Do you remember Governor Edwards’ famous fear-inspiring threat of the Fiscal Cliff that really wasn’t? The disaster he projected if we didn’t pass more than a billion dollars in new taxes, that he would end LSU football and throw grandmas out of their nursing homes?
Well that was a great case study in political hyperbole, but it raises an important point. There is a valid political maxim that only a fiscal disaster will clear the way for serious reform of government. After years of personal experience pursuing incremental reform, I am convinced that only when confronted with unavoidable consequences of crisis will a governor and legislators abandon their safety zone and implement major changes that would ultimately benefit all.
Recent history clearly supports this maxim. Before Katrina devastated New Orleans, the school system was perhaps the most corrupt and assuredly the worst performing in the nation. It was dominated by unions and a school board whose main goal was not education, it was to provide money for their members, legal or otherwise. After Katrina a group of dynamic civic leaders saw the opportunity and took advantage of the situation by getting the state to collapse the old system and then to create an all new structure, absent the corruption of the past. The results are very positive, but this never would have happened except for that natural disaster. Opportunity literally presented itself from tragedy and we are better off for it.
Sadly, we may soon enough see if this scenario plays out at a state scale, most likely triggered by national recession or natural disaster. After decades in business, public, and civic life I have never seen an organization such as our state so primed for just such a crisis. The elements of fiscal disaster are complicated so stick with me for a moment;
We have almost $20 billion in unfunded accrued liabilities in our pension system, a sum that, though we are constitutionally required to, we would never be able to absorb. A system whose current cash demands are literally eating up the resources that our state and local governments need to run effectively.
We have a greater than $12 billion backlog in infrastructure repair needs, and that does not count new infrastructure needs that could help our economy. But we have no funds to meet a Federal match should there be a Federal infrastructure allocation. Worse perhaps, we have reached our state’s capital outlay limit. In short, very little more money is available for large infrastructure projects, period. At the same time local and state subdivisions and other bodies have undertaken their own massive debt loads. Though these are not counted as state debt, there is no doubt that the state would have to fund them in case of default and so they are de facto state debt and would contribute to fiscal stress on our state.
Moody’s Analytics has reviewed Louisiana’s fiscal health and determined that in the case of a moderate recession, one that is currently long overdue, we will need $2.5 billion to survive. In a severe recession that figure jumps to $3.5 billion. All we have saved is about $450 million and though we have had nearly $720 million in surplus the governor and legislature has spent all of it on things other than savings. How in a recession would our state find that extra $2 or $3 billion to meet the mandate of being balanced? Incredibly deep cuts just as Jindal had to make when the Katrina windfall dried up, that’s how.
Thanks to Governor Edwards’ profligate taxing spree we now have the highest taxes in our history. Further from Fiscal Office data we know that even without considering an economic downturn over the next couple of years, Medicaid alone is projected to grow by about $300 million per year of state taxpayer funds (much more in Federal funds). And speaking of Medicaid, in the case of a recession that $300 million will look like chicken feed, as perhaps hundreds of thousands of people enter the governor’s Medicaid Expansion. Because the governor failed to get a safety trigger from Obama so that in case of a recession Louisiana wouldn’t be financially devastated, we would be overwhelmed with added Medicaid cost.
After the first three years of Governor Edwards we are now spending at the highest point in our state’s history, rivaling only the spending insanity that followed Katrina. Current spending, mostly recurring spending, is funded by those highest taxes in our history. Worse, this spending is not strategically targeted to create growth for our state’s economy that could offset some of the cost in the future. Such spending by the national government under Obama and now Trump was just tacked on to the national debt. But Louisiana is mandated to have a balanced budget; Governor Edwards’ spending is not sustainable in a state whose economy has never really recovered from the Great Recession of 2008 and the intra-state oil recession that followed, an Oil Patch recession that was made exponentially worse by the governor’s unleashing of trial lawyer litigation.
So, there you have the underpinnings of a fiscal crisis of the worst magnitude. We are over-burdened with spending, sustain structural defects in our economy that hinder economic growth, taxed to the maximum, and sitting on the twin ticking time bombs of debt and pensions.
No, I am not gloating because I am foretelling a dangerous time ahead, though I do see a disaster unfurling. I sincerely hope that we have the political will to avert it, but I fear that we do not. The only possible avenue to escape this catastrophe would be to exorcise the cancer that lies dormant in our body politic. Have you heard our governor even mention anything other than doubling down on the very problems that have placed us in this unenviable position? I didn’t think so.
What I do hope for is that if my worst fears come true and we do end up encountering fiscal crisis, after it has subsided we make the right decisions to be fortuitous enough to take advantage of an opportunity of many lifetimes. This would be an opportunity brought on by the crisis to unburden our state from all that has held our people down.
We would start by engaging politicians and experts who have the vision and political courage to fundamentally address the issues that brought on the disaster in the first place. Then we would be able to rework government based upon best practices using the metrics of efficiency and efficacy. It would allow us to create a pension system that is good for our retirees but that won’t deprive the state or its subdivisions of resources. It would allow us to become economically competitive so that poverty is greatly diminished, prosperity enhanced, and our young people move back into Louisiana. It would allow us to have a health strategy (not just an insurance plan as Medicaid is) that assures that our citizens become healthier. It would allow us to create a priority system in which infrastructure will be addressed and we will use strategy in funding it so that it generates long term benefits.
Yes, I believe that we are dangerously close to a real fiscal cliff, triggered by Mother Nature or a national recession. I also believe that our leaders know it or at least should know it. But in Louisiana, tradition is that politicians have always operated by the “kick the can down the road” philosophy of governing; spend as much as you can today, as someone else will have to worry about paying for it later.
Under Governor Edwards our Pyramid Scheme of governance is rapidly accelerating toward its pinnacle and that is the explosive reason that I sense the depth of an impending fiscal crisis. I see no practical way to avert our ultimate debacle, though I would be ecstatic if, before it becomes too late, a new leader was to emerge to muster the support of the people to change our course.
That all being said, if my dismal prognostication does come true, then the positive upside is that we may be able to seize the opportunity that inevitably comes from disaster. Louisiana will then finally abandon the status quo and its fate will be in the ascendancy.