Government & Politics

Busting debt limit to fund community colleges could imperil state’s bond rating

The State Legislature and Gov. Bobby Jindal appear poised to override a limit on how much Louisiana can borrow each year, despite warnings that doing so could hurt the state’s hard-earned reputation for having learned to live within its means.

Lawmakers want to legally flout the constitutional debt limit to carry out a $250 million construction program at community and technical colleges throughout the state.

“Out of every 100 kids who enter ninth grade, 20 will get a college degree. Five will get at least some college,” said state Sen. Robert Adley, R-Benton, sponsor of the measure, Senate Bill 204. “The skills for our workforce are provided by the technical and community colleges. They are bursting at the seams.”

But providing better skills for the workforce by investing heavily in community colleges will only lead to bigger fiscal problems, critics say.

The state’s four-year colleges and universities won’t idly sit by. Next year they’ll push for their own set of construction projects, exceeding the debt limit once again, said lawmakers and the chairman of the state Board of Regents, which oversees all of the state’s colleges and universities.

“Everybody will go to the Legislature with their own demands,” William “Bubba” Rasberry Jr., the regents’ chairman, said in an interview. “It will become a political circus.”

With Louisiana bumping up against its debt limit, the state’s outside financial adviser, the director of the state bond commission and Treasurer John Kennedy all say that Adley’s measure could cause a downgrade in Louisiana’s bond rating and make the state less attractive to outside investors.

“A lot of weight is put on the 6 percent limit by rating agencies and investors,” said Renee Boicourt, a New Jersey-based financial adviser who counsels the state. “This will be viewed negatively.”

Louisiana voters imposed the 6 percent debt limit when they approved an amendment to the Constitution in 1993 to gradually pull the state out of a debt crisis dating from the 1980s. Gov. Edwin Edwards and the Legislature supported the amendment after the debt rating agencies and financial community made it clear that Louisiana could no longer spend nearly 20 cents of every dollar it collected to pay off debt.

“Bond ratings are looked at by the business community as a vote of confidence as a place to do business,” Boicourt said. “Firms like to locate in states that are managed well and are financially sound.”

Under Adley’s bill, the $250 million for the construction program would not count against the 6 percent limit because the 1993 amendment allows it to be overridden with a two-thirds vote in both the House and the Senate.

Whit Kling Jr., the director and secretary of the Bond Commission, said the community and technical colleges need new buildings. “But the belief that you can do this without affecting your debt credit is misguided,” he said. “It tells the rating agencies and the finance community we have a debt management plan, but we don’t. It’s like you keep saying you’re going to go on a diet but never go on it.”

Marcy Block is the senior director for public finance at Fitch Ratings, one of the three rating agencies, along with Moody’s Investor Service and Standard & Poor’s. She called the proposed debt increase “troubling” and said her firm would add the $250 million to the state’s outstanding debt when calculating its debt burden, even though Adley’s measure aims to have the money left out of such calculations.

Block said that the bill goes outside of the normal capital planning process —  “that’s troubling, too,” she added.

Ken Rodgers, the director of public finance at Standard & Poor’s, noted that Louisiana, at 5.45 percent, is already bumping up against the 6 percent limit. “Anything that would cause the state to exceed that amount could be a cause for concern,” he said.

A spokesman for Jindal indicated that the governor won’t allow anything to tarnish Louisiana’s credit rating.

“ … We’ve pursued fiscally responsible policies that have kept our credit rating in great standing, and we will continue to support policies that maintain that standard,” spokesman Sean Lansing wrote in an email. “In fact, our credit rating has been upgraded multiple times since we’ve been in office. We have received six upgrades from the three major credit rating agencies (two apiece), and we now have our highest rating in over 25 years.”

Louisiana’s bond rating, which hovered just above junk status when Buddy Roemer became governor in 1988, is now AA, only two rungs from the top.

Added Lansing: “These schools are a critical pipeline for workforce needs, and we are proud to fund them however we can.”

Kennedy said he, too, supports the community and technical colleges.

“But the issue is whether the end justifies the means,” he said. “A vote for the bill is a vote to exceed the debt limit. That’s a huge mistake. You do it for emergencies — following destruction from a hurricane, for example. Our per capita debt has gone up dramatically in the past five years.”

Per capita debt supported by state taxes increased from $1,186 in 2008 to $1,336 in 2012, according to Kennedy’s office.

“This is really a tax increase,” Kennedy said. “It’s busting the debt limit. Everybody in the [state] Capitol was against it when the president and Congress did it. I would be very hypocritical if I said it was OK for Louisiana to do it.”

With nearly every senator having a project in his district, the measure rocketed through the Senate on a 30-6 vote, with four more votes than the two-thirds it needed. The House Education Committee then passed it unanimously. The next step: the House Appropriations Committee, which will hear the bill Wednesday. After that: the House floor, where it will need 70 votes in the 105-member chamber.

