The Jindal administration did an about-face Saturday and announced that a controversial contract will be amended to ensure at least $500 million in savings are identified before a consulting firm receives final payment.
Commissioner of Administration Kristy Nichols said New York-based Alvarez and Marsal agreed to the change. She said an amendment will be attached to the contract.
“While we feel the current contract requires that $500 million in savings be identified, we will amend the contract out of an abundance of caution ... Not all the efficiencies will be pursued, but by identifying them now, we can work with the Legislature to determine what savings to pursue to free up resources to invest in critical priorities,” Nichols said in a prepared statement.
The Jindal administration told legislators the goal of the $4.2 million contract with the global management firm was to identify how state government can save a minimum of $500 million. However, neither the contract nor the original 80-page job description spelled out achieving the benchmark as a requirement for payment.
The $500 million benchmark appeared only once in hundreds of pages of documents that cemented the contract. A cover letter signed by Alvarez and Marsal managing directors said the global management firm intended “to support the implementation of $500 million to $1 billion in net savings.”
The Jindal administration said the cover letter was legally binding. Republican state Rep. Tim Burns, a Mandeville attorney, said a judge might rule differently.
“I think the fact that they are amending the contract is good,” Burns said Saturday evening.
Burns suggested another amendment might be necessary. He said whatever ideas Alvarez and Marsal offers need to be achievable.
“If you consolidated all the schools, that would save a lot of money. But can you do it?” he asked, adding that any changes requiring constitutional adjustments would be difficult.
Nichols said the Jindal administration wants to ensure the state’s priorities are funded.
“Identifying efficiencies now will give the Legislature and us more flexibility to shift resources and fund more important priorities during the upcoming legislative session,” she said.
Gov. Bobby Jindal’s tenure has been fraught with financial difficulties. Tax collections dipped with the onset of the recession. The state’s money problems grew even bigger when Congress abruptly cut the amount of money the state receives from the federal government for the Medicaid program.
Taking a studied approach to belt tightening is not a novel idea in Louisiana.
Just a few years ago, a commission set up to suggest ways for state government to save money came up with several hundred ideas. The Commission on Streamlining Government suggested trimming the state fleet of cars, outsourcing physician services at the state’s war veterans homes and closing ferries, among other ideas.
Jindal embraced some of the suggestions.
The state’s finances still are shaky. Economists recently recommended a revenue downgrade in the current $25.4 billion state operating budget because of sluggish tax collections. Sales tax collections are a particular problem. Despite an improved job market, consumers are not buying as much as expected.
Roughly two years remain in the governor’s second term. He cannot seek re-election in 2015 because of term limits.
Legislators questioned why the governor is spending capital this late in his term on a savings contract, especially when it calls for a private firm to sit down with state workers and brainstorm for ideas. They said state workers know best where money could be saved.
The Jindal administration countered that a fresh set of eyes is needed and that Alvarez and Marsal can bring ideas from other states.