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Looting Louisiana in the Broad Daylight (with apologies to Emmylou Harris): Who audits LA severance tax payments?

Posted in Audit Reports, Auditor, Corruption, Ethics, Exemptions, Fraud, Governor's Office, Legislature, Louisiana Purchase, Public Records, Revenue, Taxes on April 28, 2015| 27 Comments »

By MIKE STAGG (Independent filmmaker, citizen activist, political strategist – Special to LouisianaVoice)

For the past seven years, as Louisiana has lurched from one fiscal crisis to another, the State of Louisiana has paid the oil and gas industry $2.4 Billion in severance tax exemptions. Despite that massive transfer of public wealth into private hands, the oil and gas industry used its influence inside the Department of Natural Resources and the Jindal administration, to limit—and for three years shut down—audits that would have revealed whether the industry’s severance taxes and royalty payments to the state were accurate.

These facts have been hiding in plain sight, contained in five performance audits of the Department of Natural Resources and the Louisiana Department of Revenue conducted by the Legislative Auditor since 2010. Two of those audits focused on royalty collections from oil and gas produced on state-owned lands and water bottoms. Another focused on severance tax collections; yet another dealt with mineral leases handled by the State Mineral and Energy board, while the fifth audit examined how the Office of Conservation has handled the orphaned and abandoned well cleanup program.

The cozy relationship between DNR and the oil and gas industry is explicit in the department’s regulation of the industry. That coziness, when extended to state finances, has proven disastrous for the Louisiana treasury and its residents. DNR is responsible for collecting oil and gas royalties, which account for roughly seven percent of state General Fund dollars, or approximately $800 million per year.

For a three-year period, between July 2010 and July 2013, DNR had jurisdiction to determine the accuracy of severance taxes and royalty payments.

And DNR let industry have its way.

Audits on royalty revenue dropped. Audits on severance tax revenue all but stopped, even as the state’s financial condition continued to worsen. In short, when it came to providing rigorous oversight to ensure that the royalty and severance tax payments were accurate, DNR’s Office of Mineral Resources deferred to the oil and gas industry while programs that serve the citizens of Louisiana were cut, primarily in healthcare and higher education, the unprotected portions of the state General Fund.

DNR’s relationship with the oil and gas industry is a blatant example of regulatory capture. Regulatory Capture is a form of political corruption that occurs when an agency, created to act in the public interest, advances instead the special concerns of the industry it is charged to regulate.

Severance taxes are the constitutional expression of our, as Louisiana citizens, shared claim on our state’s vast mineral wealth. Exempting severance taxes negates the public claim on that mineral wealth and undermines our ability to invest in ourselves as a state.

Severance tax exemptions are direct payments from the state to the oil and gas producers after the companies have submitted their exemption certificates. Royalties are the property owners’ share of the proceeds from the sale of oil and gas produced from wells on their land. For purposes of this story, royalties are the state’s share of the revenue from oil and gas produced on state-owned lands and water bottoms after severance taxes have been paid.

Since the mid-1980s, Louisiana Department of Revenue has published an annual report on tax exemptions called “The Tax Exemption Budget.” In that document, the department identifies each tax exemption and quantifies the cost of each exemption to the state.

It makes clear that tax exemptions are in fact a spending of state funds — here’s how the LDR explains it in every report: “Tax exemptions are tax dollars that are not collected and result in a loss of state tax revenues available for appropriation. In this sense, the fiscal effect of tax exemptions is the same as a direct fund expenditure.”

Between 2008 and 2014, according to the Tax Exemption Budget, the State of Louisiana paid oil and gas companies more than $2.4 Billion in severance tax exemptions. Those checks went out at the exact same time that our legislature cut funding for programs like aid to families of children with disabilities, behavioral health programs, home health care, and programs that assisted victims of domestic violence. During that same period, state funding for higher education was also cut by more than $700 million as the tuition and fees paid by those attending technical colleges, community colleges, and state universities were jacked up to cover the difference.

The first performance audit on royalty collections was released in July 2010. Royaltieshttps://app.lla.state.la.us/PublicReports.nsf/B6B5DE331E9D48818625776E005CFDA5/$FILE/00018070.pdf The Legislative Auditor found that DNR’s Office of Mineral Resources took a lackadaisical approach to verifying the accuracy of royalty payments from the 1,888 active mineral leases on state-owned lands and water bottoms.

