SADOW: Kennedy’s Hypocrisy Shouldn’t Distract Budgeting Debate

It doesn’t mean necessarily he was entirely wrong, just that he was entirely a hypocrite when Louisiana Treasurer John Kennedy voted against a recent State Bond Commission action for the reason he stated.

Last week, the SBC took up a proposal to pay off $210 million in debt prior to the end of this fiscal year Jun. 30. By doing so, in essence it could forward that amount of money into next fiscal year to pay for operating expenses, which is incorporated in Gov. Bobby Jindal’s budget. This passed 13-1 with only Kennedy, by law the chairman of the SBC, dissenting.

His public remarks explained his vote: he claimed the money did not come from unencumbered, recurring sources but rather from unpredictable, bonus kinds of money that more properly should not be recycled in a way that they could be spent on future, recurring items. While entirely legal, he decried the move violated the spirit of wise budgeting practice and likened it to using a credit card to pay off a monthly bill that only will reappear a month later.

Regrettably, he didn’t quite get that right. Six potential sources of revenues were used to cobble together that $210 million and other funds for other uses, all declared by the Revenue Estimating Commission to be nonrecurring in nature. The REC at least once in a budget cycle makes declarations about funds as recurring or nonrecurring, and the latter may be used only for a few purposes such as for debt defeasance.

Of that, as outlined in HB 1094, $172 million could be said to come unambiguously from recurring state general funds, but were declared nonrecurring because they were in excess of what had been forecast the previous years prior to this fiscal year’s budgeting. Had back then the REC had better divination and raised its forecasts by that amount or more, these would have been classified as recurring funds for this year. Thus, it was a matter of inaccurate forecasting, not any innate nonrecurring nature to these funds, that nonetheless got them categorizes as nonrecurring.

Assuming all of these went to the defeasance this left $38 million more. The five other sources all are nonrecurring in nature: unspent capital outlay bucks, bonus funds from debt recovery that used to go directly to agencies involved, bonus funds from new fraud recovery measures, money from a fund to be spent on housing loans, and money from a fund to be spent on New Orleans’ Ernest N. Morial Convention Center’s capital outlays. One could argue that the bonus funds anticipated to be $42 million are predictable enough to be considered recurring, but since these are new initiatives, nonrecurring status more likely fits them.

The others certainly are nonrecurring, but one, the Convention Center fund, is highly predictable. As previously noted, its financing structure, with some revenues derived from state sources and all necessarily authorized by state law, produces millions in surplus every year that has led to its sitting on hundreds of millions of dollars. The state’s plan is to borrow $50 million from it and then make a 3:2 in-kind trade of capital project financing sometime in the indefinite future, meaning ultimately the state builds an extra $25 million in capital projects concerning the Center as opposed to something else. Whether that is important enough of a capital need is debatable, but it does use money that to the authority running the Center is recurring. Using all of that leaves $12 million to spare.

So a much more accurate analogy than Kennedy’s for the maneuver is this: to justify next year’s budget, you used money that you found because you underestimated your paycheck last year, and then you dipped into your Christmas savings account that means you’ll put off a gift purchase you promised to someone that you will eventually make, combining the two in order to pay for a grocery gift card you’ll use over the next year. Using the housing fund and forgone capital outlay money would analogize even more distantly from Kennedy’s, such as by replacing the savings withdrawal with money saved from deciding not to buy something you don’t really need. And the analogies hardly have anything in common if that remaining money from the bonus is used, because this is getting funds from having gone around and gotten some of your debtors to pay up, with the prospect of more from others in the future.

But even if off on the comparison, Kennedy’s action goes counter to one he took at the Jun. 16, 2005 meeting of the SBC, where unanimously it approved of a defeasance of almost $63 million for the same purpose. Of that, Act 138 of 2005 authorized about half of that amount to come from state general funds, also considered surplus and therefore nonrecurring, and the other half or so came from a funds transfer of what today would be called “one-time money” from the Mineral Revenue Audit and Settlement Fund, which by statute is a pass-through device for spending on behalf of the Wetlands Conservation and Restoration Fund, a constitutional pass-through device for funding tied to the federal Coastal Wetlands Planning, Protection and Restoration Act, up to $35 million and thereafter on to defeasance. Again, it’s all legal, but it has the same effect of “laundering” nonrecurring funds into recurring funds.

So what’s different now than then for Kennedy? It’s hard to see what hair-splitting he can attempt here to justify different decisions on the same issue that would not leave him open to charges of acting from political convenience rather that principle in being the decisive dynamic behind his contradictory behavior.

Not that his inconsistency should detract from the larger point that a more rational revenue collection system should be put into place. For example, why doesn’t the state revoke any of its funding directed to the Convention Center and divert it to general sources instead of letting these pile up so excessively that using them for that fund’s original purpose would cause building a complex resembling a palace with palatial grounds around it? Or, more generally, that the legal ability to turn nonrecurring into recurring funds with only a penalty of waiting a year may increase the chances of unanticipated problems down the road, and should be used sparingly if permitted at all — if, that is, misestimation of revenues in the previous years so taints those funds?

But Kennedy inveighed against the principle without explaining why it matters now and it didn’t nine years ago. And this posturing that makes him appear hypocritical thus unfortunately distracts from that very message his vote could represent.

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