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|House Bill 629 Heads to Governor's Desk|
BATON ROUGE, LA - A bill that could generate $157 million over five years by improving the state's debt collection processes is heading to Governor Jindal's desk for his signature, according to State Treasurer John Kennedy. Final passage of House Bill 629 by Rep. Chris Broadwater (R) and Rep. Ted James (D) occurred today after the bill made a brief stop in conference committee.
"We are now one step away from significantly improving the way the state conducts its business, and this will be a tremendous help with our annual budget struggles," said Treasurer Kennedy. "Many of our budget problems could be solved by making simple changes to the way we collect the money owed to us."
Louisiana currently has $1.6 billion in outstanding receivables, which are various fees and payments that are owed to the state that have not been paid. Approximately $690 million of that amount is 180 days past due.
"No business in the real world would go about its operations without checking accounts receivable every week," said Treasurer Kennedy. "On top of that no business in the real world could afford to have almost half of its receivables go 180 days past due."
All state agencies and departments are required by law to report information about receivables on a quarterly basis. HB 629 would also make it mandatory for agencies to refer unpaid receivables to a central unit for collection.
According to a report from CGI Technologies and Solutions, Inc., if the state continues its current debt collection practices, only $26 million out of $2 billion owed would be generated over the next five years. Based on benchmarks in other states, Louisiana could collect an additional $157 million by implementing improved collection practices.
"California brought in $2 billion by improving its debt collection practices," said Treasurer Kennedy. "If we could improve our collections by just 10 percent, think of what it could do for our budget."
|Legislative Committee Kills Bill to Cut State Contracts|
BATON ROUGE, LA - The Senate Finance Committee today killed a House bill that would have required a 10 percent reduction of all state professional, personal, and consulting service contracts, according to State Treasurer John Kennedy.
"Louisiana has roughly 19,000 contracts," said Treasurer Kennedy in his testimony to the Committee. "Some are to build things we need, but too many are to do things we shouldn't, at least not at the expense of our priorities. This bill would have forced state government to rein in spending and cut unnecessary contracts that continue to put a strain on our budget."
The Senate Finance Committee defeated House Bill 73 by Rep. Jerome "Dee" Richard by a vote of 4 to 4 with the Chairman casting the deciding vote. The bill previously sailed through the House with a vote of 86 to 0. During the last legislative session, Rep. Richard had a similar bill to cut state consulting contracts by 10 percent. The bill also unanimously passed the House only to be killed in the Senate Finance Committee.
Treasurer Kennedy cited several questionable contracts during his testimony including the following:
- $64,237 to teach leisure dance classes at the LSU student union;
- $13,107 for the Ropes Challenge Group, which is a climbing ropes course;
- $7,500 to have comprehensive curriculum documents proofread;
- $6,875 to provide regulatory inspections for commercial body art facilities;
- $225,000 to provide workshops and seminars to train young adults in the fashion industry;
- $250,000 to provide reliable data to parents to support informed school choice decisions;
- $300,000 to develop a CD and workbook to enhance students' cognitive and memory skills in recalling math skills through the use of music;
- $20,000 to help students become positive people.
"Do you ever wonder why our colleges and health care get cut every time the Legislature meets?" asked Treasurer Kennedy. "It's not because the state doesn't have enough of your money. The answer lies in how Louisiana state government spends your money. The fact is state government can do better, and taxpayers deserve better."
|Legislative Committee Kills Bill to Require Citizens Property Insurance to Report Rate Increases |
BATON ROUGE, LA - Members of the House Insurance Committee killed a Senate bill this week that would have required the state's property insurer of last resort to report rate increases in excess of 25 percent a year, according to State Treasurer John Kennedy.
"It's disappointing because it does us no good to make insurance available to folks who can't afford it," said Treasurer Kennedy. "Homeowners are being forced to choose between food, drugs and insurance, because these prices are so high and these increases are so shocking."
Senate Bill 19 by Sen. Bret Allain (R) would have made it a requirement for the Louisiana Citizens Property Insurance Corporation to report to the Legislature any time the company planned to increase rates more than 25 percent in one year. The bill recently passed the Senate floor by a vote of 36 to 0.
