Borrowing funds among options
A state government fund used to pay ongoing construction projects is running out of money, legislators were told Thursday during a briefing on the state’s finances.
To prevent projects from coming to a halt, the problem might have to be addressed in the legislative session that starts in April. Legislators already must grapple with a more than $1 billion shortfall in the budget that funds hospitals, colleges and other public services.
“We have some concerns,” Sherry Phillips-Hymel, the state Senate’s chief budget analyst, told legislators as she walked them through a fat booklet titled “Louisiana Budget Update.”
At least two solutions to the construction budget problem are available.
The state can replenish the fund by taking dollars from the state general fund or by borrowing money.
However, the state faces a $1.3 billion shortfall in the fiscal year that starts July 1. The state is also bumping against a debt ceiling that limits how much money can be borrowed.
In the past, state officials excluded certain borrowings from the state’s debt limit. The year after hurricanes Katrina and Rita hit, the state had to juggle escalating construction costs with local governments facing decreased revenues and a need to rebuild. The state helped local governments by issuing two general obligation bond series. Those series were excluded from debt calculations. But that is a rarely used remedy.
Another option would be to raise the debt limit with the approval of two-thirds of the Legislature. Whit Kling, director of the state Bond Commission, said he cannot recall the debt limit ever being raised.
Michael DiResto, spokesman for the Division of Administration, said in an emailed statement: “It’s important to note that the Treasurer’s office previously advised that the state had more money to borrow than was actually available. They have recently corrected their calculations. We will live within our means and we will look for opportunities to achieve savings so that capital outlay projects can continue to move forward.”
Kling, who works for state Treasurer John Kennedy, was not alone in raising concerns about cash flow and the debt limit. Phillips-Hymel came across the issue while preparing a budget briefing for senators.
Senators gathered in a large meeting room at the State Capitol on Thursday for a crash course on the budget picture. Aides handed out thick briefing books. The room fell silent as Phillips-Hymel flipped through slides tracing recent budget cuts and future problems.
State Sen. Jack Donahue, R-Mandeville, got senators back on track when they broke into an impromptu sidebar about hospital funding, allowing Phillips-Hymel to explain the mechanics of the state’s debt limit and the impact on construction spending.
Complicated parameters limit the state’s borrowing on bridges, roads and other construction projects.
The state’s debt service on construction projects — the price for borrowing money — cannot exceed 6 percent of the taxes, licenses and fees in a fiscal year.
The state’s remaining capacity out of $605 million currently stands at $22.4 million, which Phillips-Hymel said would be enough to borrow $250 million to $325 million, depending on the interest rate.
Tied to the debt service problem is the Capital Outlay Escrow Fund, which needs to be replenished to fund ongoing construction projects.
The state could exhaust the fund in four months, Kling said.
The problem, he said, is that the state has a history of authorizing construction projects despite lacking the necessary funding. He said the problem dates beyond the Jindal administration.
“Credit card, credit card, credit card,” Kling said.