The Legislative Auditor noted that severance taxes and royalties are connected, that both are dependent on the amount of oil and gas produced, as well as the price of the resource.

Desk audits compared the volume of oil and gas sold to the volume of oil and gas produced, which ensures that royalty payments are properly calculated. These audits also help ensure that production wells on state lands are submitting properly calculated royalty payments.

The Legislative Auditor found that the Office of Mineral Resources (OMR) had not conducted a single such audit in a decade. Despite the Auditor’s recommendation that it resume these audits, OMR waited another three years before getting around to doing so.

The Legislative Auditor also found that OMR did not compare royalty reports against severance tax reports filed with the state Department of Revenue, nor did it compare royalty reports to production reports submitted elsewhere in DNR.

In its response to the Legislative Auditor’s Royalty performance audit findings, on June 24, 2010, DNR announced that “As part of the Streamlining Commission’s recommendations, OMR will take over LDRs severance tax field audit program and the two audits will be integrated beginning July 1, 2010.”

In September of 2013, the Legislative Auditor released a follow-up performance audit on royalty collections. https://app.lla.state.la.us/PublicReports.nsf/DB918AD8E33411F286257B490074B82A/$FILE/00031C97.pdf

The auditors were dismayed to find that the revenue produced by OMR’s audits had fallen below the levels reported in 2010.

The Auditor also found that that the State Mineral and Energy Board had waived 45% of the $12.8 million in penalties that were assessed against companies by OMR for late payment of royalties.

Neither the Office of Mineral Resources nor the State Mineral and Energy Board seemed at all concerned about the fiscal impact their indifference to generating revenue had on the programs that Louisiana residents depend on. Their primary concern was with not inconveniencing their friends in the oil and gas industry.

The Legislative Auditor conducted an audit on severance tax collection procedures in the

Louisiana Department of Revenue in 2013 but, because severance tax audit functions had been transferred to the DNR in 2010, auditors had to return to the Office of Mineral Resources close on the heels of the second royalty collections audit. https://app.lla.state.la.us/PublicReports.nsf/AC044A6D3709B90C86257BE30065348B/$FILE/000351F7.pdf

In this audit, the Legislative Auditor found that oil and gas industry complaints about the LDR’s use of GenTax software (which identified possible nonpayers of severance taxes) led first, to LDR shutting off the software, and second, audit power being transferred to DNR.

The scale of the oil and gas production not audited as a result of that shift was staggering. DNR’s field audits ignored oil and gas production on private lands — which comprises 98.1% of all oil and gas leases in Louisiana — for a three-year period.

Revenue from severance tax audits fell 99.8% from the levels produced by the Department of Revenue once responsibility was transferred to the Office of Mineral Resources. The actual dollar amount fell from $26 Million in 2010 to $40,729 in Fiscal Year 2012.

For the three-year period that DNR’s Office of Mineral Resources had responsibility for severance tax audits, the industry essentially operated under an honor system.

Prior history shows why this was a problem. In the late 1990s, the Mike Foster administration filed lawsuits against more than 20 oil and gas companies claiming they had shortchanged the state by as much as $100 million on severance tax payments. Now, for three years as recurring revenue shortfalls continued, the Office of Mineral Resources ignored that history.

During this time, the Haynesville Trend emerged as the most productive shale gas field in the country.

Even though the severance tax exemption on horizontal drilling meant that the state was denied severance tax revenue for much of that play, companies still managed to game the exemption system at taxpayer expense.

Under the rules for severance tax exemptions, the state pays back the taxes already paid once it receives the exemption certificate from the company — plus “Judicial Interest” which in the period covered by the audit averaged about 4.5%.

That is, the state had to dip into non-exempt severance tax payments in order to cover the interest costs on those certificates that the companies chose to sit on for several months.