Treasurer Kennedy, who by statute serves on the board of directors for Citizens, Rep. Joe Harrison (R) and Rep. Sam Jones (D), all testified in the House Insurance Committee on SB 19. In his testimony, Treasurer Kennedy pointed to the insolvency of Citizens, which recently requested to borrow $100 million from the State Bond Commission and was denied.
"If Citizens was a normal insurance company they'd be in receivership right now," said Treasurer Kennedy. "They need additional capital even more now, because they're broke. The company is backed by the taxpayers of the state, and we have to pick up the tab when something goes wrong. We shouldn't be trying to make this company solvent on the back of our policyholders."
Last year, Citizens made substantial rate increases in the state's coastal parishes of 50 percent to 70 percent, with some parts of the state seeing increases as high as 171 percent. According to committee testimony, owners of a modest home who may have been paying $2,000 for wind and hail coverage received insurance bills from the company for almost $5,000.
"It's unfortunate that with only three weeks remaining, that SB 19 will most likely not be heard again this session," said Treasurer Kennedy. "This would have been a good chance for the Legislature to review the entire Citizens operation. It's way overdue."
|Budget Maneuver Will Hurt TOPS|
In 2001, Louisiana wisely sold a portion of its tobacco settlement with the four major tobacco companies by issuing bonds to investors for around $1 billion. We put the $1 billion in a constitutionally-protected trust fund dedicated to health, education and the TOPS Scholarship Program.
Interest rates have dropped since 2001, and Louisiana now has the opportunity to refinance its tobacco bonds at a lower interest, which we should do to generate more money for TOPS. Unfortunately, despite the financial experts' advice and against my objections, the current refinancing plan will leave money on the table--money we could use for TOPS--by taking the savings from the refinancing up front to plug the state's budget shortfall.
Let's say I decided to refinance my 6% home mortgage because interest rates have fallen to 3%. I could choose to take the savings in one of three ways: by lowering my monthly payments, by reducing my 30 year mortgage to a 15 year mortgage, or by taking the savings out up front in cash. I should choose the option that saves me the most money in the long term.
Unfortunately, the plan chosen by the state for our tobacco bonds refinancing--taking the savings up front--saves the least amount; the other two options--lowering our payments or paying the bonds off early--will save millions more.
An overwhelming majority of the investment bankers who bid on refinancing the state's tobacco bonds recommended lowering our payments or paying our debt off earlier. Responses from these Wall Street financial firms clearly show that restructuring our debt for the long term yields the most savings under both net present value and actual cash flow scenarios. Only a handful of firms said taking the savings up front saved the most money.
Why then is there such a push to do what saves the least amount of money for taxpayers? It's pretty simple. The upfront money is an easy fix to get the cash needed for this next year's budget hole. Spending the savings next year for TOPS, instead of taking a larger amount of savings over time or to pay the debt sooner, frees up money to plug a budget hole in the General Fund for one year. What will we do in future years, when all the savings have been spent?
Refinancing our tobacco bonds is a good idea given the current interest rate environment. It's unfortunate that TOPS and taxpayers will end up shortchanged by the refinancing method chosen in order to balance the budget with more one time money.
|Plan B to End the Income Tax|
I appreciate Gov. Jindal’s plan to end Louisiana’s personal and corporate income tax. Our state needs a tax code that looks like somebody designed it on purpose, and the Governor is correct, in my estimation, that the income tax, which taxes work, makes us less competitive.
Though well-intentioned, the Governor’s plan was not going to pass. Nor should it, if for no other reason than it would have raised taxes on businesses by $500 million.
Now that the Governor has withdrawn his plan we need a Plan B. Several plausible ones have been hinted at. Here’s another,
1. Draft the Legislative Fiscal Office, the Legislative Auditor, PAR and CABL to count the beans. They have credibility.
2. Forget about raising the state sales tax rate or taxing services.
3. Concentrate instead on reducing the state income tax by making it and the state sales and excise taxes flatter. Our goal for income, sales and excise taxes should be the lowest possible rate (everyone pays as little as possible) and the broadest possible base (everyone pays something), consistent with the promotion of shared social and economic policies (for example, no one should have to pay sales tax to eat at home).
