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Archive for the ‘Budget’ Category

“Like all of the governor’s self-created crises, the solution always seems to be to ask more of the people of our state: more money, more patience, more suspended disbelief.”

—State Rep. John Bel Edwards, commenting on the failure of Gov. Jindal’s promise of a $20 million a year savings with the privatization of the Office of Group Benefits.

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The underhanded attempt to rip off the Louisiana State Police Retirement System (LSRPS) on behalf of State Police Superintendent Mike Edmonson (aka “Precious”) through a shady back door amendment steered through the Legislature by State Sen. Neil Riser wasn’t the first time that the agency charged with protecting Louisiana citizens has illicitly commandeered state funds on behalf of one of its own.

And, it seems, the more deeply we venture down the rabbit hole that is the Department of Public Safety (DPS), the uglier and scarier the unfolding picture becomes.

In April of 2010, the Jindal administration, in an offer to implement across the board savings, made a one-time incentive package offer to various state agencies as a means to encourage state employees to take early retirement.

Handled properly, it appeared at the time—and still does appear—to have been an economical and compassionate way to nudge employees who wanted out but who could not afford to retire, into making the decision to walk away, thus reducing the number of state employees which in turn translated to long-term savings in salaries and benefits paid by the state.

On April 23 of that year, DPS Deputy Undersecretary Jill Boudreaux sent an email to all personnel informing them that the Department of Civil Service and the Louisiana State Police Commission had approved the retirement incentive as a “Layoff Avoidance Plan.”

In legal-speak, under the incentive eligible applicants would receive a payment of 50 percent of the savings realized by DPS for one year from the effective date of the employee’s retirement.

In simpler language, the incentive was simply 50 percent of the employee’s annual salary. If an employee making $50,000 per year, for example, was approved for the incentive, he or she would walk away with $25,000 in up-front payments, plus his or her regular retirement and the agency would save one-half of her salary from the date of retirement to the end of the fiscal year. The higher the salary, the higher the potential savings.

The program, offered to the first 20 DPS employees to sign up via an internet link on a specific date, was designed to save the state many times that amount over the long haul. If, for example, 20 employees, each making $50,000 a year, took advantage of the incentive, DPS theoretically would realize a savings of $1 million per year thereafter following the initial retirement year.

That formula, repeated in multiple agencies, could produce a savings of several million—not that much in terms of a $25 billion state budget, but a savings nonetheless.

The policy did come with one major caveat from the Department of Civil Service, however. Agencies were cautioned not to circumvent the program through the state’s obscure retire-rehire policy whereby several administrative personnel, the most notable being former Secretary of Higher Education Sally Clausen, have “retired,” only to be “rehired” a day or so later in order to reap a monetary windfall.

“We strongly recommend that agencies exercise caution in re-hiring an employee who has received a retirement incentive payment within the same budget unit until it can be clearly demonstrated that the projected savings have been realized,” the Civil Service communique said.

And, to again quote our favorite redneck playwright from Denham on Amite, Billy Wayne Shakespeare from his greatest play, Hamlet Bob, “Aye, that’s the rub.” (often misquoted as “Therein lies the rub.”)

Basically, to realize a savings under the early retirement incentive payout, an agency would have had to wait at least a year before rehiring an employee who had retired under the program.

Boudreaux, by what many in DPS feel was more than mere happenstance, managed to be the first person to sign up on the date the internet link opened up for applications.

In Boudreaux’s case, her incentive payment was based on an annual salary of about $92,000 so her incentive payment was around $46,000. In addition, she was also entitled to payment of up to 300 hours of unused annual leave which came to another $13,000 or so for a total of about $59,000 in walk-around money.

Her retirement date was April 28 but the day before, on April 27, she double encumbered herself into the classified (Civil Service) Deputy Undersecretary position because another employee was promoted into her old position on April 26.

A double incumbency is when an employee is appointed to a position that is already occupied by an incumbent, in this case, Boudreaux’s successor. Double incumbencies are mostly used for smooth succession planning initiatives when the incumbent of a position (Boudreaux, in this case) is planning to retire, according to the Louisiana Department of Civil Service.

http://www.civilservice.louisiana.gov/files/HRHandbook/JobAid/5-Double%20Incumbency.pdf

Here’s the kicker: agencies are not required to report double incumbencies to the Civil Service Department if the separation or retirement will last for fewer than 30 days. And because State Civil Service is not required to fund double incumbencies, everything is conveniently kept in-house and away from public scrutiny.