The Audit found that over the course of four fiscal years running from 2009 through 2012, the Department of Revenue issued 13,818 severance tax refund checks totaling $360,190,583. An extra $23,859,012 in interest was tacked on to that. https://app.lla.state.la.us/PublicReports.nsf/CF6244B77E3A958686257C30005E80B1/$FILE/000368DA.pdf

In addition, the Auditor found that the Department of Revenue overpaid severance tax exemption refunds by $12.9 million between July 2010 and May 2012.

The decline in audit revenue, the interest paid to companies on the gaming of the severance tax exemption process, the overpayment of severance tax exemption refunds, the decision by the State Mineral and Energy Board to waive 45% of fines for late payment of royalties combined to benefit the industry at taxpayer expense to the tune of $68 million.

These gifts to the oil and gas industry were made at a time when the industry was already receiving $2.4 Billion in tax exemptions and at a time when every dollar the state did not collect translated into a cut to programs that Louisiana residents depended on.

The Auditor also pointed out that hiring additional auditors within DNR and LDR would produce a great return on the state’s investment. Each auditor costs a department between $50,000 and $60,000 per year, but they bring in an average of $1.3 million per year. LDR said it had requested additional auditors in its budgets but they were never approved by the Jindal administration.

Oil and gas companies control all of the information used in the severance tax and royalty payment process. The industry has used this power to its advantage and to the state’s detriment.

Vigilant auditing can close that information gap.

The Office of Mineral Resources has shown little interest in that kind of work. DNR’s abdication of its oversight role on royalty revenue has had an outsized impact on Louisiana because of the role that revenue plays in state finances. When added to the three-year period when DNR failed to perform severance tax audits, the agency has likely cost the state hundreds of millions of dollars over the past seven years.

That is corruption.

Not all of this went unnoticed. In the 2014 legislative session, Sen. Rick Gallot (D-Ruston) and Rep. Joe Harrison (R-Gray) introduced concurrent resolutions to order LDR, DNR and the Legislative Auditor to agree upon a means to conduct a thorough audit of oil and gas production, severance taxes and royalty payments. Gallot’s resolution passed the Senate by a vote of 35-0. https://app.lla.state.la.us/PublicReports.nsf/D6A0EBE279B83B9F86257CE700506EAD/$FILE/000010BC.pdf

But by the time the resolution reached the House floor in early June, the oil and gas industry and the Jindal administration recognized the threat the audit posed, so they joined forces to kill it. SCR 142

The resolution had to be killed to keep the secret.

In the midst of a prolonged and deepening fiscal crisis, the Jindal administration and the industry did not want legislators and the public to question whether the severance taxes and royalties paid to the state were accurately calculated.

The Department of Natural Resources betrayed the trust of the people of this state. It failed its fiduciary responsibility twice; first, as collector of royalty payments, and again during the time it served as chief auditor of severance tax collections. It has repeatedly put the needs of the industry above the needs of the people of this state.

For the oil and gas industry, $2.4 Billion in severance tax exemption payments were not enough. Its greed is so great that, in a time of fiscal constraints on state government, it went out of its way to cheat the state out of still more money. It used its power and influence in the Department of Natural Resources and its ties to the Jindal administration to do so.

By these acts, the oil and gas industry has shown itself to be unworthy of the trust we have placed in it.

For Looting Louisiana in our time of fiscal need, the oil and gas industry must be stripped of its severance tax exemptions. Under the Louisiana Constitution, we are entitled to the full benefits of this state’s mineral wealth.

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LSU Board member Rolfe McCollister plays publisher while working to conceal board records from public examination

Posted in Boards, Campaign Contributions, Courts, Education, Ethics, Finances, Governor's Office, Higher Education, Lawsuits, LSU, Media, PACs, Politicians, Public Records on April 27, 2015| 9 Comments »

You have to love Rolfe McCollister, Jr. The man has done the following:

  • Was an unsuccessful candidate for mayor-president of Baton Rouge;
  • Contributed $17,000 to the campaign of Bobby Jindal in 2003, 2006, and 2008;
  • Served as treasurer for Jindal’s 2007 gubernatorial campaign;
  • Served as chairman of Jindal’s transition team following Jindal’s 2007 election;
  • Served as a director of Jindal’s first fundraising organization Believe in Louisiana;
  • Currently serves as treasurer of Jindal’s super PAC Believe Again;
  • Been appointed by Jindal as a member of the LSU Board of Supervisors.

