SADOW: Don’t Spend That New REC Money All In One Place

Gov. Bobby Jindal and the Legislature’s “fiscal hawks” everywhere ought to be glad that the Revenue Estimating Conference agreed on a higher forecast for revenues eligible in spending for this current fiscal year and the next. They’d better be, because unforeseen expenses might gobble up a good chunk of this grand fortune.

The REC adopted a forecast that predicted $129 million more in revenue to finish up this year, and $155 million more available for the next. It appears part of the former amount ought to be spoken for, according to testimony given by Education Superintendent John White, stemming from the recent court decision that invalidated the funding mechanism for the state’s scholarship voucher program.

As part of that case, the state’s Supreme Court also redefined that legislative instrument responsible for funding the state’s Minimum Foundation Program, calling it really like a law despite its legal designation as a resolution. The MFP is a formula created by the Board of Elementary and Secondary Education, which employs White, to direct state funding to school district operating expenses and must be accepted or rejected by the Legislature by concurrent resolution prior to the end of a regular session. If rejected, the previous year’s formula remains in place.

By terming the resolution akin to a law, this meant a different set of rules for legislative action applied to its passage in 2012. According to those rules, the Legislature unknowingly did not have enough votes to pass the measure given its timing in the legislative session, as all indications were it was following the correct procedure. Thus, with the 2012 MFP formula not in effect, then funding must be done on the basis of the 2011 formula.

According to White, the 2011 formula will cost the state $30 million more for this year, and another $27 million potentially for next year. That prompted the Senate Education Committee that he addressed to ask BESE to redo the 2013 formula. Previously, BESE chairman Chas Roemer said the current 2013 formula should serve. The funding dispute originated because the 2012 formula included funding for families who sent their children to private schools on the program, but Roemer said with the court’s redefinition in essence the headcounts on which the figures were computed would decrease and therefore that would reduce the total appropriation by an amount that then separately could be appropriated for the program.

Assuming this happens, then out of this year’s surplus could come the $30 million, and also the $45 million White now says will be needed for next year’s program operation. That would be the best strategy with only 45 days to go in this fiscal year, to make up for the 2011 formula-induced gap, and then bank the rest for next fiscal year – not only to fund the program, but also to pay for a possible major faulty assumption made by the “hawk”-induced budget that passed the House of Representatives.

That’s because this budget not only counted upon $90 million of that surplus being realized – leaving available from this year carried forward and for next year $164 million – but also a tax amnesty that it values at $200 million for operating expenses for next fiscal year. Unlike past amnesties, with the most recent being in 2001 and 2009, the proposed 2013 version is to last greater than a few months, 24 to 30 in fact.

That unusual aspect was chosen as an attempt to dodge statutory and constitutional requirements, which state that the REC must make a declaration of recurring or nonrecurring portions of an amnesty, with the former being money accelerated in collection and the latter being funds that otherwise never would have been collected. In 2009, it estimated that haul was comprised of about half and half. This length of the program life was selected to make it appear that all collected would count for recurring funds, crucial because with the length of time of tax years covered (four years since the last as opposed to eight previously) one could expect half the ultimate take, and if half again is deemed nonrecurring, that’s only around $125 million.

And it may not even be that much. With a much longer window involved, payments may be backloaded and less would come in for the upcoming fiscal year. Also, some may not come in because with this being the third amnesty in a dozen years, scofflaws may have become “trained” to resist paying up now hoping for a relatively quick future replication.

But the most compelling reason to doubt the existence of $200 million ready to be plugged in comes from comments by one of the four members of the REC, economist James Richardson, a faculty member at Louisiana State University Baton Rouge who serves as the nonpolitical appointee to the REC, which also has the Speaker of the House, President of the Senate, and governor, or their designees, serving on it. Decisions made on the recognition of funds must be by unanimous consent.

Richardson has announced that he is extremely dubious that all of the amnesty funds could be classified as recurring. Unless he changes his opinion, some significant portion of them will be declared as nonrecurring. If that happens, unless that is budgeted, then a big budgetary hole would open up probably early next year. And the other three will come around to his way of thinking because otherwise all of the money is unrecognized for any use, period.

So, perhaps $100 million of what projects to be left may end up supplementing amnesty proceeds, with a good strategy for the rest being to keep it on hand to prevent any more surprises popping up during next year. That will face resistance from all sorts of claimants of reduced budgets, if not terminated programs, from this year, but policy-makers need to hold firm to spending as outlined above, assuming the approved House budget stays in its current form, and holding on to the rest, in order to meet commitments and ensure a margin of safety for next year.

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