On April 30, under the little-known retire-rehire policy, Boudreaux was rehired two days after her “retirement,” but this time at the higher paying position of Undersecretary, an unclassified, or appointive position.

What’s more, though she “retired” as Deputy Undersecretary on April 28, her “retirement” was inexplicably calculated based on the higher Undersecretary position’s salary, a position she did not assume until April 30—two days after her “retirement,” sources inside DPS told LouisianaVoice.

Following her maneuver, then-Commissioner of Administration Angelé Davis apparently saw through the ruse and reportedly ordered Boudreaux to repay her incentive payment as well as the payment for her 300 hours of annual leave, according to those same DPS sources.

It was about this time, however, that Davis left Gov. Bobby Jindal’s administration to take a position in the private sector. Paul Rainwater, Jindal’s former Deputy Chief of Staff, was named to succeed Davis on June 24, 2010, and the matter of Boudreaux’s payment quickly slipped through the cracks and was never repaid.

This occurred, it should be noted, at a time when state employees, including state police, (except for a few of Edmonson’s top aides, who we plan to discuss in future posts) were already into a period of five or six years of going without pay raises because of the state’s financial condition which has deteriorated in each year of Jindal’s administration.

Meanwhile, Jill Boudreaux continues in her position of Undersecretary of the Department of Public Safety at her present salary of $118,600 per year.

Now that we have shone a little light on her retire-rehire ploy, the question becomes this: Will anyone in the Jindal administration look into this matter and demand that she repay the money—with interest?

Or will the governor, who insisted as Candidate Jindal that “it is time we declare war on the incompetence and corruption” https://www.nrapvf.org/articles/20070720/nra-pvf-endorses-congressman-bobby-jindal-for-governor-of-louisiana

and that incompetence and corruption “will not be tolerated,” http://www.npr.org/templates/story/story.php?storyId=15503722

and that he has “zero tolerance for wrongdoing,” http://theadvocate.com/home/5500946-125/federal-grand-jury-looks-at

continue to ignore problems at home as he racks up frequent flyer miles in quest of the presidency that is far beyond his grasp?

Governor, the ball is now in your court.

Put up or shut up.

 

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By Stephen Winham

I was among a distinct minority of people in state government who thought adding DROP to our state retirement systems was a bad idea for the state from the outset. It clearly provided a good benefit for employees at a time when state salaries were not nearly so generous as today, but I was concerned about the real costs, not just to retirement systems, but to agencies’ active payrolls. I was also concerned about real and perceived inequities resulting from employees making decisions they would later regret. In my opinion, the existence of DROP in state retirement systems has generally failed to benefit the state financially or otherwise – And I find the whole concept of “Back DROP”, the State Police Retirement System option recently publicized in conjunction with the controversy over SB 294 of 2014, ridiculous on its face.

DROP for our state retirement systems seemed to at least have sensible goals when originally implemented and estimating the fiscal impact seemed relatively easy for an actuary. Simply put, an employee, who would otherwise be entitled to retire, continued working and drawing a pay check. The amount that would have been paid the retired employee in monthly retirement checks was frozen at that level and went into a DROP account each month while the employee continued to draw a salary. The employee did not have to make contributions to his/her retirement system while in DROP, so s/he got an immediate increase in net pay and could continue to get raises, though they would not increase the retirement benefit amount. When the employee actually retired s/he could get the balance in the DROP account and begin to receive monthly retirement checks.

DROP was sold as a way to retain experienced employees for a period of time beyond when they might otherwise actually retire by providing them with an additional incentive. It was also supposed to accomplish the almost contradictory goal of encouraging higher paid employees to actually retire at the end of DROP participation. This would reduce the amount of money necessary for salaries overall and/or create additional promotional opportunities and openings for other employees.

So, DROP was viewed by most as a simple, predictable benefit for both the state and its employees. But, guess what?   It has rarely worked that way and the reality of the way it does work begs the following questions:

  • How many people who participate in DROP would have really retired, when eligible, in its absence? Based on experience, the answer is very few. Therefore, the major ostensible advantage of DROP to the state, retention of experienced employees, would not seem to have actually been a state issue.
  • How many state employees with retirement eligibility are indispensable? Again, my answer would be very few. A significant percentage of indispensable employees would indicate gross understaffing, poor management planning, or both.
  • How many people who enter DROP actually retire at the end of DROP participation? My guess, again based on experience, would be significantly fewer than originally projected.

