Gov. Bobby Jindal and state legislators have pulled money from the state’s reserve funds to avoid cutting state spending too deeply and to adhere to the governor’s anti-tax pledge.
They have raided a Medicaid trust fund, which is supposed to serve the elderly, by $420 million.
They have drawn down the state’s rainy day fund by $255 million.
And there’s one more: They have virtually emptied the Louisiana Mega-Project Development Fund in order to subsidize a chicken processing plant, a U.S. Marine Corps facility, an IBM technology center and several other projects.
The fund had $150 million when Jindal took office in January 2008, and he and legislators increased the amount by $307 million that year.
“I think the dollars have been used for meaningful projects that have been important for our economy,” Jindal said at an Aug. 8 press conference.
But his successor probably will not have a similar recruiting tool to create jobs.
“I don’t see the financial picture improving enough in the next several years to put money back into that fund,” Senate President John Alario, R-Westwego, said in an interview. He sponsored the legislation that created the fund.
The “mega-fund,” as it’s known, is down to $6.7 million, said Stephen Moret, the secretary of Louisiana Economic Development. That balance dismays Michael Olivier, who held Moret’s position under Gov. Kathleen Blanco.
“That will leave the next governor in a bind to compete,” Olivier said. “The original intent was to replenish the fund to allow the administration to compete with other states and countries for projects. It was never intended to be established and then erode to nothing. You want a war chest to be ready.”
The mega-fund was created by the Legislature in 2007 during Blanco’s final year, when hurricane recovery spending brought hundreds of millions of dollars in tax revenue to the state treasury. To be eligible for the fund, a project had to directly provide at least 500 jobs or spur $500 million in private investment.
“The intent was to create game-changing opportunities for Louisiana,” said Olivier, who is now chief executive officer of the Committee of 100 for Economic Development, a Baton Rouge-based private nonprofit.
Blanco put the original $150 million in the fund as an enticement to ThyssenKrupp AG, a German conglomerate that was trying to decide whether to build a multi-billion steel mill in St. James Parish or near Mobile, Ala. ThyssenKrupp chose Alabama. (The company has lost money on the plant, though, and it’s now for sale.)
Jindal inherited not only the $150 million but also a huge budget surplus from Blanco — thanks to hurricane recovery spending — that led him and legislators to add the $307 million to the mega-fund. Another $16 million has been added in interest.
Rather than aim for one big project, Jindal and Moret have used the mega-fund to provide incentives for a number of smaller federal government and private sector projects. The Joint Legislative Committee on the Budget approved the projects. The governor and legislators have also diverted more than $100 million for other state expenses.
The biggest subsidy, $125 million, went to the Marine Corps to build a facility at the Federal City site on the West Bank. The project preserved 1,663 jobs and directly created another 300 jobs, according to Moret.
Jindal and Moret gave another $50 million to Foster Farms to reopen a closed chicken processing plant in Farmerville near Monroe. That investment directly created more than 1,100 direct jobs, Moret said.
He said the state also gave $3.3 million “to help secure expansion” of the corporate headquarters of CenturyLink, a telecommunications company based in Monroe. It will directly create 800 jobs, Moret said.
“There was some concern that their headquarters may be moved, to Denver or even to Kansas City,” Jindal said at the Aug. 8 press conference. “Because of the use of the mega-fund, not only do we have a growing Fortune 500 company here, they are creating good-paying jobs. It’s one of the most significant economic development wins for Northeast Louisiana in a generation.”
In mega-fund when Jindal took office
Even as the balance in the mega-fund dwindles, state officials still have some tools for subsidizing businesses in Louisiana, Alario said. Chief among them is the Rapid Response Fund, which has a cap of $10 million and is replenished each year.
“Note that a substantial portion of economic development project commitments are funded out of the general fund and/or capital outlay budget, as well as the Rapid Response Fund,” Moret wrote in an email, “so the Mega-Project Development Fund is not the only funding source we have available for major projects.”
Jindal and the Legislature have diverted a total of $96.1 million over the past three years to pay for the state’s general expenses, including schools, hospitals and the public payroll. Legislators and Jindal also used $53.1 million to pay school workers one year and to give to the University of Louisiana at Monroe.
It’s not clear how they were able to pull that $149.2 million out of a fund earmarked for economic development.
That money – as well as the $420 million diversion from the Medicaid Trust Fund for the Elderly and the $255 million from the rainy day fund – has allowed Jindal and state legislators to avoid more unpopular budget cuts while following the governor’s policy of not raising taxes.
A poll released in April partly tied Jindal’s falling public approval rating to cuts in spending for the state’s public hospitals, colleges and universities. Louisiana has cut state funding for higher education more than any other state, the American Association of State Colleges and Universities reported last month.
As the Associated Press reported in July, the Medicaid Trust Fund is on track to drop from $420 million this year to $250 million or less by mid-2014. It had $830 million when Jindal took office.
As The Lens reported last week, Jindal and state legislators have agreed to fill the rainy day fund in two years, which would require about $323 million. Where they would get the money is not clear.
This story was changed after publication to note that ThyssenKrupp is trying to sell its plant near Mobile, Ala.