Critics say Jindal’s budget strategies amount to ‘accounting gimmicks’

Buried deep within Gov. Bobby Jindal’s official website is a news release that’s made more rounds of the Louisiana House chamber than a misdirected love note around a schoolroom.

The news release dates back to 2008, when Jindal was a newly sworn-in governor and the state’s biggest problem was how to spend millions of extra dollars. Jindal warned legislators not to be reckless with the largesse.

Instead, he wanted them to fix what he insisted was bad budget management by his predecessor, Gov. Kathleen Blanco.

“The enormous budget challenges that greeted us upon our arrival into office this January are no secret. As you know, as we began the budget process this year we had to first grapple with the legacy of $800 million in recurring expenditures in the current budget which were paid for using one-time money. That is like using your credit card to pay your mortgage,” the governor lectured.

Six years later, many Republicans in the Legislature wonder what happened to that conservative voice of fiscal reason.

With revenue failing to prop up the heavy weight of a poor state’s obligations, critics say, Jindal seems only too ready to swipe the credit card and let a future governor deal with the fallout.

For the past four years, the Jindal administration has counted on iffy dollars. The governor sold property, tried to sell prisons, accelerated revenue through advance hospital rent payments and banked on savings yet to materialize. The strategy gets the state through a single year, but offers little guidance on how the bills will be paid the following year.

Some say Jindal did what was necessary to keep the state going during an economic recession. Others say he was too busy laying the groundwork for a White House run to focus on his job as governor.

“Time on task is important,” former Gov. Buddy Roemer said. “I get the impression that time on task has been, in the last two years relative to the need, less than adequate. That’s a criticism. Let me be constructive. Decisions made on health care, reducing the size of government, cabinet selections have generally been good. The only criticism is that he would have improved with additional time on task.”

Jindal counters he accomplished his budget goals during his two terms as governor. He wanted to cut taxes, and he did. He also says a massive cut in Medicaid money hurt the state’s budget.

Republicans inside Louisiana took note years ago of what many call Jindal’s failings as a budget writer. They printed out the governor’s 2008 news release and highlighted key statements as evidence of hypocrisy when Jindal’s state budget proposals started popping up with one-time, or nonrecurring, dollars to pay expenses that must be met year after year.

Outside the state, Jindal’s budget tactics are drawing not-so-favorable attention. State Budget Solutions, a Virginia public policy organization, included a Jindal state budget proposal in its list of “the worst state budget gimmicks of 2013.”

State Budget Solutions popped the Jindal administration for using more than $400 million in property sales, legal settlements and other one-time money sources to prevent heavy budget cuts. Jindal did escape the organization’s worst criticism. State Budget Solutions deemed New Jersey Gov. Chris Christie among the worst of the worst for such tactics as delaying property tax rebates.

“Recently, we’ve seen a lot of issues from Louisiana, but I don’t think any state is worse than the other,” said Joe Luppino-Esposito, an editor and author at State Budget Solutions.

Of late, Jindal seems to be acknowledging the criticism. His latest $25 billion budget proposal minimized the amount of one-time money for recurring expenses. He also addressed other nagging issues by boosting state funding for public colleges, handing out pay raises and extending additional help to families struggling with family members’ developmental disabilities. Even French-language programs got a bone after an earlier veto of their funding.

The changes come as the governor builds up his nonprofit group, America Next, which is supposed to deliver solutions to national problems. Soon, the governor heads to New Hampshire, a beacon for presidential prospects because of its early national primary elections.

High hopes

When he ran for governor in 2007, Jindal published a series of campaign promises he called “action plans.” One delved into how to control runaway state spending.

Ignoring the ballooning fiscal effect of the recent infusion of federal hurricane recovery dollars, Jindal complained the state budget had tripled in 12 years. He said the state employed too many people. He said state government was too big.

On the campaign trail, Jindal vowed to do something about the practice of using one-time money for ongoing expenses.

