Jindal’s budget-cutting folly

Gov. Bobby Jindal in a recent video by the Republican Governors Association.

Gov. Bobby Jindal in a recent video by the Republican Governors Association.

By Robert Mann

Say what you like about Gov. Bobby Jindal, but don’t say he lacks passion for budget cuts and privatizing government services. It only makes sense, therefore, that he would find a way to privatize budget cutting.

Jindal’s administration recently signed a $4.2 million contract with Alvarez & Marsal, a management consultant that Jindal expects to find $500 million in annual budget savings.

This contract was puzzling on several fronts. First, while Jindal’s aides touted the arrangement by insisting the firm was obliged to produce the $500 million in cuts, the contract they signed had no budget-cutting targets. Through a spokesperson, Commissioner of Administration Kristy Nichols argued the arrangement was binding because the desired savings were discussed in a cover letter.

That undoubtedly sent the lawyers scrambling to find chapters on cover letters in their contract-law books. Turns out such chapters don’t exist because these agreements are enforced with actual contracts, not squishy cover letters. Jindal’s aides knew that all along, of course, and quickly renegotiated the deal to include a legally binding figure.

More puzzling to some was why Jindal, entering his seventh year as governor, needs to outsource management and budget responsibilities. Perhaps in his first year, while learning the ropes, such counsel would have been helpful. However, if Jindal must still subcontract these duties, perhaps the hundreds of employees at the Division of Administration are superfluous. Finding budget efficiencies is their job, after all.

More likely, this contract is a fig leaf to conceal Jindal’s woeful mismanagement of Louisiana’s finances. In his first year as governor, Jindal presided over repeal of the income tax portion of the Stelly Plan, which knocked an annual $300 million-plus hole in the state’s budget. That one reckless act ensured that Jindal’s tenure would be characterized by painful budget cutting, not the kind that trims fat (much of that’s protected by the state Constitution), but instead the kind that guts health care and higher education.

If he’s going to run for president, Jindal knows he must pull his budget process out of the ditch and he must reinvest in basic services, such as education and health care (he recently started that process, announcing a modest increase for colleges).

Getting compelling talking points for the campaign trail requires much more money than Jindal currently has available, and that means he needs even deeper cuts to state government to free up funds to reinvest in areas like higher education.

Unfortunately, Jindal is looking in the wrong place. He doesn’t need a consultant’s recommendation for budget cuts and more privatizing schemes. He doesn’t even need Treasurer John Kennedy’s interesting-but-impractical idea to slash all state contracts by 10 percent

He needs, instead, a fair, progressive tax system built to produce revenue as our economy expands.

Have you noticed that Jindal is always telling us how Louisiana’s economy is booming because he’s attracted new business to the state? If that’s so – and I believe Louisiana’s sleeping economy is awakening – why is it that we are still enduring revenue shortfalls?

Shouldn’t a booming economy generate more tax revenue? This year, Jindal has kept the lights on at LSU with a garage sale of state assets and a tax amnesty program.

Soon, however, the state will run out of property to sell and tax cheats to forgive.

What we have is not a spending problem but a revenue problem and that problem is directly related to Jindal’s 2008 tax cuts, which made our tax code much less progressive and, therefore, less responsive to economic growth.

The beauty of the Stelly Plan — approved by voters in 2002 — was that it made the state more dependent on progressive income taxes and less dependent on regressive sales taxes. When the economy grows, incomes increase and people pay taxes on that increased income. Studies show that income taxes respond faster to economic growth than sales taxes.

Not only did cutting those income taxes make us more dependent on sales taxes, it made our tax system less fair. Our poorest taxpayers pay twice as much in state and local taxes – as a percent of income – as the highest earners.

To review: we have a regressive tax system that punishes the poor, rewards the rich, and doesn’t respond quickly enough to economic recovery to provide the revenue to balance our budget. And Jindal’s response is to slash more spending for vital services? If you’ve stood in line recently to renew a driver’s license, your aching feet will testify to the folly of that kind of governing.

