APPEL: Don’t Forget About The Post-Katrina Budget Crash

How soon we forget.

After Hurricane Katrina, a populist Democrat governor and a willing Legislature got the news from the state fiscal folks that Louisiana was flush with cash. They then went on a spending spree, the magnitude of which was unknown even to Huey Long. The worst part of this spending orgy was that so much of what they obligated was recurring expenses that grow over time, and the Katrina money was one-time, lasting only a few years.

When the people elected Bobby Jindal, it was on the promise of no new taxes to pay for all the spending folly that had proceeded him. His approach was valid, good government and fiscal sanity demands that a state must always live within its means. And even though the media and the bureaucracy hated him and his policies, the people approved of his tactics by awarding him a 71% vote victory at re-election.

Jindal, perhaps to underpin his misguided Presidential bid, failed to act on the principle that in order to keep in balance there are always two sides to the economic equation, revenue and spending. He justifiably froze revenue increases, but he did little to make long term corrections to the recurring spending excesses that were a by-product of Katrina.

As noted above, at the start of his second term the people were supportive of Jindal’s policies, but that quickly waned under a withering media blitz fed by an irate state bureaucracy who together with the governor’s people created the infamous but false concept of a “fiscal cliff.” Jindal’s should have demonstrated a strategy to prioritize long-term spending and to accept time-limited, minimal tax increases to solve immediate problems. But he fed into the narrative by not doing so.

In the next election cycle, the media championed a back-bench populist Democrat in John Bel Edwards, whose campaign hype was that we were facing that $1 billion fiscal cliff. In reality, anti-Jindalites had crafted the concept of the fiscal cliff using worst-case metrics, questionable growth factors, and budget items that historically had never been legislatively funded. The raising of new revenue may have made limited sense had it aligned with establishing priorities for spending and with reform plans to create an overall strategy but that never came up.

Instead, the press had a field day repeating the governor’s false narrative of a fiscal cliff, when in fact what the people were being sold was the unwise concept of a huge blanket of new funding covering everything just as it was after the Katrina splurge, only at higher levels. Sadly, the timing offered the rare opportunity for a new governor to reform government on the basic principles of efficiency and efficacy, but as we now know that was never in Edwards’ thinking.

After six years in office Edwards’ outcome metrics reflect the highest taxes in state history, yet do not demonstrate how this spending has resulted in any progress whatsoever for Louisiana citizens. The most poignant metric of these may be the growing out-migration of citizens and companies fleeing a state in which they pay taxes comparable to other states but in return find fewer and fewer opportunities for prosperity.

So, the lesson from our history is to never trust a politician who promises that the future will be bright only if we spend all that we have and then some. In fact, we may be assured that the only guarantee is that those politicians will take credit for delivering shiny new stuff even as they kick the can on tax increases down the road for some future governor and legislature to extract for citizens.

I am not against infrastructure or better education or improvements in any other state obligations. I am against blindly following the old misnomer that improvements in outcomes only follow spending increases. Nonsense, improvements follow implemented best practices and may or may not need new funding. Infrastructure must be built and maintained, but the state’s obligation is to do so on a continuing basis and using honest full funding priorities. Gimmicks sound good now, but in the end, they bring misery.

Build it, yes, but only when there is a trustworthy way to pay for it.

And how does our history fit today? Governor Edwards with glowing support from the media released his plan to spend a COVID induced windfall. As we should expect, his plan was full of big-ticket capital outlay and recurring expenses, bright shiny objects meant to cement his legacy, but whose cost our people will have to bear in the future, long after he leaves office. We are to forget the lesson of the Blanco-Jindal-Katrina windfall years.

A few examples: he plans to spend $500 million on a new bridge in Baton Rouge and $187 million on one in Lake Charles. The problem is that Baton Rouge bridge will cost as much as two billion dollars and the one in Lake Charles equally more than he has allocated. I suppose Edwards thinks we will be satisfied with half of two bridges, but the reality is we will be on the hook for a couple of billions to finish them, funds that are not readily available. Now that does not mean the bridges are not needed, but his partial funding scheme is smoke and mirrors.

And education. He comes right out and says that he plans to will spend huge sums on recurring education funding, but not a word about why in his years in office nothing has been done to improve education, nor how more spending without the courage of substantial reform could ever be expected to do any good. So once Biden’s largesse ends, his education plan will be to have kicked the can right down the post-Katrina “Yellow Brick Road” by giving recurring millions to his political friends and not asking them for anything in return for the kids.

One final issue that our governor and the media have selectively ignored. When I left office three years ago the Unfunded Accrued Liability (UAL) for the state pension plans was short around $11 billion (that is right – $11 billion), and I suspect it may be much more today. By our Constitution, a significant percentage of that has to be paid down by the year 2027. The last I looked 2027 is about five years away and yet this governor (nor in fact Jindal) has offered no plan to satisfy this debt. In Louisiana history of all the cans that politicians have kicked down the road the UAL is by far the largest ever conceived of. And, though the media is silent and unlike the faux “fiscal cliff,” this crisis is real and isn’t going away.

Edwards does not care. When the debt is due, though he will be long gone, we will not be.

My friends, do not forget that history is prologue. The Edwards spending plan feels good and will appeal to many legislators. But in fact, it is a clear example of really bad governance. The governor should show us how we pay for those two bridges, how dumping millions into a broken education system will help kids, and how we can produce billions to pay the UAL.

History tells us that a populist politician such as Edwards will spend us into insolvency as long as he knows that that our misery will not kick in until after he has left office. It also tells us that as long as the media ignores the implications of our history our need for a balanced media is but an unfulfilled promise. The danger to our democracy lies below and unbalanced media. The people must depend on a media that only accepts the governor’s account of the issues, but on a media that skeptically evaluates all the facts before publishing. As in the current case the media should give fair representation to the ramifications of massive spending when it is not aligned with a consideration for the long term.

Let us be real, this train has left the station. Our people will be spoon-fed the glories of all the shiny new objects that the governor has dangled in front of us. And doubtless the legislature will be willing to go along with his spending because, as we well know, they too are susceptible to kicking that can! The result will be continuing malaise and, sometime in the future, a true fiscal cliff leading to big tax increases.

No, let me rephrase that, without changing the course of our history by 2027 there will be astronomical tax increases.

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