Because employees can come out of DROP and continue to work without skipping a beat, any expected salaries savings can evaporate quickly. In fact, high salaried people not already eligible for the absolute maximum in retirement benefits often continue to work an additional minimum of 3 years so they can start to accrue additional benefits to be paid as supplements to their “frozen” regular retirement checks. So, ultimate liabilities of the retirement systems are harder to project and salaries on the active payroll are often higher than they would have been otherwise.

The new option Colonel Mike Edmonson apparently wanted to take advantage of via SB 294 only exists in the State Police Retirement System and is called “Back DROP”. I had never heard of this before and still find it hard to believe it exists and was actually recommended by an actuary. It does absolutely nothing DROP was intended to do except encourage some people to simply work longer.

If I understand it correctly, under “Back DROP” the employee starts thinking about retiring and how to game the retirement system to his/her best financial advantage. As retirement eligibility approaches, s/he gets the system to run numbers so s/he can make the best choice when s/he actually retires between the following:

1. Pretending s/he entered DROP up to 3 years ago (going back to the future, in other words); or

2. Getting a lifetime benefit based on the highest average salary

Does that sound anything like DROP to you? Me, neither. It sounds like having your cake and eating it, too. Those eligible can’t possibly make the wrong decision – for them – and no pesky actuarial reductions in benefits like the Initial Benefit Option (IBO) that is available to all retirees.

Go to the following link, scroll down to “BACK DROP Plan – Only for Members Eligible for DROP after 10/01/2009” and see how you interpret the option: http://lsprs.org/retirement/options/

Now, think about it. How is it possible to get in the ballpark of figuring out how to adequately fund a benefit that doesn’t actually defer anything and lets those eligible choose the best option for them at the last possible moment?   How must the thousands of people who retired under regular DROP plans in all state retirement systems feel about the ability of anybody else to have this open-ended option?

Our retirement systems have total unfunded accrued liabilities of some $19 Billion. These liabilities did not crop up overnight but must, under existing law, be liquidated by 2029. How can any legislative action that extends state retirement benefits to those not previously eligible for them possibly do anything to help address this problem?

As Everett Dirksen said, “A million here, a million there, pretty soon you’re talking real money.” In Louisiana, we don’t seem to get the simple truth of that, and not just in our retirement policies.

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To probably no one’s surprise except a clueless Gov. Bobby Jindal, the takeover of the Louisiana Office of Group Benefits (OGB) by Blue Cross Blue Shield of Louisiana 18 months ago has failed to produce the $20 million per year in savings to the state.

Quite the contrary, in fact. The OGB fund balance, which was a robust $500 million when BCBS took over as third party administrators (TPA) of the Preferred Provider Organization (PPO) in January of 2013, only 18 months later stands at slightly less than half that amount and could plummet as low as an anemic $5 million a year from now, according to figures provided by the Legislative Fiscal Office.

OGB is one of the main topics to be taken up at today’s meeting of the Joint Legislative Committee on the Budget (JLCB) when it convenes at 9 a.m. at the State Capitol.

OGB is currently spending about $16 million per month more than it is collecting in revenue, said Legislative Fiscal Officer John Carpenter.

The drastic turnaround is predicated on two factors which LouisianaVoice warned about two years ago when the privatization plan was being considered by the administration:

  • Jindal lowered premiums for state employees and retirees. That move was nothing more than a smokescreen, we said at the time, to ease the state’s share of the premium burden as a method to help Jindal balance the state budget. Because the state pays a percentage of the employee/retiree premiums, a rate reduction would also reduce the amount owed by the state, thus freeing up the savings to patch gaping holes in the budget.
  • Because BCBS is a private company, it must return a profit whereas when OGB claims were processed by state employees, profits were not a factor. To realize that profit, premiums must increase or benefits decrease. Since Jindal had already decreased premiums, BCBS necessarily found it necessary to reduce benefits.

That, however, still was not enough and the negative income eroded the fund balance to its present level and now legislators are facing a severe fiscal crisis at OGB.

And make no mistake: this is a man-made crisis and the man is Bobby Jindal.

In a span of only 18 months we have watched his grandiose plans for OGB and the agency’s fund balance dissolve into a sea of red ink like those $250 million sand berms washing away in the Gulf of Mexico in the wake of the disastrous BP spill.

There is no tactful way to say it. This Jindal’s baby; he’s married to it. He was hell bent on privatizing OGB and putting 144 employees on the street for the sake of some hair-brained scheme that managed to go south before he could leave town for whatever future he has planned for himself that almost surely does not, thank goodness, include Louisiana.

