“Refilling Rainy Day Fund Clouds State Budget Prospects” read the headline in The Lens, a New Orleans publication. Tyler Bridges wrote an insightful article about the need for the governor and the Legislature to come up with $323 million by 2015 to pay back the Budget Stabilization Fund as required by law. The headline and the story brought back memories about the creation of the Budget Stabilization Fund and the poor choices made in the recent past that resulted in a lawsuit that is forcing the state to do what it should always do willingly: follow the constitution.
Almost 25 years ago, Louisiana voters adopted a constitutional amendment that established the Budget Stabilization Fund (BSF) referred to now as the “Rainy Day Fund.” Many people today think of the fund as a “piggy bank” to borrow against when state revenues don’t match desired levels of spending. That is a misconception. The main purpose of the BSF was actually to serve as a barrier from using highly volatile revenue sources and one-time money for recurring expenditures in the state budget. As originally crafted, the legislation required that any oil and gas revenues in excess of $750 million go into the BSF. Additionally, the constitutional amendment required that 25 percent of all budget surpluses go into the fund as well to prevent those dollars from being used for recurring expenses.
Why is there a $750 million threshold? I can answer that from personal experience because no one lobbied harder than me for the creation of the fund: The Legislature never thought the revenues would reach $750 million. Years later when the oil and gas money did come close to that limit, legislators raised the threshold to $850 million.
The legislation creating the BSF does allow the Legislature to take up to a third of the fund and place it into the general fund in any year in which the budgeted revenues fall short of collections. In the event that mineral revenues exceed $850 million in a year that the BSF fund is tapped, the revenue over $850 million must still be deposited into the BSF. That scenario happened a few years ago, and the Legislature revolted against the requirement to deposit excess mineral revenues into the fund. It passed a statute that purported to disallow the necessity for any deposits into the BSF until an uncertain future date. LABI strongly opposed the use of a statute to try to undermine what the constitution clearly required. We were steamrolled, the statute passed, and the legislature did not repay BSF, as clearly required by law. Unfortunately, all legislation is deemed constitutional unless and until it is overturned by the court. Consequently, a lawsuit was filed to require deposits into the BSF in accordance with the constitution.
State officials obviously understand that they are on shaky ground in the litigation. The Legislature, with the agreement of the governor, quietly passed legislation in the 2013 session that requires deposits to resume into the BSF beginning July 1, 2015. I will never forget the venom and arrogance on display toward LABI when we strongly objected to the illegal ploy the state officials were using to avoid the constitutional requirement for these deposits. The leaders at that time obviously felt that they had the right to do whatever they wanted. They now realize they are not above the constitution, and they have to face the consequences of not following the law.
I can only imagine what would happen in the future if our state officials had gotten away with suspending constitutional requirements by simply passing a statute. Fortunately, that action went to court, and now those officials will endure a $323 million lesson in proper respect for the constitution.
To read the Tyler Bridges article about the Budget Stabilization Fund in The Lens, click here.