State-negotiated lease deals that privatized LSU hospitals could generate “substantially less” than what the Jindal administration expects, opening the possibility of cuts to higher education, according to an analysis by the Legislature’s fiscal advisers.
Though the administration disputes the findings, the Legislative Fiscal Office stands by its report, saying that the terms listed in the lease contracts generate $38.75 million less than what is counted on in the Jindal administration’s budget.
The Fiscal Office projected that the deals would generate $101.5 million, which is 28 percent short of the $140.25 million appropriated to prop up other areas of budget spending. The shortfall in revenues could endanger higher education because that funding is tied, in part, to the receipt of the lease money.
Commissioner of Administration Kristy Nichols said the analysis of lease deals fails to account for some dollars that private partners in New Orleans and Shreveport agreed to pay in the current budget year.
In New Orleans, Children’s Hospital is paying for two years upfront to lease the Interim Hospital, which is not spelled out in the cooperative endeavor agreement, Nichols said. She said the Fiscal Office had been apprised of the extra year’s payment.
The Biomedical Research Foundation has committed to make a 12-month lease payment instead of nine months originally anticipated as part of its takeover of LSU hospitals in Shreveport and Monroe, Nichols said. That agreement has not been “formally executed,” she said.
“The question I keep getting asked is ‘Are the amounts we put in the budget the right budget amount?’,” Nichols said. “They are.”
Legislative Fiscal Officer John Carpenter said the analysis was based on the cooperative endeavor agreements. If the two payments come as Nichols says, “that takes away our concerns at least for the current year,” Carpenter said. “We don’t have anything that says that’s what they are going to do.”
In the case of Children’s, Carpenter said the agreement allows extra payments. “We can’t assume a permissive action,” he said.
The administration’s budget includes $140.25 million projected to be generated from private entities taking over management and operation of LSU’s public hospitals. The payments are for the lease of hospital and clinic buildings as well as equipment in them.
“Based on review of all signed lease agreements, along with drafts of all but one pending agreement, the Legislative Fiscal Office (LFO) projects that the level of lease payment revenues in FY14 may be insufficient to support the current level of appropriation,” fiscal analysts wrote in a new report.
Lease receipts from the deals are “substantially less” than the $140.25 million budgeted, the Fiscal Office wrote. To the extent that the revenues fall short of projections, there would have to be reductions in funding to those entities scheduled to receive the dollars, primarily higher education and its governing boards.
The lease payments are among the $414 million scheduled to go into what is called the “Overcollections Fund.” The state budget for the fiscal year that began July 1 appropriates dollars for a variety of endeavors from the special fund.
Higher education and its boards are scheduled to get $334 million from the fund to finance operations.
Other appropriations are for termination pay for LSU hospital employees, lawsuit settlements, financing of transportation agency regional offices, Attorney General’s Office operations and a casino support services contract.
The Fiscal Office report briefly summarizes each lease deal and the payments associated with them. The analysis is in the office’s “Focus on the Fisc” publication, which looks into budget issues.
A copy of the report, “Focus on the Fisc,” September 2013, Volume 2, Issue 2, is available online at http://lfo.louisiana.gov/files/publications/September%202013%20Ed.pdf.