How soon we forget Louisiana’s need for ‘Rainy Day’ monies

One of the frequent topics of discussion regarding how to handle the state’s current budget crisis centers on the “Rainy Day” Trust Fund. State officials seeking the least painful way forward are haunted by the fact that they can’t easily tap into a significant amount of the $780 million in the fund due to constitutional restraints.

The first restraint is that no more than one-third of the fund can be accessed during a two-year period. The second – and far more complicated – restriction has to do with the requirement that any oil and gas revenues in excess of $850 million must first be used to replenish any withdrawal from the trust fund before any can be used for appropriations.

Let’s put the conundrum facing the Legislature in focus.

The House and the Senate can pass a resolution that takes up to $260 million out of the trust fund and use those revenues to help balance the budget they are now struggling to confect. But if they do, they would have to replenish the fund with oil and gas revenues during the course of the next budget year when the total amount of collections reaches the $850 million level. That greatly diminishes the value of tapping the Rainy Day Fund as a solution for the budget crisis. Many legislators are grumbling about this “flaw” in the Rainy Day Fund and one – Rep. Franklin Foil (R-Baton Rouge) – has filed a constitutional amendment that would remove the requirement that excess oil and gas revenues replenish the fund in the year the revenues are removed from it.

Sometimes legislators forget that history tends to repeat itself, so what follows is a friendly reminder about the “flaw” in Rep. Foil’s “solution.”

The correct name of the so-called Rainy Day Trust Fund is actually the Budget Stabilization Fund. It wasn’t actually designed primarily to put money away for a “rainy day.”

It was enacted to restrict the use of windfall revenues – especially volatile oil and gas revenues – in budgeting.

Originally, the constitutional amendment that created it mandated that any oil and gas revenues in excess of $750 million had to go into the fund until the cap (a percentage of general fund revenues) was reached. Perhaps the only reason the constitutional amendment made it through the Legislature back then was because most legislators never thought those revenues would hit the $750 million mark again. But they did, and as soon as that happened, the Legislature bumped the threshold up to $850 million where it is today.

The primary source of the current budget crisis comes from the fact that exploding oil and gas revenues in the past few years filled up the trust fund and then flowed over by hundreds of millions into the state general fund. Those volatile revenues were quickly spent by a Legislature eager to spend every dime available.

Today, oil and gas revenues are about $800 million less than in the last budget – volatility personified. The “flaw” that some in the Legislature find with the stabilization fund has to do with the intent of that amendment to the constitution: to place restraints on legislators from funding recurring expenditures with revenues that are anything but stable.

Rep. Foil’s proposed constitutional amendment (which couldn’t take effect for several years even if enacted by the Legislature and approved by the voters next year) is a classic example of ignoring what history has taught us.

The Legislature overspent significantly in the last two budgets. Diverting more volatile revenues to keep that spending train going will quickly lead to an even larger crisis.