SADOW: The Oil Spill Bill Is Going To Lead To A Tax Hike As Is

It’s the ultimate in windfall money, but strings attached to some of its use threaten to create a budget situation where spending the bonus on recurring expenditures ultimately leads to a tax increase.

HB 1241 by Rep. Cameron Henry would take money from a resolution of court claims by Louisiana against BP for various damages because of the Macondo oil spill of 2010 according to state law (although the case will be heard in federal court), even as the company is on the hook already to the federal government, state government, and individual citizens for around $15 billion. No one know what the amount will be, or when it will be.

But HB 1241 anticipated it willbe in the $1 billion range at least and come within the next fiscal year, and has plans for the dough. Through some legal machinations, the state is required to cough up about $356 million for the Budget Stabilization Fund, and even if the proceeds are coming from something unrelated to a state savings account, in the spirit of the BSF as a repository of windfall money, that’s an appropriate and none-too-soon, given the legal imperative, place for it to go.

However, the bill shunts the remainder of what gets raised up of at least $281 million to around $700 million to the Medicaid Trust Fund for the Elderly, which has nothing to do activities related to offshore oil exploration and the coastal impact of the disaster, to a fund where there is no imperative for it to receive any money. This fund, born from resolving a dispute with the federal government over its Medicaid payments, acts as a reservoir to prop up reimbursement rates to nursing homes for Medicaid recipients unwisely set into law in 2006.

Gov. Bobby Jindal and the Legislature have siphoned larger and larger amounts of it in recent years to use state money in other places in the budget to stave off cuts, where this spending reached (in fiscal year2012, the latest data available) $771 million. So much that, with the amount budgeted for next year, the fund will go close to zero (its only revenue sources being investment earnings, fines paid by nursing homes for violations, and specialty license plates).

So while this would replenish the fund to levels, Henry hopes, of the time of the spill in 2010, it sets up the possibility to flout brazenly the ideology he and a number of others in the Legislature have espoused since this term of theirs began: bonus money should be spent only on bonus items, in this case the obvious focus being on coastal restoration, not on recurring expenditures. Of course, he and others may conceptualize this funding as kind of bonus asset if the MTFE keeps that money as principal and supplements reimbursements with investment earnings.

However, that idea already misses the mark in that the MFTE began with $500 million as the original windfall; the 2010 level included investment earnings as well, meaning $200 million of that replenishment equates to replacement of recurring money (captured through continuing investment) with the bonus. And it threatens over time to eliminate potentially all of it, spent on recurring items, in part because of an action taken by the Legislature last year, where to try to avoid that most likely leads to tax increases.

Whittling it all away again may occur if the public approves of a constitutional amendment put up by the Legislature on this fall’s ballot. That essentially would lock the statute’s reimbursement rate into the Constitution and provide an escalator clause. This is unwise on many levels, but chiefly because it creates an incentive for the state to continue to over-rely on higher-cost nursing home care for the disabled and elderly instead of home- and community-based programs, costing taxpayers needlessly more and inviting legal action against the state. A plumped fund only encourages voters to adopt the reckless constitutional change.

If that happens, perhaps replenishment even with the noxious idea of translating bonus bucks into recurring expenditures triggered by trying to keep up with ever-increasing reimbursements (aggravated by baby boomers moving into their dotage, which at least would have the salutary impact of filling up the excess capacity of nursing homes that the state currently helps carry) might be a good idea. Except that Henry had his bill amended to make it more difficult to use the money in it by requiring a two-thirds vote to withdraw from it.

This makes it much less likely the fund would get used and strengthens the hand of those who wish for various reasons to see higher taxes in the state. For example, a determined third of either chamber of the Legislature that thinks more wealth redistribution through higher progressive taxation would be a good thing could block any money at all ever being used from the MTFE. Or maybe they would relent, in exchange for using money freed elsewhere for their own pet projects and programs normally opposed by the majority. And as these expenditures consume about 3 percent of the entire state operating budget, that’s quite a bit of leverage. To make ends meet if such obstinacy succeeds, they would force legislators to choose to cut elsewhere and/or raise taxes.

If Henry hasn’t thought this through, he needs to understand that’s the practical impact of the amendment. If he has, he’s either betting on future cutting of the budget (even though in last year’s budget he supported increased spending) and/or raising taxes (also in last year’s budget) – and the former may end up less likely that the latter unless meaningful fiscal reforms such as doing away with wasteful tax breaksand inefficient dedicated funding that free up funds get done and done soon. And certainly actions that force spending more money, such as approving the MTFE amendment, provide even more pressure to hike taxes.

Neither Henry nor his colleagues have shown the courage to tackle either of these necessities, so policy-makers need to avoid the deleterious effects this bill would encourage. At the very least that amendment needs stripping; better still would be to put $200 million fewer dollars into the MTFE and more into the BSF (whichconstitutionally could go up at present to around $1 billion), which puts the MTFE at its original amount and the BSF near its maximum and allows the state increased latitude to fulfill future genuine needs. But in its present state, HB 1241 serves as a compelling invitation for Louisiana to reach into its citizens’ wallets.

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