Budget gimmickry on the Bayou

Sometimes a trust fund isn’t a trust fund, and sometimes an appropriation isn’t an appropriation.

The Public Affairs Research Council of Louisiana (PAR) has done some important work over the years trying to clean up the policymaking process of the state and improve state governance in issues ranging from public sector pensions to appropriate use of trust funds.

Last week PAR released a commentary on the 2015 executive budget, generally praising it but calling out a proposal that sets the stage for potential budgetary sleight of hand by the legislature.

Of particular concern is the Governor’s proposal to place $51 million of non-recurring revenue in the state’s Coastal Protection and Restoration Fund, which could potentially later be transferred by the legislature into general revenues. While Louisiana’s constitution prohibits appropriating money from the Fund for anything other than coastal restoration and protection, transferring money out seems to be kosher.

Got that?

Here’s PAR’s explanation:

The $51 million that will be put in the Coastal Fund could later be moved out through the “funds bill.” The executive budget does not specify this transfer, which would take place during the Legislature’s budgetmaking process during the upcoming session. The funds bill is a routine piece of legislation that provides for the transfer of deposits and monies among state funds (an example would be Act 420 of the 2013 session). Under past practice, one-time money that moves through the funds bill can end up paying for the ongoing operating expenses of the state. The time has come to stop using the Coastal Fund this way.

Under the state constitution, money in the Coastal Fund can be appropriated only for expenditures related to coastal restoration and protection. In the view of budget drafters in recent years, the funds bill transfers money but does not appropriate it. Purportedly under this rationale, the transfer does not violate the constitutional protections surrounding the Coastal Fund….

To be clear, no action has been taken yet to convert deposits in the Coastal Fund to other purposes in FY2015. And the options to do so may be limited because the Revenue Estimating Conference restricted certain Overcollections Fund spending next year to one-time purposes. Whatever the mechanics of the spending limits and the potential conversion of funds might be, the main point is that the state should reject its past practice and set a more appropriate course for handling the Coastal Fund.

Through BP oil-spill settlements, increased offshore revenue sharing and other sources, Louisiana is poised to receive and spend billions of dollars for coastal protection and restoration in the next few years. Some of this is new federal money and much of it is BP money regulated through the courts and federal agencies. The state’s handling of the Coastal Fund is being watched closely by Congress, federal regulators, stakeholder organizations, national policy think tanks and the media.

Louisiana has established a good reputation compared to other Gulf Coast states because it has developed a strong consensus behind a scientifically designed coastal master plan. The Jindal administration’s coastal management plan and practices are viewed positively by many observers inside and outside the state. Now the state will be increasingly judged on the level of responsibility, transparency and accountability used in the fiscal administration of its Coastal Fund and project spending, especially as massive sums flow.

The Advocate newspaper has more here.

It’s an important caveat that nothing untoward has been done yet. But even the suggestion that the legislature might tolerate this kind of budget gimmick is a problem for Louisiana. Using the Coastal Fund as a vehicle for accounting shenanigans is especially problematic since the state’s coastal planning process is one area of state government that is working very well. And given Louisiana’s ongoing pension underfunding, it’s not like the state doesn’t have a perfect home for windfall revenues.

As I argued last month, it’s not always immediately clear whether revenues are one-time or recurring, and there are areas of grey between the two.

But there’s no reason to believe that money can enter a state fund as one kind of revenue and days or weeks later exit the fund as the other.

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