Government & Politics
 

Jindal tradition: Faulty revenue estimates lead to mid-year budget slashing

Gov. Bobby Jindal is five-for-five in an area where he gets no points for perfection.

During each of his five years in office, Jindal has produced a budget that overestimated how much money his administration would get to spend. The result? Mid-year cuts that have, among other things, reduced spending on classroom equipment at universities and for programs that assist battered women, the disabled and poor children.

Jindal administration officials blame the cuts on factors outside of their control – such as the economy producing lower-than-expected tax receipts — but promise to get it right in the fiscal 2014 budget now before the Legislature.

The Fiscal Hawks have their doubts. A group of conservative House members critical of Jindal’s spending practices, they blame the annual mid-year cuts on the governor’s steady use of gimmicks to balance his budgets — in particular, one-time and contingent funding. .

And the practice hasn’t stopped.

The Hawks note that the upcoming 2014 budget funds state colleges and universities in part by using $449 million available next year only – i.e., one-time funding. Contingent funding from a non-repeatable financial transaction, such as the sale of state property, also makes up part of the $449 million. To cite one example, the Jindal administration is expecting to sell a state insurance building in 2014 that it also expected to sell in 2013.

“The problem is that some of that may not materialize,” said state Rep. Lance Harris, R-Alexandria, who leads the House Republican Caucus. “If it doesn’t, you have to cut.”

The full story of Jindal-era mid-year budget cuts  is more nuanced, said Louisiana’s most important economist. Jim Richardson is a veteran Louisiana State University economics professor who is the only non-partisan member of the Revenue Estimating Conference. The group determines officially how much money the state can expect to have available in the coming fiscal year, placing it at the heart of the budgeting process.

Richardson said that the conference’s overly optimistic revenue forecasts have played a major role in the Jindal budget problems. He also said that the Jindal administration, in its zeal to not raise taxes, has been overly reliant on one-time money to balance its budget.

“Using one-time money for one year is not bad policy,” said Richardson. “It’s not good when it has to be there every year.”

He noted that the Jindal administration is proposing to have one-time and contingent funds pay for 19 percent of the spending on colleges and universities in the budget now before the Legislature.

“That will have to be replaced next year either by other one-time money or a real growth in state revenue that we haven’t seen before,” Richardson said.

The Revenue Estimating Conference was created in 1987 by the Legislature and Gov. Edwin Edwards following sharp criticism that Edwards had used fantasy figures during the Oil Bust years to project balanced budgets that ended up deeply in the red.

“The conference’s purpose is not accuracy in projections,” said Greg Albrecht, the chief economist at the state Legislative Fiscal Office. “Its purpose is to ensure honest errors. You know its numbers will be off. But you don’t want one side or the other to be gaming the numbers.”

The conference has four members: Richardson, the speaker of the House, the president of the Senate and the governor, who typically designates the Commissioner of Administration to represent the administration. They meet at least four times a year to assess spending and income projections for the state — with one set of  numbers supplied by  the Legislative Fiscal Office and the other by the Division of Administration — and then determine unanimously the amount available for the state. If spending is outpacing income by mid-year, the administration must make cuts. The conference will meet next in late April or early May.

As Richardson readily admits, the conference has over-estimated state income during Jindal’s five years. But no one can fairly claim that this has been done to hurt the governor since the Commissioner of Administration works for him and the House speaker and Senate president are his political allies.

“In an $8 billion or $9 billion state [general fund] budget, you’ll be off one way or the other by $100 million,” Richardson said, before adding, “It is a lot of money, of course.”

Revenue Estimating Conference: the Jindal years

Fiscal year Over-estimate Mid-year budget cut One-time funding
2009 $341 million $341 million $420 million
2010 $197 million $248 million $86 million
2011 $0 $107 million $670 million
2012 $198 million $251 million $449 million
2013 $129 million $166 million $272 million

source: State of Louisiana

While the Revenue Estimating Conference estimates how much the state has to spend, the governor can exceed that amount by projecting that the higher spending will be balanced by sufficient income. In recent years, the Jindal administration has justified higher spending in part by using the one-time and contingent money. Louisiana’s constitution requires that expected expenses not exceed expected revenues for the fiscal year.

For fiscal year 2013, which ends on June 30, the Jindal administration must make up a deficit now pegged at $88 million.

Michael DiResto, a spokesman for the Division of Administration, said in an email that “there is no ‘gap’ because we fully anticipate receiving all of these funds before the end of the fiscal year.”

Of the $88 million, DiResto said $56 million would come from an insurance settlement for property damaged by a hurricane, with the money expected to arrive by the second week in May.

Of the remaining $32 million, DiResto said, $1 million will be taken from a fund dedicated to a specific purpose, $10 million from a FEMA reimbursement, $11 million from the Louisiana Housing Finance Agency and $10 million from an advance lease payment from a private company to run one of LSU’s hospitals. He did not identify the dedicated fund or the hospital.

The Legislature is holding committee hearings to examine the Jindal administration’s $24.7 billion state operating budget for fiscal year 2014. The Fiscal Hawks – whose formal name is the Budget Reform Campaign – have used the hearings to warn that some of the $449 million in one-time and contingent money won’t materialize.

State Rep. Brett Geymann, R-Lake Charles, who leads the Fiscal Hawks, said that the state Constitution prohibits the use of one-time money on annual expenses. In his view, the state can use one-time money only for one-time expenditures, such as paving a road, not for paying university professors or treating indigent hospital patients, as the Jindal administration has done.

Two Fiscal Hawks — state Rep. Kirk Talbot, R-River Ridge, and state Rep. Cameron Henry, R-Metairie — have filed a lawsuit alleging that the Jindal administration’s current budget violates the constitution because of its reliance on one-time money. They have amended the original lawsuit to try to prevent the Jindal administration from doing so again with the 2014 budget.

The Fiscal Hawks are pushing several measures this legislative session that aim to make the budget writing process more transparent. They also seek to end the custom of pushing the budget approval process into the chaotic final hours of the legislative session. Whether the Senate or the Jindal administration will support these measures remains unclear.

In the meantime, Kristy Nichols, the commissioner of administration whose office produces the governor’s budget, expects it to remain balanced throughout the 2014 fiscal year.

“We have every confidence that [sufficient funding] will be available,” she said in a written statement. “We have done the hard work of reducing the size and cost of government, but we don’t think it makes sense to make deep cuts to higher education and healthcare that are unnecessary when these dollars are available.”

The final part of Nichols’ statement refers to fears that knocking out the one-time money from the proposed budget will force cuts in spending for higher education and health care, which appears to be why the Jindal administration has directed the one-time funds to those areas.

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  • http://www.facebook.com/alan.maclachlan.5 Alan Maclachlan

    Is it a case of faulty budgeting, or is it a politically skillful rope-a-dope to allow the Guv to slash spending in ways he chooses without the legislature’s input? I mean, c’mon; once or even twice could be chalked up to accident; but five years in a row? And where is the legislative Revenue Estimating Conference in all of this? Wasn’t that body created to prevent just this sort of reactive government-by-fiscal-crisis?

  • http://www.facebook.com/people/Nicholas-Bouterie/1047292189 Nicholas Bouterie

    Alan: The Revenue Estimating Conference is comprised of 4 people, 3 of which are the Commish of Administration, Speaker of the House (Kleckly), and EWE’s former right hand man turned Jindal’s chosen Senate President, John Alario. That means the Governor’s people hold 3 of the 4 positions on the REC.

    So you ask where the REC is in all of this…well…

  • http://www.facebook.com/alan.maclachlan.5 Alan Maclachlan

    In the Governor’s pocket, it would seem. Thanks for the clarification. Governor Jindal would have us believe that this annual crisis is the result of forces beyond his control, but he isn’t stupid so you would think that he would learn from his mistakes, assuming that they are mistakes in the first place.

