $500 million of activities that state government subsidizes by its issuance of tax credits that can be cut by statute. Getting rid of any other kind of tax exception allows Democrats to argue Republican-led state government increased taxes (selectively, perhaps, but increased nonetheless). Gov. Bobby Jindal never will allow that without offsets elsewhere and would have no compunction in sending the Legislature to a special session to redo the budget without those terms if it came to that. More likely, the Senate restores the funds and the scenario repeats from previous years.

If the “hawks” wish not to neuter themselves again, they can have some impact without abandoning their jihad. The portion of nonrecurring one-time money covered by the rule, much higher than in previous years, appears to be about $144 million. They could present a plan that eliminates that, shunting those dollars to affect some nonrecurring expense such as the unfunded accrued liability of pension funds and/or eliminating them to some degree or entirely, while voting to approve the recurring portion into the budget. That way, they stay under the symbolic $199 million limit and the $144 million amount is something tractable by just two changes: repealing by the end of 2013 both the motion picture investor tax credit and the solar and wind tax credit. A half-year without the highly wasteful film and green credits would eliminate most of that nonrecurring amount and could not be presented by Democrats as a tax increase on anybody; in fact, it would appear as removing a presumed wealthy constituency from receiving tax benefits.

Whether they would take this alternative is another matter, for it implicitly would admit that recurring one-time money is acceptable for use – as it is by definition, for there’s nothing “one-time” about it; this money comes in regularly and predictably from statutory sources guaranteeing its appearance, and in excess of its genuine need to which it is dedicated. Only semantics from bookkeeping definitions allow it to be termed “one-time” money.

But, because the “hawks” have too much emphasized the symbolic aspect of budget reform rather than the substantive – which would entail tackling the disease through widespread elimination of dedications, evaluating what expenditures truly are necessary, and then matching the amounts and kinds of these revenue-raising tools to achieve this amount rather than simplistically declaring anathema to the product of the symptoms – they have put themselves somewhat into a corner. By pursuing this kind of deal, they may pay a political price in being called inconsistent and less serious – a tremendous irony because their approach of putting the symbolic before the substantive was itself a less serious approach to solving the problematic fiscal structure of the state.

However, politics makes for hard choices if you want to be effective. The best thing for them to do to remain anything but ineffective, assuming they cannot come up with a budget proposal that does not cut spending further in ways that provoke large-scale cries that reductions to higher education (the Jindal Administration purposefully tied the one-time money request to that area) will be counterproductive is to follow the plan above. Two useless tax breaks would be gone, very convincingly they could preach against the risks of using one-time money from nonrecurring sources, and they would wield positive influence in the budgeting process to produce something acceptable to almost all of the Legislature’s members and the governor. Otherwise, hoist on their own petard defending a make-believe principle, they become again largely irrelevant.

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