“It keeps getting viewed by a lot of people, and it keeps getting passed,” Adley said.

He said he is sponsoring the measure at the behest of Joe May, the president of the Louisiana Community and Technical College System.

With the measure’s success so far, May “is earning the reputation as the keenest politician in higher education,” Louisiana Politics Weekly, published by John Maginnis, reported on Thursday. “His first smart move was to team with Sen. Adley, widely regarded as the most tenacious legislator.”

May is upending the decisive role that the Board of Regents has played over which colleges and universities get new or renovated buildings. He accuses the regents of having short-changed the community and technical colleges.

“We’ve had only three projects since 1999 that have gone through,” he said.

Adley pushed through a similar measure in 2007, worth $200 million. It passed unanimously, with little controversy, because Louisiana was flush with money.

His new measure calls for 28 construction projects, including a $9 million culinary building for Delgado in New Orleans, a $34 million nursing center also at Delgado in New Orleans, a $14 million maritime and engineering center for Delgado’s West Bank campus and three other projects bringing the Delgado total to $86.2 million.

The expansion program at the 14 community and technical colleges follows the layoff of 500 employees over the past five years because of budget shortfalls, May said.

Delgado has laid off 141 instructors, administrators and staffers and cut 20 unfilled positions, to eliminate a $13 million deficit, said Tony Cook, a Delgado spokesman.

“I’ve been asked: Should we be building new buildings at a time we’re laying people off?” said Monty Sullivan, Delgado’s chancellor. “We need to improve the alignment of our training with our workforce needs.”

Sullivan added that a flock of new students would increase enrollment and pay for the increased faculty and staff needed to fill the new buildings. “Students bring not only aspirations and goals but they also bring tuition dollars,” he said.

Sullivan noted that under Jindal, the state has gone from covering two-thirds of Delgado’s costs to one-third, with students making up the difference through higher tuition payments.

May said construction of the 28 projects would begin in 2015, and 80 percent of them would be completed by 2018.

“Over the next three years, we need 29,000 new construction workers, including welders, in the state,” May said. “But the welding facilities were built in the 1960s and 1970s. The facilities don’t provide the workforce we need.”

May noted that for a project to proceed Adley’s bill requires a local match of 12 percent over and above the state’s contribution – a match that can be in cash or land and will probably come from local businesses. “Projects are tied to the local economy,” May said.

May’s spokesman, Quintin Taylor, said budget cuts have reduced the number of community and technical college employees to 3,179, down from about 3,400 a year ago. May said Adley’s measure would lead to enough hires of faculty and staff to regain a total of 3,400 employees. Tuition from the expected increase in students would pay for their salaries, May said.

A 2013 report by the Board of Regents found a greater need for buildings at LSU and at some of the state’s community and technical colleges. It also says that one way of solving the problem would be for institutions needing space to begin offering classes at those with extra room. The report also noted that all of the state’s colleges and universities have another problem: a $1.76 billion backlog in deferred maintenance, which The Advocate highlighted.

Deciding how to spend scarce dollars on building construction and maintenance is a responsibility of the Board of Regents, Bubba Rasberry said. He noted that the state Constitution calls for each of the four higher education systems – LSU, Southern, the University of Louisiana and the Louisiana Community and Technical College – to submit its construction needs to the regents, who review them and then submit a priority list to the governor and the state Legislature. As money becomes available, the construction projects get funded based on the Regents’ order of priority.

“The constitutionally prescribed process wasn’t followed,” Rasberry said of the Adley bill. “You have politics trumping the existing process. It’s pork-barrel politics at its worst. What elected official could turn down millions of dollars of projects in their district?”

Indeed, all but six legislators in the Republican-controlled Senate voted for the bill, despite the prevailing philosophy that downsizing government spending is the way to go. If passed, the $250 million in construction bonds will probably cost the state slightly more than $20 million a year for the next 20 years — or $440 million, by Kling’s calculation. The money would come from the state’s general operating budget each year.

“We don’t have another $20 million to give,” said Sen. Jack Donahue, R-Mandeville, who voted against Adley’s bill. “We will have to take something from somebody else to pay for this.”

Also concerned is Raymond Laborde, a political elder statesman. He represented Marksville as a Democrat in the state House from 1972-92 when Gov. Edwards appointed him to serve as his Commissioner of Administration, overseeing the state budget and spending programs. That meant it fell to Laborde to repeatedly tell lawmakers after adoption of the 1993 state Constitution amendment that the state couldn’t afford their construction project demands until the debt had declined.

“The only thing that has controlled expenditures is the constitutional limit,” said Laborde, who at 85 still manages his family’s department store in downtown Marksville. “You get pressure from the schools themselves. The needs are there. You have the same problems with roads. You can bet that others will make the same request for their own buildings. They all have a wish list.”

Added State Sen. Norby Chabert, R-Houma: “You’re opening up a Pandora’s box of capital outlay projects. It’s a very bad precedent to set.”

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