Jindal is not the first governor to struggle with the reality of making the numbers work in a mammoth state operating budget that funds prisons, schools, hospitals and an array of other public expenses.

Roemer resorted to drastic proposals in an effort to shore up the state spending plan. At different points, he threatened to hold up bond sales for state construction projects, to delay contributions to state pension funds, to fire 13,000 state workers and to close 13 universities. He banked on a tax plan that flopped, forcing cuts.

Legislators heaped criticism on him, comparing his administration with a marching band devoid of a band leader.

“The unemployment rate was 13.8 percent when I took office, and the budget hadn’t been balanced in four years. It was a struggle, and it’s the challenge of every governor, Jindal included, to try to get it balanced without doing inordinate damage,” Roemer said. “That’s been a challenge to him.”

Former Gov. Mike Foster promised to bring teacher pay to the Southern average or forfeit his salary. When he missed the teacher-pay goal, he grappled with sick-outs from angry teachers. He raised pay six times, but never got it to the Southern average.

Foster ended up donating his salary to a foundation.

Blanco followed Foster into office. She wanted to focus on education and economic development. Instead, Hurricane Katrina hit a year into her term. The building boom after the 2005 storm gave Blanco plenty of money to spend. She brought teacher pay to the regional average for the first time in the state’s history. Universities were funded to a level on par with universities in surrounding states. An emphasis was placed on pre-kindergarten programs for at-risk students. She failed, though, to make good on providing laptop computers to all seventh-graders.

“My priority was education, public education. From day one, we started looking at ways to move budget numbers into that investment. It was really hard. I actually didn’t make hard campaign promises to the education community because I didn’t know if I could get it done,” Blanco said.

Like Roemer, Blanco clashed with the Legislature. Republicans accused her of saddling state government with financial obligations that would be tough to continue once the hurricane recovery slowed.

In six years, Jindal has managed to cut the state workforce and to shift state government functions to private companies.

It’s in the sustainability of his state spending plans that he draws criticism. Some legislators say they are tired of gimmicks such as selling a state building to ensure Medicaid recipients can go to the doctor.

The solution is harder than it seems. Cut spending? Sure, but no one can decide where to cut. Increase taxes? Not on Jindal’s watch.

State Rep. Brett Geymann, R-Lake Charles, said legislators tend to go with the flow rather than to buck the Jindal administration.

“That’s a way to avoid tough decisions,” Geymann said. He described tough decisions as getting rid of layers of government, eliminating tax exemptions and passing new taxes.

“If we’re trying to cut our way to the point where we don’t have to use gimmicks, it’s going to take leadership,” Geymann said.

A warning

In 2012, state Rep. Jim Morris stepped behind the microphone on the House floor and warned legislators they were about to perform an illegal magic act by embracing Jindal’s state spending plan.

The source of Morris’ ire was an 11-page bill that was pivotal to balancing the state operating budget. With the state short of money from traditional sources such as tax revenue, the bill gave legislators the authorization to grab other dollars.

Donations from insurance companies and car dealerships that are supposed to be used for battling auto theft were stuffed into the budget. Fees aimed at paying for the concealed weapon permit process made their way into the operating budget despite complaints about lengthy waits for permits.

Morris, a Republican from Oil City, told legislators they absolutely could not take money accumulated through fees and plug it into the state budget during a year in which tax increases were forbidden by the state constitution. His fellow legislators largely dismissed his argument and backed what has become standard operating procedure for state government.

Morris would get vindication a year later when a judge agreed with him.

What legislators and the governor have settled upon to make ends seem to meet — with a lot of gnashing of teeth by Republicans who pride themselves on being fiscal conservatives — is to sell unneeded state property and to raid funds. The funds were created through legislation and parked in the state treasury. Their purposes range from paying for a gambling hotline or landscaping at New Orleans’ City Park to funding probation and parole officers’ retirements.

