FILE - Louisiana Treasurer John Schroder

Louisiana Treasurer John Schroder

When Louisiana’s legislators debate and argue about the annual budget, as they did at length this year, the conversation is limited to discretionary spending, which is just a small portion of the overall state fiscal picture.

One category that legislators can’t really touch is statutory and constitutional dedications. Another is the annual debt service payments. But they do have an effect on future budgets each year when they approve a piece of legislation known as House Bill 2, which contains capital outlay projects, meaning large-scale expenditures typically financed via the issuance of debt.

When it comes time for the state to pay for projects included in HB2, that decision-making largely happens with the approval of the State Bond Commission, a panel made up of legislators and administration officials.

At the latest Bond Commission hearing earlier this month, Treasurer John Schroder, who serves as chairman of the panel, led a wide-ranging discussion about the scope and long-term impact of Louisiana’s growing debt.

Schroder repeatedly lamented the way the state approves and funds large projects, stating that in his opinion it was causing Louisiana to continually take on more debt than it can afford.

“Look, I’ll commend the administration on this – we have shortened that list of our wants,” he said. “But what we're spending hasn't gone down any. We're increasing it every year. … Each year, although our wish list is shorter, what we’re spending is not. And somehow we have to get a grip with that. And as treasurer, and many of you have heard me talk about this, it's a debt. A debt is a problem, and it continues to grow.”

At Schroder’s behest, Bond Commission Director Lela Folse gave a brief presentation about the state’s debt load and how it is projected to grow in the coming years. Folse told commission members that the amount of debt that can be incurred each year is calculated based on forecasts of state revenue provided by the Revenue Estimating Commission.

“If [the December 2018] REC forecast is similar to the June 2018 REC forecast, the amount of [general obligation] bond prices that can be raised under that limit is projected to be $465 million annually,” Folse said. “The cost of issuing new debt impacts the operating budget, and it is anticipated that new GO bonds will need to be issued this fiscal year to fund cash lines of credit.”

And even as the state makes plans to take on hundreds of millions of dollars of more debt, it still has to wrestle with debt it’s paying off from past years.

Folse told the commission that Louisiana’s per capita debt has reached $1,627 per person, an increase of $12 over 2017, while the national average went up by only $4 and a grouping of southern states actually declined by $24.

Schroder then expressed frustration that the Bond Commission was being asked to approve $654.6 million in lines of credit not only for state-focused capital outlay projects, but also for local governments and nongovernmental organizations.

“We do do things as a state and bond out things that other states don't bond, specifically nonprofits,” he said. “We spend where other states would take that same amount of money [and] they’d be spending it on state priorities. We don't, because I guess we're a rich state. We can afford to spend on a lot of different areas, except where our priorities are.”

Sen. J.P. Morrell, D-New Orleans, who is chairman of the Senate Revenue and Fiscal Affairs Committee as well as serving on the Bond Commission, took issue with Schroder’s characterization that the capital outlay process was in large part responsible for the state’s poor fiscal standing and credit rating.

“How much debt the state owes from capital outlay and our bonded capacity is dwarfed by at least six times by the pension liability,” he said “I completely agree that we have a severe problem with our per capita debt, when you try and compare us to other states as far as where they are in debt. It's not simply based upon how much they're bonding versus how much we're bonding, when Moody's and S&P factor in our per capita debt, they factor in all liabilities. And we're a state that for 50, 60 years has not tackled pension reform.”

Schroder agreed with Morrell that the pension system is a significant problem, noting that it was one of the elements included by the Moody’s credit rating agency in their grading of Louisiana’s finances. But he insisted that spending capital outlay funds on hundreds of millions of dollars worth of non-state projects was an inappropriate usage.

Another commission member, Jay Dardenne, the head of the Division of Administration, seemed to try to reassure Schroder that the capital outlay expenses were reasonable and much more restrained than in years past. He emphasized that the current limits based off the REC estimates were much more fiscally responsible than what had existed before those limits were imposed in the early 1990s.

“There's no question it was out of control,” he said “It was not a reasonable way to try and manage the the people's money or the people's debt. … But so long as there's an appetite with the administration, with the Legislature, and with the public to engage in capital outlay projects, we’re going to have debt. I mean, it's the nature of what you do, is some projects roll off and get paid. You bring other projects on to do things that are good for the people of this state.”

The commission ultimately opted to approve the lines of credit that were at issue on a 9-4 vote, with Schroder among the votes in opposition.

Pennsylvania & Ohio News Editor

Dave Lemery is a veteran journalist with more than 20 years of experience. He was the editor of Suburban Life Media when its flagship newspaper was named best weekly in Illinois, and he has worked at papers in South Carolina, Indiana, Idaho and New York.