RESPONSE: Kennedy’s Plan Won’t Likely Save A Dime

This morning, state treasurer John Neely Kennedy posted a column here at the Hayride touting an idea he’s pushed for some time in which the state of Louisiana would reduce its consulting contract spending by 10 percent and apply the savings to higher education. Kennedy says, using numbers supplied by the Legislative Auditor, that his idea would free up $528 million in cash which could go to higher education – which he says has lost some $353 million in funding since 2008.

“Frankly, I don’t know how our schools keep the lights on,” he says.

We like Kennedy, and we’re happy to publish his writings, but virtually everything about this idea is snake oil and it would be nice if Kennedy would stop pushing it.

First, there ought to be a rule preventing politicians in this state from using 2008 as a baseline for funding of anything in state government. It’s one of the most patently disingenuous tactics possible, and it’s used constantly in an effort to convince people they need to pay more taxes.

That isn’t what Kennedy is doing, mind you, but he is making the case that Louisiana isn’t funding its colleges enough because they’ve lost $353 million since 2008 and he’s looking for money that can go toward restoring that funding.

What none of these people bother to mention is that 2008 was an absolute high-water mark for the Louisiana treasury – a high-water mark it will be a long time before we reach again. Thanks to the then-booming national economy, oil at $145 a barrel and billions and billions of dollars of federal Katrina recovery money, that year state revenues topped $30 billion.

State revenues are more like $25 billion now. Considering how much of what the state spends is dedicated, with higher education and health care being the primary recipients of non-dedicated funds, there is no way to go from a $30 billion state budget to a $25 billion state budget without changing the way higher ed is funded. And the Jindal administration has done exactly that – it has moved the funding out of the general fund and into tuition.

Yes, you’ll hear people whining about that. The fact is, though, so long as the state’s public universities are market-competitive and so long as they’re actually keeping their students in school on the way to graduation, a tuition model is a hell of a lot more sustainable than depending on the Legislature for funding. When the Legislature has 14 collegiate mouths to feed, which is a lot more than the state’s population and economy can actually support, it will never adequately fund any of them – and it never has.

Even with that $30 billion budget in 2008 the universities were still complaining that they needed more. And rather than recognize they were sitting on a windfall and put some of those funds toward non-recurring items, many of them decided to expand their operations instead – only to howl when the boom went bust and the money wasn’t there to sustain their new extravagances.

So it’s irresponsible to be complaining that higher education isn’t funded like it was in 2008. When Kennedy joins the Academic Left chorus in doing so, it’s suspicious. One might get the idea that in doing so he’s putting himself in the position of “LSU’s best friend,” which could be construed as positioning for the 2015 gubernatorial election against Jay Dardenne should Kennedy’s ally David Vitter not decide to run.

Whether that’s actually at stake here or not, the vehicle Kennedy is suggesting for funding higher ed is a lemon.

Does Louisiana waste money on consulting contracts? Of course it does. It always has. This state has since time immemorial offered up fatcat deals to campaign contributors and well-placed fixers who can help the politicians stay in office, and, politicians being what they are, state government has taken upon itself functions it has no business taking on and lacks the expertise in exercising those functions. Thus, there are lots of consulting contracts which shouldn’t be entered into at all – and lots of others where the contractor is getting fat at the taxpayer trough.

There’s no doubt money can be saved where the contracts are concerned, but a 10 percent cramdown is the worst way to save it.

Let’s say XYZ Consulting, LLC has a contract with the state to manage, say, processing of information at the Department of Motor Vehicles. Let’s say it’s a super-fat contract but the work is something which has to be done. And let’s say Kennedy gets his way and the DMV comes back to XYZ Consulting and tells them they’ve got to take a 10 percent haircut.

XYZ knows the DMV has to have somebody do that work. They also know there aren’t a lot of other people who can make a qualifying bid for the work.

Their response to the demand for a 10 percent cut in their rate? “We refuse.”

They can sue the state for breaching the contract. Or they can declare the contract void and stop performing work.

In that case, the state has to re-bid the contract. Chances are, XYZ bids again – and chances are, they aren’t bidding at 90 percent of what they were getting before Kennedy’s idea kicked in.

Maybe the state saves money with somebody else, and maybe the work gets performed at an acceptable quality.

Or maybe not. Maybe you end up with worse work at a higher rate. And maybe you end up with a heap of legal bills from contracts you breached to boot.

This is a colossally bad idea, and it reeks of an unserious fiscal mindset. It would seem to violate a budgetary Hippocratic oath.

What Kennedy ought to be doing if he wants to attack consulting contracts is to copy a page from Sen. Tom Coburn, who puts out an annual Wastebook on federal spending replete with examples of stupid spending. Kennedy has talked about dumb consulting contracts the state has let in the past; he needs to focus on those examples and try to get as many of them killed as possible – and to be as aggressive as possible in defining contracts as superfluous or unwise.

In doing so, he’ll be helping to shrink the size and scope of state government and devolve power to local governments or the people in general. That’s a worthwhile pursuit, and it definitely will produce some savings the state could plow into higher education.

But a 10 percent across-the-board cut? That will probably do more damage than good. It’s a drive-by solution, and it won’t accomplish what Kennedy says it will. He can do better than that, and he ought to begin trying – particularly if he wants to position himself to run for governor.

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