The reliance on nontraditional revenue in the current year’s $25.6 billion state budget approaches $500 million. Property needed to sell. Local governments needed to make disputed Hurricane Katrina loan repayments. The state revenue department needed to generate $20 million by stopping fraud. A grant fund for budding independent filmmakers will be lighter by $225,638, which instead goes into the operating budget. Even as little as $76 is to be scraped out of a fund for private security examiners.

In similar Jindal budgets, the dollars haven’t always materialized. So far, disaster has been averted because other money popped up. However, even the state budget’s legislative sponsor thinks Morris had a valid point.

Jindal countered his budgeting approach largely stems from Congress slashing of health care dollars in 2011.

State’s shrinking revenue

An argument also can be made that costly tax breaks eroded Louisiana’s revenue base. The blame for erosion does not rest entirely on Jindal’s shoulders. It was under Blanco that the tax breaks most vexing to the state’s revenue stream started. Then, in 2008, Jindal began his first term as governor by declaring “the business utility tax must go.”

Part of the tax already was being phased out. What Jindal made good on was eliminating the remaining 1 cent of the sales tax that businesses pay on utilities. The elimination added up to millions of dollars in savings for businesses, including the chemical industry.

Another big change to the state’s pocketbook carries a single name: Stelly. The Stelly plan, named for its sponsor, former Lake Charles lawmaker Vic Stelly, repealed the state sales tax on groceries and utilities while raising taxes for the better off to offset the loss of tax revenue.

In 2008, with state revenue booming, the Legislature expanded most state tax brackets to pre-Stelly plan levels, which essentially undid the tax hikes for the well-to-do. The Jindal administration initially opposed the change, but the governor later jumped on board.

Implications of tax cuts

Greg Albrecht, chief economist for the Legislative Fiscal Office, said the Stelly changes alone whittled the state’s revenue base by $600 million. With the business utility tax elimination added in, the erosion climbs to $850 million.

“The implications are you reduced the tax base and tax collections significantly. You consequently have to adjust for that in the budget,” Albrecht said.

Jindal acknowledges he gave costly tax breaks but insists Louisiana’s economy is growing and the worst of the national recession has passed. The only speed bump in the road toward a robust state budget, the governor said, was the unexpected decrease in Medicaid funding.

“We intentionally and purposely said we have to cut taxes. We have to grow the private sector economy,” the governor said in a recent interview.

Jindal said the state would be in a much better position had the federal government not decided to reduce dramatically the amount of money it pays into the Medicaid program that provides health care to the poor. Roughly a fourth of the state’s population depends on Medicaid. Congress cut the state’s health care budget by $500 million in state general fund dollars.

To shore up the budget amid the Medicaid reduction, the governor said it made sense to grab dollars from funds, such as the $3.7 million taken from a retirement fund for probation and parole officers. He said the money was just sitting there and could not be used.

The larger problem is the governor’s alternative budget dollars do not always materialize as promised. During the course of three fiscal years, more than $75 million failed to arrive for the state operating budget.

Luckily for the Jindal administration, unexpected dollars materialized from other sources. The current budget year could be the decider in whether the governor is a sound budget writer or if, like a number of House Republicans contend, a train wreck is inevitable.

Hundreds of millions of dollars must materialize from hospital lease payments, fund sweeps and property sales in order for the budget to balance. Already, the money has not been flowing in quickly enough to satisfy lawyers anxious to collect on judgments against the state for their clients. That problem was solved, but a lot of money needs to arrive between now and June.

Ruling’s possible consequences

Last year, a Baton Rouge judge made a ruling that could spell major problems for the governor’s budgeting approach.

The judge reversed the state’s grab of retirement benefits for probation and parole officers on the grounds the money accumulated from a fee on offenders turned into a “tax” when it was poured into the budget for general expenses.

The judge’s ruling, which is being appealed by the Jindal administration, returned $3.7 million to a fund established to make benefits for longer-serving probation and parole officers more equal to those of their younger counterparts. New hires get a better retirement package than veteran officers.