Moreover, McCollister’s Louisiana Business, Inc. partner, Julio Melara has:

  • Contributed $7,500 to Jindal’s campaigns in 2007, 2010, and 2011 (his wife also contributed $1,000 in 2007);
  • Been appointed to the Louisiana Stadium and Exposition District (Superdome Board).

At the same time, McCollister, apparently with a straight face, attempts to pass himself off as an objective news executive as Publisher of the Baton Rouge Business Report, even publishing a story by his staff today (Monday, April 27) on the long-running court battle by real news organizations to obtain the names of 35 candidates for the LSU presidency. https://www.businessreport.com/business/along-alexander-lsu-board-considered-candidates-texas-alabama-east-carolina-presidential-search-2012

Before the finger-pointing begins, let’s set the record straight. While McCollister carries the water for Jindal on such issues as protecting what should obviously be public records, firing an LSU president (thus, making the new hire necessary) and giving away LSU hospitals to a foundation run by a fellow LSU board member, he also purports to be an objective chronicler of political news.

We at LouisianaVoice, on the other hand, make no pretense at objectivity. We are opinionated and we freely express those opinions—and invite readers to do the same, both pro and con. We spent a quarter-century working for the so-called objective publications. But a political blog is very much like an op-ed opinion piece. McCollister should be familiar with those; he’s certainly seen enough of them from Jindal in the New York Times, Washington Post, and Wall Street Journal.

Louisiana Business, Inc., led by McCollister and Melara, is the parent company of the Business Report, so both men are in the news business but nevertheless have continued to curry favor from the man they apparently believe will one day occupy the big house at 1600 Pennsylvania Ave. in Washington, D.C.

What is so particularly galling about Monday’s story about the release of the documents by the LSU board attorney is that a reader unfamiliar with the story would have no way of knowing that the publisher was complicit not in attempting to shine the light of transparency on a secretive board, but in participating in the board’s harboring of the information. Nowhere was a single word devoted to revealing that the piece’s publisher was a party to attempting to hide information from the public—an effort, by the way, that cost the state tens of thousands, if not hundreds of thousands, of dollars in legal costs and fines.

As if that were not enough, McCollister, in his ever-diligent vigil to defend the public’s right to know, turned his guns on an LSU faculty member who was bold enough to criticize the LSU board in print over its efforts to keep its business away from the public’s prying eyes.

On April 1, McCollister, in a column titled The Two Hats of Bob, attacked LSU journalism professor Bob Mann who also writes a political blog called Something Like the Truth, which is also published in the New Orleans Times-Picayune. “Man is one to take full advantage of free speech and faculty tenure as he pontificates in his columns on all that’s evil,” McCollister sniffed. https://www.businessreport.com/politics/rolfe-mccollister-survey-reveals-contradictions-confusion

He was writing about Mann’s blog and the accompanying column that ran in the Times-Picayune in which Mann said the LSU Board was more loyal to Jindal than to the students at LSU and that the entire board needed to resign or be fired. In that column, Mann quoted from another McCollister essay in which McCollister “chided those in the news media who ‘sound like Chicken Little. Let me predict here and now, the world will not end for Louisiana or higher education during the upcoming session. Solutions will be found.’ What those magic solutions are, McCollister does not say,” Mann wrote.

“I asked a former seasoned journalist about the ethics of a faculty member who has a second job as a journalist and (who) writes about his university,” the publisher continued in that April 1 column. “He said, ‘Every good journalist knows that you cannot ethically cover the institution that pays your salary and the people who supervise the work you do for that salary.”

Oh, really? And just who was that “former seasoned journalist”? And was he a former journalist or just formerly seasoned?

As for ethically covering “the institution that pays your salary” (or in this case, appointed you and your business partner to two of the more prestigious boards in state government), doesn’t McCollister provide Jindal glowing press coverage at every opportunity? (Of course, whether that can accurately be called real “coverage” is still open to debate. There’s another word for it in the reporting business. It’s called fluff.)

“The ethical equation doesn’t change if a reporter vilifies those people (for whom he works),” McCollister continued. “Who is to say the reporter’s self-interest isn’t involved. When journalists don’t recognize this fundamental aspect of journalism, everything they write, on any topic, lacks credibility.”

Wait. We’re confused. Is McCollister still talking about Mann—or about himself? It’s really impossible to tell, considering all the self-interest and conflicts of interests involved in everything McCollister writes about Jindal.

But let’s review. McCollister, it seems, was also a member of the LSU Board back in 1992 when the state was in the throes of another financial crisis and cutting budgets. At that time, McCollister, indignant over the cuts to LSU, called for the arrest of the governor.

The governor? Edwin Edwards. http://www.nola.com/opinions/baton-rouge/index.ssf/2015/03/higher_education_budget_cuts_l.html

Mann responded to McCollister, of course. Anyone would. But rather than delve into their “he said, she said” exchange, let’s look at what others are saying.

The Hayride blog, which is somewhere off to the right of Rush Limbaugh, trumpeted its headline: “Bob Mann goes after Rolfe McCollister, but doesn’t have the numbers on his side.”

http://thehayride.com/2015/03/bob-mann-goes-after-rolfe-mccollister-but-doesnt-have-the-numbers-on-his-side/

Repeating the Chicken Little quote by McCollister, it added a quote by him which it accused Mann of omitting: “Business is strong in Louisiana and getting even better. I hear from many company CEOs who had a record year and look to grow and expand in 2015.”

(Perhaps that’s why Louisiana continues to rank third in the nation in our poverty rate and why Louisiana’s colleges and universities are looking seriously at declaring financial exigency.)

We’ll get back to The Hayride momentarily.

Red Shtick, a Baton Rouge publication that specializes in parody, took its turn at lampooning McCollister for his obvious double standard. http://theredshtick.com/2015/04/03/jindal-crony-who-pens-pro-jindal-editorials-accuses-professor-of-unethical-journalism/

Likewise, the Independent of Lafayette, one of the state’s better political publications, noted with some irony that McCollister found it necessary to reach out “to an anonymous source” to obtain an opinion about journalistic ethics—after all, “hasn’t he run a newspaper for more than 25 years?” the Independent asked somewhat rhetorically, adding, “I’m sure that untenured, junior faculty at LSU will take note that one of the governor’s best friends, who serves on the LSU Board, has this opinion of academic freedom. http://theind.com/article-20612-rolfe-mccollister-faculty-who-criticize-lsu-in-print-are-unethical.html

“Did McCollister threaten my LSU job? The Independent quoted Mann as asking. “Not really. He just finds some gutless anonymous source to call me unethical for criticizing a group of public officials.”

As promised, we now return to The Hayride and one of its regular columnists who seems to fit comfortably in Jindal’s back pocket and who slings darts and arrows at anyone who dares criticize his governor.

We’re talking, of course, about one Jeff Sadow who works as…(ahem), ah…well, as a full time political science professor at LSU-Shreveport. Correction. Make that associate professor. And one who has (gasp!) a political blog.

Rather than go into a lot of Sadow’s qualifications to speak his opinion in a blog as opposed to those who would censure Mann, we’ll let yet another blogger lay it out for us.

https://lahigheredconfessions.wordpress.com/2015/04/02/biting-the-hand-that-pays-you/

But at the end of the day (to borrow a phrase from Bobby Jindal), we still believe in tolerance and we will defend with our last breath the First Amendment rights of McCollister, Sadow, and Mann. They have every right to voice their opinions, though two of those three do not appear to agree.

To sum it all up, it appears we have an LSU Board member who is a Jindal operative in every sense of the word and who just happens to own a news publication. But that board member/journalist steadfastly refuses to advocate for openness on the board (as would just about any member of the Fourth Estate), who votes to fire an LSU president only because the governor wants him to, who votes in favor of giving away teaching hospitals to a fellow board member, and who calls for the censuring of free speech by a journalism professor and newspaper columnist. And, coincidentally, we have an associate professor who does the same thing as Mann, but who gets a free pass because his opinions happen to dovetail nicely with those of  McCollister, Jindal, et al.

Okay, as long as we understand the ground rules.

But, Chicken Little, it appears the sky really is falling. And as for those solutions McCollister promised “will be found,” they now appear more distant than ever.

And meanwhile, he calls Bob Mann unethical.

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Reader’s heartfelt distress over the plight of our state under Jindal comes through in emotional letter to LouisianaVoice

Posted in Campaign Contributions, Corruption, Education, Ethics, Finances, Governor's Office, Health Care, Legislature, Legislators, Lobbyist, Politicians, Retirement on April 25, 2015| 29 Comments »

Editor’s note: Normally, we do not make a practice of publishing letters from readers as a guest column. But in this case, we make an exception because we were struck by the manner in which this writer expressed his concern for our state. With only minor editing for punctuation, syntax, etc., we offer here an essay written by a retired state employee now living in Pointe Coupee Parish.

By Kerry Phillips (Special to LouisianaVoice)

After reading this article:  https://louisianavoice.com/2015/04/24/it-wasnt-the-best-week-for-louisiana-as-state-hit-with-triple-whammy-at-least-no-1-lsu-beat-no-2-tex-am-in-baseball/,  and this article: http://bobmannblog.com/2015/04/24/for-jindal-if-the-choice-is-tax-hikes-vs-closing-lsu-its-bye-bye-lsu/, and after watching The Ed Show on April 24 on MSNBC regarding Jindal’s religious freedom bill and how he is truly now a national joke…..and finally, after reading Bobby Jindal’s op-ed in The New York Times, and not hearing anything about any of this in the news with the exception of a small article in The Advocate on the OGB fiasco, I have to say that as much as we love this great state of Louisiana, the heritage, the diversity, the culture, the beauty this state has to offer with many aspects, we will be moving AWAY from this state as soon as we possibly can.

We are at the bottom of every list possible nationwide, and thank God this info is getting out nationwide. We are a laughing stock. And I am sad. Sad for my state. Sad for the people, the young, elderly, poor, government workers, fire fighters, teachers. Should I go on?

I was born here.  I was born in Baton Rouge and attended fantastic schools there. I went to college in this state. I worked for over 30 years as a state employee. I was so proud when I first got my voter’s registration card and I have voted in every election. I retired, thinking my state would honor the commitments they made to me throughout my career.

Sadly, it seems I was fooled.

To know that our legislators are basically bought and paid for by lobbyists and special interests groups who truly have no interest in our state that we call paradise is sad. We have always been known nationwide as a “banana republic.” Now I see why.

No one should say that our citizens move away from this state because of a lack of jobs. They now move away because of this cruel joke that has been perpetrated on us by a handful of people within the last decade. None of these people even care about this state, our education, our colleges, our government workers, our healthcare, etc. What we’re seeing is robbery and pilfering by people who only care about one agenda. And that agenda has nothing to do with the welfare of the citizens of Louisiana. Nor does it have anything to do with our hospitals, our children’s education, or the workers of this state.

So when you turn on the local news and see people with arms folded, waiting and complaining about long lines at their Motor Vehicle offices, thank yourselves. When there is no hospital emergency system available for your loved ones, thank yourselves. When LSU does not exist anymore, God forbid, thank yourselves. When you fail to register your outrage when a contract giving away our state hospitals—with 50 blank pages—only to have the deal rejected by the federal government, thank yourselves.

My family and I plan to move to a more progressive state—to a state where citizens actually live in the current year/century and do not want to take us back to 1915, a state where people want to move forward in a way that benefits all citizens, not just the few. And no, it’s not because of my legislator, who has worked to improve the economy and to help state employees where I live. It’s because I am now becoming ashamed of our state and most of our legislators who helped get us in our current predicament.

I lived in Baton Rouge until we moved to the Central/Greenwell Springs area where I lived for more than 27 years. For the past 15 years, we have lived in Pointe Coupee Parish. And while I’d absolutely hate to leave this state (and it’s an extremely hard choice for me), I do think we’ve made our decision. Our state appears to be done, over with….unless…..our legislators decided to truly quit being Jindal’s lapdog. They need to quit being afraid to buck his system because his system has ruined and bankrupted our state. They need to stop allowing him to be a dictator in this state. He is not our God.

And when religious leaders—from north Louisiana, no less—oppose his religious freedom bill, we welcome their voices. We do not live with the Old Testament laws because with Jesus, a new testament was founded. Do we really want to go back? Are we going to go against what Jesus preached? I’m not. Are we going to allow Jindal’s religious freedom bill to become the hot topic offered only to deflect attention from the real issues, the disasters of his creation: the financial issues we now face that are the direct result of his ineptness?  Come on.

I pray so very hard that all of our legislators, men and women, will grow some courage and principles and do what is right for the whole of this state. I’m not stupid, though. I know legislators get benefits that no average citizen—or state employee—can get.  But, isn’t it time for them to sit back and ask themselves, “Do I really want to sell my soul for some Saints tickets or concert tickets or a fantastic meal at some expensive restaurant? Do I want to sell my soul? Or do I want to do what the citizens of this state want?”  “Do I want to do what Jesus would do?”

Heavy, thought-provoking questions to ask, I know. But, I know what I would do.

This is going to be one of the most historic legislative sessions in this state’s history. It is going to make or break our state. And I am afraid the state is going to break. And the poor, the sick, the elderly will be the ones to suffer.

Of course, there is nothing wrong with people prospering and living a great life. What’s wrong is people prospering and living a great life on the backs of other people.

And so I have this one simple plea for our legislators: For once, do what is right for the whole of the state.  I pray in earnest for that. My friends and I pray hard that the right things will be done. I would love to live here and pass on the culture and treasures this state has to offer to my grandchildren. But, if things continue on as they have for the last decade, we will have to choose differently.

 

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It wasn’t the best week for Louisiana as state hit with triple-whammy; at least No. 1 LSU beat No. 2 Tex. A&M in baseball

Posted in Attorney General, Audit Reports, Budget, Contract, DHH, DOA, Finances, Governor's Office, Health Care, Higher Education, Incentives, Legislature, OGB, Privatization on April 24, 2015| 13 Comments »

Thank goodness for late-inning rallies Thursday and Friday nights by LSU’s No. 1-ranked baseball team to beat No. 2 Texas A&M 4-3  and 9-6, respectively. Otherwise, the news just keeps getting worse for Louisiana.

That’s right; we had to flip all the way back to the sports section to find anything good to write.

That’s because even as the legislature grapples with that $1.6 billion budgetary shortfall, things were becoming unraveled elsewhere as the administration was hit this week not with a double- but a triple-whammy that could end up costing the state hundreds of millions of dollars and could conceivably end up costing another LSU president his job.

We will try to take the events in chronological order.

On Tuesday, the administration received word from the Center for Medicare & Medicaid Services that CMS AGAIN REJECTS the administration’s Cooperative Endeavor Agreements (CEAs) in connection with the controversial state hospital privatization plan pushed by Bobby Jindal “because the state has not met its burden of documenting the allowability of its claims for Federal Financial Participation (FFP).”

The decision apparently will cost the state $190 million, according to a letter to State Medicaid Director Ruth Kennedy from Acting CMS Director Nikki Wachino.

On the heels of that letter, Commissioner of Administration Kristy Nichols received notification from Attorney General Buddy Caldwell on Thursday that the state had been OVERPAID BY $17 MILLION in tobacco settlement money and would have to repay that amount to the tobacco companies who then will redistribute it to states that were underpaid.

And on Friday, State Treasurer John Kennedy announced that national investors had pulled out of a large portion of a major bond deal for LSU after concerns were raised on Wall Street by LSU President F. King Alexander who announced on Thursday that he was preparing paperwork for the state’s flagship university to file for financial exigency, or academic bankruptcy. http://www.nola.com/politics/index.ssf/2015/04/lsu_academic_bankruptcy.html

Kennedy, in a Friday news release, said his office was “trying to sort out the facts,” but essentially, a $114 million bond issue that was in the works appeared to fall flat when investors pulled out on about $80 million in commitments. The bond sale was to have funded a Family Housing Complex, residence halls and a Student Health Center and also would have saved interest on existing debt. http://campaign.r20.constantcontact.com/render?ca=e9da20fd-7c07-4e6d-9d75-82afa4fb05a9&c=cdce75a0-62fb-11e3-959d-d4ae52a459cd&ch=ce38f740-62fb-11e3-95d9-d4ae52a459cd

A BloombergBusiness report said that while investors who bought the $114 million of debt sold by LSU they were not told the school was considering filing for exigency. http://www.bloomberg.com/news/articles/2015-04-23/louisiana-state-bond-buyers-greeted-by-insolvency-plan-next-day

A declaration of exigency by LSU and other colleges and universities across the state would open the way for the schools to fire tenured professors. http://www.bloomberg.com/politics/articles/2015-04-23/louisiana-state-to-draft-insolvency-plan-as-jindal-plans-cuts

One state official confided in LouisianaVoice that Alexander, in his attempts to underscore the severity of the financial crisis in Louisiana higher education, currently facing still more deep budgetary cuts, may have overplayed his hand in making a “premature” announcement of such magnitude.

Meanwhile, word leaked out of a Board of Regents committee meeting Friday afternoon that as many as one-half to 75 percent of Louisiana colleges and universities may be unable to meet payroll by June unless some solution is found quickly to the fiscal crisis that has spread a mood of imminent doom across state campuses. That source said he does not believe a solution will be found until the last week of the session—if then.

With a vengeful governor like Bobby Jindal, anything perceived by him to place him in a bad light is met with severe repercussions, namely teaguing, and Alexander’s pronouncements have certainly reflected poorly on the administration.

For new readers who may not be familiar with the term, teaguing refers to Jindal’s firing of Melody Teague because of her testimony before the state government streamlining committee and the similar firing of her husband, Tommy Teague, only six months later from his job as Director of the Office of Group Benefits (OGB) when he failed to go along with the ill-fated privatization of that agency. Dozens of other state employees and legislators have been either fired or demoted from committee assignments by Jindal for lesser sins. LouisianaVoice learned today that Melody Teague, who was suffering from ALS, died in March. http://www.legacy.com/obituaries/theadvocate/obituary.aspx?pid=174404543

For his part, Jindal, after more than seven years in office, has finally admitted there is a problem with “corporate welfare” in Louisiana, i.e. corporations that do not pay any taxes to the state.

One classic example cited by Steve Spires of the Louisiana Budget Project was Wal-Mart, which is a Delaware-based corporation. Spires, speaking at a State of (Dis)Repair conference in Hammond on Thursday, noted that Louisiana Wal-Mart stores are leased by local entities who pay exorbitant rent to the corporate parent in Delaware, a state with no state income tax, thus avoiding income tax in Louisiana while reaping the benefits of other incentives such as Enterprise Zone designation and 10-year property tax exemptions.

Jindal has only in the past couple of weeks so much as acknowledged the state has a problem with its generous tax breaks for corporations which cost the state billions of dollars per year.

Thus, as the budget crisis grows progressively worse with each passing year, Jindal has resorted to more and more sleight of hand in patching over budget holes with one-money.

Caldwell, in his letter to Nichols and Kennedy, said a number of states had been underpaid in tobacco fund settlement money by the tobacco companies because of accounting errors, and that a corresponding number, including Louisiana, had been overpaid.

Louisiana, he said, was overpaid by about $17 million which will have to be repaid so the money can be redistributed to the proper states.

The CMS rejection has been a problem for the administration since the privatization deals with several private hospitals were signed, though DHH Secretary Kathy Kleibert has attempted to see the world through rose-colored glasses, always expressing optimism that the state’s plan would be approved.

Not so.

In her three-page letter to Ruth Kennedy, Wachino said, “After careful consideration, CMS cannot accept the arguments advanced by the State in its Request for Reconsideration. While CMS recognizes the State’s efforts at corrective action, such measures do not address the State’s noncompliance for the period in question (Jan. 1, 2013 through May 23, 2014). For the reasons stated above, as well as in CMS’s Dec. 23, 2014, disallowance letter, the…disallowance is affirmed.”

All in all, the state has seen better weeks.

Go LSU! We need a sweep badly!

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Lawsuit seeking to block OGB benefits, premium changes also names Governor, who may be served in Iowa or N.H.

Posted in Contract, Contracts, DOA, Finances, Governor's Office, Health Care, Lawsuits, Legislature, