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Reform away use of bonus money for operating budget

It’s not so much as how not to run a railroad, to echo the vernacular used by Louisiana’s Treasurer John Kennedy, but in running the railroad better when it comes to using revenues coming from one-time events.

Kennedy made this characterization when releasing information about monies still owed to the state even as the fiscal year was coming to a close. He claimed the amount to be $134 million, out of $413 million derived from property sales, legal settlements, lease payments, loan repayments and other financing arrangements.

Commissioner of Administration Kristy Nichols reminded that, for accounting purposes, any budgeted money collected prior to Aug. 15 would be credited to fiscal year 2014 completed today. Only then would the state face a shortfall if that didn’t come through. She predicted that, except for money from the sale of Southeast Louisiana Hospital that got delayed and slightly reduced for legal reasons which could be compensated from greater proceeds from an anti-fraud initiative than figured, the other missing funds would come in by then.

On the one hand, the just-in-time cash management strategy of the state is reassuring in that it doesn’t collect too much money idly sitting earning almost no interest that could be left in the pockets of taxpayers. On the other hand, there’s some playing too close comfort here that invites unpleasant surprises.

Reviewing these kinds of money from episodic events and contracts, with the latter those are anticipated periodic payments the use of which constitutes sound budgeting strategy, because they will be made unless the contracting party wishes to become liable to default, which if ever would be rare. Regardless, with the contracting out of state hospital operations, joining other things like two prisons and benefits for state workers and retirees, the amount of revenues subject to this constraints has gone up significantly in recent years.

Monies coming from things like tax amnesty and the anti-fraud program, even if not quite as accurately forecastable, still also are adequately likely in amount that appears to include as revenues in an operating budget. The key here would be conservative estimations – even as lawmakers might resist the idea because when a surplus of these comes through, the Revenue Estimating Conference may declare some or all of that surplus non-recurring and therefore unavailable for operating expenses, so the higher the estimate, the more dollars that would become available for spending as they wish. Additionally, overreliance on these tactics can dry the well. Responsible policy-makers can act to prevent these temptations from being pursued.

But the unpredictability of property sales and legal settlements makes these items best avoided when constructing an operating budget. Too many contingencies, as exemplified by the hospital sale held up by environmental issues, make the timing and amount of these things insufficiently reliable. Also, in a theoretical sense the idea of their use this way grates for they are true bonuses that cannot be replicated.

Therefore, the Legislature and governor should place the following legal restriction on the use of money from property sales or legal settlements: any such money should go to debt defeasance in the current fiscal year, which essentially passes that amount on to become available for the next fiscal year. This way, no chickens get counted before hatching, it reduces a long-term liability temporarily (as the portion paid off becomes freed for next year’s use for operating expenses netting out), and the equivalent amount can be used for operating expenses down the road.

For all their posturing, the so-called “budget hawks” in the Legislature who assert concern over questionable budget practices, nor any other legislator, have made this kind of proposal. That should be queued up for passage into law or the Constitution next year, to take effect for fiscal year 2017 budgeting. And, courtesy of term limits, since the governor and a number of legislators will not be returning for budgeting for that year and thus will not have to govern under that restriction, maybe they’ll actually do it. Nor would it hurt Kennedy or anybody running for election as governor or to the legislature or considering doing so to propose this as part of what they’ll do if elected.

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