So ill-advised and so uninformed was Jindal that he rushed into his privatization plan and now has found it necessary to have the consulting firm Alvarez and Marcel, as part of their $5 million contract to find state savings, to poke around OGB to try and pull the governor’s hand out of the fiscal fire. We can only speculate as to why that was necessary; Jindal, after all, had assured us up front that the privatization would save $20 million a year but now cannot make good on that promise.

In the real world, the elected officials are supposed to be the pros who know that they’re talking about while those of us on the sidelines are mere amateurs who can only complain and criticize. Well, we may be the political novices here, but the results at OGB pretty much speak for themselves and we can rightfully say, “We told you so.”

Are we happy or smug? Hell, no. We have to continue to live here and raise our children here while Jindal will be taking a job with some conservative think tank somewhere inside the D.C. Beltway (he certainly will not be the Republican candidate for president; he isn’t even a blip on the radar and one former state official now residing in Colorado recently said, “No one out here has ever even heard of him.”)

In a five-page letter to JLCB Chairman Rep. Jim Fannin (R-Jonesboro), Carpenter illustrated the rate history of OGB going back to Fiscal Year 2008 when premiums were increased by 6 percent. The increase the following year was 3.7 percent and the remained flat in FY-10. In FY-11, premiums increased 5.6 percent, then 8.1 percent in FY-12 when the system switched from a fiscal year to calendar year. but in FY-13, the year BCBS assumed administrative duties, premiums dropped 7 percent as Jindal attempted to save money from the state’s contributions to plug budget holes. For the current year, premiums decreased 1.8 percent and in FY-15 are scheduled to increase by 5 percent.

OGB Report_July 2014 FOR JLCB

Carpenter said that since FY 13, when BCBS took over the administration of OGB PPO claims, OGB’s administrative costs began to shift to more third party administrator (TPA) costs as the state began paying BCBS $23.50 per OGB member per month. That rate today is $24.50 and will increase to $25.50 in January of 2015, the last year of the BCBS contract.

That computes to more than $60 million per year that the state is paying BCBS to run the agency more efficiently than state employees who were largely responsible for the half-billion-dollar fund balance.

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Remember the Ted Mack Amateur Hour on the old DuMont television network?

If not, don’t worry. Now that the administration of Gov. Bobby Jindal is more than six years into its very own amateur show, it’s doubtful that even the most nostalgic among us would prefer watch those old grainy black and white, out of focus shows.

Not when you have this bunch bumbling and stumbling through botched polices in health care, education, environmental matters (remember those $250 million sand berms Jindal insisted on during the BP spill, the ones that washed away before they could even be completed?). And then there have been questionable contracts and one fiscal disaster after another as Jindal attempts each year to patch together the state’s operating budget with Bond-O and duct tape.

Ah, yes, those fiscal snafus.

And now there may be another looming on the horizon though granted, it probably won’t be on the magnitude of a quarter-billion dollar disappearing berm in the Gulf of Mexico or the massive budget cuts inflicted on higher education.

But it could turn into another of those pesky problems that Jindal just does not seem to be capable of handling. He reminds us of actor Chevy Chase, master of the pratfall where he just keeps falling and falling, wrecking everything in his path.

Remember when the alternative fuel tax rebate enacted by the legislature and signed by Jindal in 2009 went into effect two years ago this month?

When the bill was passed and signed as Act 469 of 2009, it was to give tax credits to purchasers of vehicles which used alternative fuels such as propane, butane and electricity and was projected to cost the state $900,000 over five years.

But then the flex fuel vehicles began hitting the market, catching everyone unprepared for the onslaught of buyers seeking the tax credits and the cost suddenly mushroomed to $100 million. When the true impact of the new law became apparent, Jindal immediately rescinded the act but not before 5,456 returns had been received by the Department of Revenue claiming total tax credits of a tad north of $18 million. Senate President John Alario (R-Westwego), who owns a tax preparation service, filed stacks of applications on behalf of his clients—without, of course, informing the administration of the financial consequences.

Another senator alerted Alario to the potential problem—after purchasing a vehicle and claiming his own tax credit—but neither informed Jindal. And neither did Rep. Jim Fannin (R-Jonesboro), chairman of the House Appropriations Committee—not even after he had filed for the $3,000 tax credit on each of the two vehicles he purchased.

The administration, in finally awakening from its apparent slumber and during one of the few days Jindal was vacationing in Louisiana, voided the law and announced that any new car buyer who had already submitted his or her application to the state would receive the maximum allowable tax credit up to $3,000 but subsequent purchasers would not be eligible.

And therein lies the problem.