The Legislature decided to deposit dollars from offenders on probation and parole into a fund and passed legislation to put the collected money toward officer retirements. Under the argument that officers weren’t shouldering the cost for their benefit boost, Jindal vetoed the enabling legislation and grabbed the accumulated money. The governor’s press office noted Jindal had retirement officials’ backing in vetoing the legislation.

Senate President John Alario, R-Westwego, said the governor took the approach he had to take, given the economic times.

“Nobody else offered a legitimate alternative. His problem was revenues were falling in the state,” Alario said.

State Rep. Jim Fannin, R-Jonesboro, said he disagrees with some of the governor’s approaches, such as taking money from the retirement fund for probation and parole officers. As the chairman of the House Appropriations Committee, Fannin stripped the $3.7 million from the budget bill. The state Senate put the money back into the budget. He says he agrees with the judge’s ruling.

The grab of the retirement dollars is a symptom of a larger problem in state government.

According to the Treasurer’s Office, the state failed to collect $78 million placed in the state budget between 2010 and 2013.

The missing deposits include millions of dollars in fund sweeps that did not materialize. The problem: The funds never collected what the Jindal administration said they would.

The Jindal administration counters other revenue sources produced more money than expected, negating the impact of the unfulfilled budget transfers. Among the windfalls: a legal settlement generated $95 million instead of the $56 million originally budgeted; the federal government for one program sent $50,000 above the $10 million anticipated; pharmaceutical companies coughed up $91 million from a court settlement and other programs rather than the $65 million placed in the budget.

In 2012, the administration hoped to collect $45 million by leasing or selling a state-owned hospital in New Orleans to Children’s Hospital. The state’s own appraisal estimated the property was worth $20.9 million, and the property sold for $29 million. To make up for the shortfall, the state collected advance lease payments for future years.

The governor’s juggling act with the state budget puts self-described conservative Republicans such as Geymann into a philosophical quandary.

Geymann, R-Lake Charles, leads a faction of largely House Republicans known as the fiscal hawks. They want a state budget that more strictly reflects the state’s income. Their mantra is for state government to live within its means.

“I’ve always used the words ‘accounting gimmicks.’ I think (Jindal’s) using gimmicks. He’s using accounting tricks,” Geymann said.

In the business world, he said, you would not sell a piece of property every year to pay the rent.

State Treasurer John Kennedy compares the current state budget situation with a worn-out pair of boots with a hole in the sole. In the short term, he said, tape can be wrapped around the sole, but eventually a major repair will be needed.

“What we’ve done about the budget for the past five or six years is just wrap duct tape around it. We’ve been balancing the budget with smoke and mirrors and accounting tricks,” Kennedy said.

Jindal’s legacy

Blanco and Jindal have never been the best of friends. They ran against each other for governor in 2003. The race got ugly, went into a runoff and Blanco won.

Four years later, Blanco bowed out of politics after Katrina. Public sentiment was against her despite investments she made in education and economic development during her last year in office.

Blanco, a former teacher, criticizes Jindal for his education budget. Under Jindal, basic state aid to public schools, known as the MFP, remained essentially frozen for several years, other than bumps for increased student enrollment. Public colleges now rely more heavily on higher tuition from students and parents than they do on the state budget.

“When you freeze the MFP basically, cut into higher ed so dramatically that you’ve taken hundreds of millions out, you’re bringing education to its knees and it’s going to take a long time to recover. I think it’s not his priority. The first thing, as I said, the governor has to do is protect the state fiscally. I respect he doesn’t want to increase taxes. When you make a hard and fast rule, you should say no tax reductions,” Blanco said.

Roemer thinks Jindal has done some damage — but not an inordinate amount — to the budget.

“I give him not great grades on the budget,” Roemer said. “We can do better than this, and I think we have to.”