SADOW: The Fiscal Hawks’ Tax Amnesty Plan Is A Time Bomb For The State Budget

As the state’s fiscal years concludes, again one must wonder whether the penchant for the group of budget reformers known as the “fiscal hawks” to put style over substance is going to lead to worse fiscal problems for Louisiana.

The “hawks,” who forged an identity by declaring jihad against “one-time money,” or recurring funds collected from sources outside of the state general fund and nonrecurring money from things like asset sales and legal settlements, made the use of a tax amnesty program as the centerpiece of a plan to wash away a lot of one-time money from the recently-passed budget for the upcoming fiscal year. This was despite the irony and hypocrisy that amnesty proceeds either were nonrecurring in nature or one-time money themselves.

Of greater concern, and richer in both irony and hypocrisy, is that the use of amnesty now is defended on the basis of it being a more “stable” funding that will hit the $200 million mark inserted into the budget. This notion fails both conceptually and quantitatively, with history showing in fact the state is unlikely to collect that much this year (this is supposed to be drawn out over almost three years).

The last amnesty of 2009 pulled in more over its longer span, but only half of that amount could be classified as recurring by the state entity in charge of making that assignation, the Revenue Estimating Conference, and it was working with twice as many years of backlog. This makes it unlikely that $200 million will be collected for use for operating expenses in fiscal year 2014 – a number which it appears was conjured by legislators with no real reference to past experience.

Besides the quantitative error, calling amnesty money more stable than other one-time money rests upon a fiction constantly propagated by the “hawks.” In the past, most one-time money used by state government has been of the recurring kind, courtesy of “funds sweeps” where a separate bill takes surplus money from a variety of funds with dedicated revenue streams and statutory uses for them and transfers them to the general fund. These are monies that have grown far in excess of a lower-priority use that otherwise would have them lie idly or be used for something not really needed, as compared to general fund activities such as health care or higher education. Most importantly, this cash is not an estimate of what might come but it is real and sits in accounts actually available for use (even if that use is not the purpose of the fund and by implication not the reason they were initially collected.)

So it’s ludicrous to argue that amnesty proceeds, which haven’t even been collected, provide more stable funding than money already in hand. Yet the “hawks” have brought to mythological status the notion that one-time money is so unstable that it has caused mid-year budget deficits in recent years. A certain kind – the nonrecurring variety – can, because of the unpredictability of a sale amount or timing of a receipt of a settlement, but that always had constituted just a small portion of overall one-time money used. Rather, shortfalls have happened because of overly-optimistic forecasting in non-one-time money receipts, while one-time money receipts already are there and not subject to the errant nature of predicting. The “hawks” are at best disingenuous (if suggesting nonrecurring one-time money has made up any significant portion of budgeting; in fact, recent mid-year deficits have far exceeded that entire amount in any given budget year), at worst mendacious to implicate one-time money as a whole causes these deficits.

Unfortunately, this line of thinking led to amnesty funds not only being plugged into the FY 2014 budget, but also to expand the size of government. The budget from Gov. Bobby Jindal went to the Legislature asking for$24.560 billion in spending. Towards the end of the session the REC declared $155 million more available. After inserting amnesty and other things it came back to him at $25.383 billion. Taking out the elevated revenue estimate that meant the Legislature, helped by the amnesty provision, added $668 million in spending. Jindal subsequently got rid of nearly half of that extra through line item vetoes (including one of nearly $200 million because Medicaid expansion did not occur), but the larger point remains: if there is a mid-year cut needed of anything less than $400 million, it was that extra spending – signed off on by the “hawks” – which will be the primary cause of it.

And if that happens, that very likely would be as a result of the amnesty failing to pull in sufficient recurring revenues to cover higher spending. Which should discredit the “hawk” notion that one-time money – a relative $80 million pittance in the budget – is the root of all evil and that their actions created a more sure-footed fiscal foundation.

Whether that perception will change is another matter. Much of the state’s media publicizes uncritically the hawks’ assertions in these matters out of ignorance and/or because they see this as a wedge to drive into the state Republican Party that they personally oppose to render it less effective in governing. But not every of its members have missed the story about amnesty, and if the state revenue picture goes wrong over the next few months it may become obvious to more observers that the “hawk” crusade aimed against the one-time money product that ignores its source of too many dedicated revenue streams for too few important purposes is one of symbolic, not of substantive, fiscal reform.



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