The Louisiana Board of Tax Appeals, an independent quasi-judicial entity comprised of three attorneys who are tax law experts who must decide on the merits of appeals, currently has 700 appeals from car buyers who were denied the tax credit.

If all 700 applicants were to be approved for the $3,000 tax credit, the state would be on the hook for $2.1 million.

The next scheduled meeting of the board is in August, though the date was not available because the board’s web page has not been updated since 2013.

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“The convictions are just the ones who got caught. If there’re a lot of convictions, there’s probably a bunch that haven’t been caught.”

—From a Governing magazine story by writers Liz Farmer and Kevin Tidmarsh, quoting John Mikesell of Indiana University, who co-authored a new report that placed Louisiana at the top of the list of most corrupt states.

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CLICK ON IMAGE TO ENLARGE

Alvarez & Marsal, Gov. Bobby Jindal’s favorite consulting firm, has submitted invoices totaling more than $2.1 million thus far, accounting for a tad more than the firm’s $5 million contract to ferret out $500 million in savings to the state, according to documents provided by the Division of Administration.

And so far, all taxpayers have to show for that is a 2 ½ page preliminary report provided to legislators earlier this month recommended $74 million in spending cuts, some of which have already been rejected by the administration.

A&M’s invoices included an $80,000 charge for an assessment of the Office of Group Benefits (OGB) conducted in December at the specific request of Commissioner of Administration Kristy Nichols.

But…but…but didn’t the administration conduct a full blown assessment of OGB before it made that decision to privatize the agency a couple of years ago? Is this administration determined to study and consult this state into financial oblivion?

And speaking of OGB, that $500 million reserve fund it had when Jindal came up with the bright idea of privatization—an economy move, he said; it would save the state gazillions—has shrunk like hemorrhoids in a Preparation H commercial and both the Legislative Fiscal office and the Legislative Auditor’s office are projecting an end of year balance of only $55 million or so.

And Jindal’s ploy of reducing premiums—the by-product of that action being that it would also reduce the state’s portion of premiums by 9 percent, freeing up money Jindal would use to patch yet another state budget—has now done a 180 with the word going out this week that premiums for state employees and retirees and their dependents will be increased by 5 percent, effective July 1.

Talk about your voodoo economics…

So why blow $80,000 to conduct the OGB “assessment when the Legislative Fiscal office and/or the Legislative Auditor’s office would probably have performed the same service for free.

Wait…they did already.

Yep, both conducted their own separate assessment and came up with remarkably similar numbers for the anticipated reserve fund reduction by the end of 2014. The picture isn’t pretty and no consultant’s study is going to change that.

Legislative Auditor Daryl Purpera said the reserve fund is currently being reduced by about $17 million a month and even with the 5 percent premium increased announced by the administration, the drawdown will be reduced by less than half—$7 million, leaving the monthly deficit at $10 million a month.

Nichols, in typical fashion, continues to spout the party line, assuring us that everything is peachy and the fund is in no danger of going broke. So now with this prediction coupled with previous pronouncements, we now know her to be a legal authority, an economist, an actuary and a wellness expert. Given her track record, we should be worried, very worried.

But we digress. Back to those A&M invoices and the firm’s recommendations.

In case there may be those whose memories are short, A&M is the same firm that Jindal hired last year to come up with his brainstorm of eliminating state income taxes, a plan that crashed and burned before ever lifting off.

It’s also the same firm that advised the Orleans Parish School Board to fire 7,500 teachers after Hurricane Katrina, an action that prompted a class action lawsuit which in return produced a judgment in favor of the teachers that could end up costing the state $1.5 billion.

So, what did that 2 ½ page preliminary report contain? Oh, great things, like requiring women on Medicaid to use midwives or doulas for delivery (these would be women who often go without prenatal care), finding jobs for prison inmates, cutting the thickness of asphalt in future highway overlays, and cutting back hours of operation for the Cameron Parish ferry.

It didn’t take Jindal long to cave to pressure to keep the ferry open.

Scratch that big savings.

Then Jindal decided against a plan not part of the A&M recommendations, that of closing 18 motor vehicle offices throughout Louisiana.

Out with that savings plan.

Now, having already been paid 40 percent of its contract amount, A&M still has not submitted the overall plan for saving $500 million—a plan originally given the deadline of April 30 but extended to the end of May.

That gives A&M three days to come up with an additional $426 million in savings.

Could it be that the one-month extension was timed to have A&M submit its savings plan only hours before the legislature adjourns on Monday, thus giving lawmakers no opportunity to review the plan or to offer any input of their own?

With this governor, stranger things have happened.

 

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