SADOW: The Morial Convention Center Flap’s A Great Argument For Fiscal Reform

For the third year running, Gov. Bobby Jindal proposes taking money out of the Ernest N. Morial New Orleans Exhibition Hall Authority, with this year’s edition posing the same dilemmas and similar opportunities to allow policy-makers to fail to make the necessary corrections to make budget policy-making simpler and more accountable.

This is a state special district that oversees the Morial Convention Center and related lands and properties. It’s funded from a variety of sources, including from state taxing authority, city taxing authority (that expires at completion of its most recent capital projects), surcharges on Regional Transit Authority tickets, a state grant based on hotel occupancy, and its own fees for service.

All of which have been very good for its bottom line. Through 2012, it sat on $636 million in asset value, of which was $171 million in unrestricted current assets while for that year it cleared $44 million in cash, while having only $161 million in debt tied to supporting $226 million in capital assets with another $169 million paid for – meaning it could pay off at any time all debt related to its facilities by writing a check. This is why that year it easily could afford to have $20 million transferred to the state in 2012, of which $10 million came back in capital contribution and the remainder due last year.

Jindal wanted an arrangement for a similar deal for its 2013 fiscal year – get idle cash now, pay back with capital projects later – except he jacked the figure up to $100 million. While the lower figure had elicited no dissent from the Authority or local legislative delegation, this higher figure did, and the idea was scrapped as a result with tax amnesty proceeds eventually filling in the hole.

But a proposal for this year’s budget, siphoning $50 million, has been much better received by the Authority, and as yet has not drawn complaints from most of the local delegation because the budget contemplates (the transfer of which must be done through legislation separate from the general appropriations bill) replenishing the Authority with $75 million worth of capital expenditures over three years. Still, this leaves some officials wary because, they argue, the repayment is promissory, it costs the state $25 million more, and it represents a use of debt for state expenditures.

Although legislation must authorize the transfer from the Authority to the state, subsequent legislation binds the repayment in kind. Treasurer John Kennedy argues that a future governor – term limits would have Jindal as governor for only a few days into the 2016 year for the Authority – might not honor the last $25 million of capital expenditures paid for by the state by including it in a future operating budget. But Jindal could include it also in the FY 2016 budget, and if he didn’t his successor seems unlikely to renege in the FY 2017 budget given the negative publicity and relationships it would spawn. Even if he did, the Authority would be no worse for the wear, having gotten the equivalent of $50 million back and being out only the time value of the amount, as in the case of the $20 million.

It’s important to remember that the Authority is not a separate, independent entity of the state. Existing legally as a political subdivision of the state, it operates only through powers granted by the state. In this sense, the revenues it raises to operate, accumulate cash, and build assets serve as a kind of dedication, and like almost all of its kind in the state (a very few are protected legally from use of their funds for something other than their legally dedicated purposes) legally may be subjected to removal of funds to a certain point. So in a way, this deal is just shuffling money among accounts, and if the state chooses to divert one way and later divert 50 percent more back, or not, that reflects nothing more than a policy choice about where to spend money. (Also worth keeping in mind that the state loaned money to the Authority that is continues as part of its long term debt, illustrating the intertwining further.)

So if the Legislature assents to the funds sweep bill where this item would be included, and then to future general appropriations bills governing repayment, it tacitly agrees that the Authority is to spend likely $75 million more on capital projects than already budgeted. It has such building plans on the boards – funding for which was vetoed by Jindal last year when a separate bill attempted to create another way for the Authority to borrow. He explained his decision in that the method outside of the normal capital outlay process might count against the constitutional limitation of net state tax supported debt – perhaps as a prelude to enabling the Authority to have debt funding for it but in the state’s name that also would count against this limit. Put another way, if the Legislature would not cooperate to finance the debt the way Jindal wanted, he would set up a mechanism to entice all concerned to see it his way, with the current deal. But, again, the net result is the same.

Nor does the deal count serve as a means of converting debt proceeds into cash, as it uses a different source of debt – state-backed for Authority purposes – but debt nonetheless. But what it does do is replace state capital outlay expenditures with those of the Authority, with an additional $25 million thrown in, as a critic from the previous attempt state Rep. Cameron Henry observes. Again, though, if the Legislature goes along with this, it gives it consent to these kinds of priorities.

Actually, all of this transactional complexity to the point of absurdity that draws complaints from the likes of Henry is something the Legislature forces upon itself. There’s no reason the Authority should have, courtesy of state sources, so many tens of millions of dollars of extra revenues coming in annually, building up idle funds that never will be used for the purposes of the Authority unless it goes all Nicolai Ceausescu palace-building. Much less stupidly, the Legislature could change the laws to reduce these, perhaps diverting them to other purposes to obviate this rigmarole.

Unfortunately, the political courage to do that commonly escapes legislators unwilling to buck special interests that agitate for these streams to continue and because it would lend less credibility to excuses they make to prevent carping by budget losers, about how they are “forced” into having monies spent on certain purposes. They’d rather throw up their hands and let funds sit idle or go through complicated exercises that promote obscure budgeting, divisiveness, and opportunities to grandstand against the very practices they refuse to change.

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