  • nickelndime

    Louisiana is overloaded with too many corrupt politicians who have feathered their nests for years and years and years… Every once in a great while, one or two of them get caught stealing, but by and large, they get away with it. They live well, and they live large while most of us wake up each morning wondering if we can pay for insurance (like auto) so we don’t get nabbed by State troopers and have to leave our vehicles on the side of the road (ha!) and still be able to put food on the table. These career politicians never have to worry about things like that. It’s public money – it’s free – and it never seems to run out. If Louisiana sinks into the Gulf, the rest of the country might have to worry then because this state is the conduit for graft and corruption. Slide on down, Louisiana. Bobby needs to relocate.

  • jeffsadow

    There’s a little schizophrenia in this piece. On the one hand, it commendably if briefly discusses the role of the REC, for all too often lately in reporting on this issue all we see is the lazy template that “Jindal keeps oversestimating budget revenues” as if it is all determined by the governor and it is done for a political purpose. On the other hand, in the first sentence we get “Jindal has produced a budget that overestimated how much money his administration would get to spend,” where the only policy option Jindal would have had not to prevent that would have been to deliberately undershoot REC forecasts — a political strategy that in times of fiscal stress would have been a nonstarter both in the Legislature and would have been attacked mercilessly by certain special interests and questioned by the public. The only history we have of that is when significant forecast increases from the previous fiscal year a couple of times have had a governor chunk some revenues into nonrecurring areas (Budget Stablization Fund, pay down UAL, capital spending, etc.). Certainly the headline leaves more misimpression than does the article.

    A little context not provided in the article also would have helped. Both DOA and the Legislature come up with their own estimates from which the REC chooses. Lately, it’s been about 50/50 as to which gets chosen, but neither branch imposes its will over the other. And, keep in mind that the unanimity requirement prevents the REC from being used as a political tool, as one commenter below apparently tries to assert. Also, the history of the past decade of forecasts is that they always overshoot in times of fiscal pressure, but when money’s been rolling in, they always undershoot. That is, this is a non-story or different story had nationally we not undergone the Obama recession/recovery and state coffers were more flush.

    Finally, despite making reference to it the article doesn’t really explain the role of “one-time” money in all of this, as there are two kinds. One is where it is a revenue in that fiscal year reasonably predictable occuring in that year but comes from an activity reasonably expected not to recur — an example in the article is a settlement. This is close to, but not the same as, an unexpected revenue according to the forecast, which is defined as non-recurring and cannot be chunked into operating expenses. These are best avoided just in case they don’t come in as expected, but are constitutional for use (unless the suit mentions and succeeds, which would be counter to past understandings). The other kind is caused by accounting procedures — money comes into an account dedicated for a certain purpose where it becomes obvious that never will be used for that purpose (because it got set up to produce more revenue than actual need dictates). So, instead of letting it sit idly forever, the Legislature will come by and sweep it out for more needful purposes. These revenues are usually the most easily forecast and recur with regularity, so they are “one-time” only in the sense that a bookkeeping entry has to be made to move them into another posture for designated spending purposes.

    The second kind of this presents no forecasting problems, but the first kind is not forecast and therefore may create budget problems. Until this year, most of what is in the chart identified as “one-time” money was of the second kind (you really have to go through each year’s sweeps bill — last year it was HB 822, for example — to get a precise figure) and therefore the amount that could contribute to inaccurate budgeting was only in the tens of millions each year. However, this year appears to be different where it has gone into the hundreds of millions in part because of a new tactic increasingly used (for a full explanation, see http://jeffsadow.blogspot.com/2013/03/excess-funds-tussle-exemplifies-need.html). So, the article leaves the impression that “one-time” money use has had a hand in missing forecasts when in fact the role has been very extremely minor if at all. It may become so, if the present budget goes through retaining a significant amount of the first kind and it does not come through as predicted.

  • jeffsadow

    This is a bit too simplistic of an explanation — see my comment above.