4. Achieve our goal by objectively analyzing the efficacy of each statutory (not constitutional) exemption, exclusion, credit and rebate our current state tax code gives to people and companies that would be paying income, sales or excise taxes, like everyone else, but aren’t because a law exempts them. Why were they exempted in the first place? Job creation? Fairness? To promote a shared value? If the exemption is achieving its purpose, keep it. Perhaps even double down on it if it is working exceptionally well. But get rid of it if the preference falls short of its purpose.
5. The state has 19,000 consulting contracts, according to the Legislative Auditor. We don’t need all of them. Eliminate at least 10% by value, and demand a reasonable discount, perhaps 5%, on the rest when the state has superior bargaining strength, which is most of the time.
6. Implement a centralized collection process and automated collections management system to collect the state’s accounts receivable (debts owed the state, such as fines, medical bills and taxes) by passing HB 629 by Rep. Chris Broadwater (R) and Rep. Ted James (D). CGI Technologies and Solutions, Inc. estimates HB 629 will bring in an extra $158 million over 5 years, and likely more.
7. Eliminating exemptions, winnowing down and renegotiating consulting contracts and doing a better job of collecting state debt will save enough money to reduce the state income tax without raising the state sales tax rate or taxing services. The more money we choose to save this way, the more we can reduce the income tax. Enough could be saved to eliminate the income tax, if we want to. This sounds simple, and mathematically it is, but this exercise will require extraordinary political will. The buffet may be large—19,000 contracts; 468 exemptions worth $4.8 billion—but each has a constituency. We’ll find out quickly how serious we are about tax reform.
8. Finally, if Plan B passes, make it effective only if the voters agree. Gov. Roemer and Gov. Foster let people vote on their tax code revisions. So should the proponents of this plan.
Gov. Jindal has called for a fairer, flatter and simpler tax system that creates jobs and encourages growth. This Plan B achieves each one of his goals.
|The Proposed Budget: A Fond Illusion|
Imagine, God forbid, that your boss just cut your salary by 25% because business is bad. Instead of reducing your spending or getting a second job, you elect to do the following:
1. Take a cash advance on your credit card to pay your car note.
2. Refinance your mortgage, but instead of choosing to lower your monthly payments, ask for the one-time savings up front to pay for your Disney World vacation.
3. Decide, reluctantly, to sell your bass boat. It's worth $2,500. You ask $10,000. You wonder why it doesn't sell.
4. Instruct your kids they must begin paying for room and board. When they ask where they'll get the money, tell them to borrow it.
Your plan may work-for a while. Then, as sure as "eggs is eggs," you'll go broke, just like Louisiana eventually will if the legislature passes the Jindal Administration's proposed, yet again unbalanced budget for the fiscal year beginning July 1.
Here's how the administration plans to "balance" state revenue and spending this time:
1. Pretend the state will have an extra $800 million to spend as a result of the yet-to-be realized savings from leasing state hospitals to private hospitals, even though the leases have not been negotiated.
2. Refinance the state's tobacco bonds (good idea) but dump the $90 million one-time savings into the operating budget and spend it next year (bad idea).
3. Propose to sell state real estate at inflated prices well above appraised value and spend the money before they sell.
4. Borrow $100 million from the New Orleans Convention Center to keep our colleges open while promising to repay the loan with the proceeds from future bond issues that will exceed the state's constitutional debt limit.
5. Raise college tuition 10% for Louisiana students, who already owe $900 million in student loans, despite the fact that education is the new currency of our global economy and 8% fewer Louisianans have a college degree than the rest of America.
Call this budget what you like: a fond illusion or smart accounting. The result will be the same: mid-year budget cuts for the sixth year in a row, because the budget is not balanced. Why should we care? Because making a college cut $10 million with six months left in the fiscal year is like a $20 million cut from day one. That shreds muscle, not fat.
There's a better way. It's not complicated: don't spend more than you take in, and when you do spend money, spend it on things you need, not things you simply want.
Louisiana families know that. So do Louisiana businesses. Why can't government figure it out?