Running for president is hard work and Jindal surely needs better talking points for the task, but must the common good always be sacrificed on the altar of his national political ambitions?

* * *

Jan Moller of the Louisiana Budget Project made an important point in a comment about the bipartisan nature of the Stelly Plan repeal. I’ve made the same point before in other posts on this topic, but I think it’s worth adding Jan’s comment here:

[O]ne thing that unfortunately gets lost in these discussions is the truly bipartisan nature of the post-Katrina tax-cut folly.

The “income-tax portion of the Stelly Plan” that you describe actually had two parts – the elimination of excess itemized deductions and the higher rates.

It was Gov. Kathleen Blanco and the 2007 Legislature that restored the excess itemized deductions, at a five-year cost of more than $1.1 billion. Every single member of the House and Senate voted in favor of this plan by then-Rep. Taylor Townsend (HB 635).

The following year, Sen. Buddy Shaw wrote the bill that brought the tax rates down to pre-Stelly levels, at a five-year cost ($1.145 billion) almost identical to the repeal of the excess deductions. Once again, every single member of the House and Senate voted yes (SB 87).

This governor certainly deserves the criticism he gets for mismanaging Louisiana’s finances with reckless tax-cutting. But history needs to remember that there is plenty of blame to go around.

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10 thoughts on “Jindal’s budget-cutting folly

  1. Shouldn’t it read….”knows he must pull his budget…”?

  2. Never mind. You had it in the column itself. My bad.

  3. What you are saying needs to be said over and over and over, so keep saying it.

    And, look, at great sacrifice, for only a modest $2 million contract, I will be happy to come up with several lists of things that each total $500 million – and I can do it in less than 3 months, actually less than a week, actually tonight.

    I have 21 years of experience with the state’s budget which easily exceeds whatever time Alvarez and Marsal have put in here. So, I’m offering a chance for the state to save at least $2.2 million (or whatever is left of the current contract) and I will provide several lists over night, none of which will include popular cuts – in other words I can promise the same product at half the cost. What a bargain, eh?

  4. I expect most of the $142 million “increase” he’s budgeted for higher ed funding will evaporate soon enough. Most of it is tuition increases and therefore would be paid for by TOPS. Does that really stand a chance of making it into law without additional revenue being generated? But he got the headline didn’t he? Bobby Jindal: “The Education Governor.”

  5. Oh, I forgot the privatization of budget cutting via a contract to Alvarez and Marsal. Is that not obviously a way of funneling state funds into his campaign for president? He gives them a multimillion dollar contract, and they contribute some of it to his campaign fund. And don’t laugh, with Chris Christie one smoking-gun e-mail away from going down in flames Jindal’s become a possibility again,

  6. Excellent column, as always. But one thing that unfortunately gets lost in these discussions is the truly bipartisan nature of the post-Katrina tax-cut folly.

    The “income-tax portion of the Stelly Plan” that you describe actually had two parts – the elimination of excess itemized deductions and the higher rates.

    It was Gov. Kathleen Blanco and the 2007 Legislature that restored the excess itemized deductions, at a five-year cost of more than $1.1 billion. Every single member of the House and Senate voted in favor of this plan by then-Rep. Taylor Townsend (HB 635).

    The following year, Sen. Buddy Shaw wrote the bill that brought the tax rates down to pre-Stelly levels, at a five-year cost ($1.145 billion) almost identical to the repeal of the excess deductions. Once again, every single member of the House and Senate voted yes (SB 87).

    This governor certainly deserves the criticism he gets for mismanaging Louisiana’s finances with reckless tax-cutting. But history needs to remember that there is plenty of blame to go around.

    • Very good point, Jan. I’ve noted the role of Blanco and others in the first repeal in other posts on Stelly and I should have included it here. Thanks for making an important point.

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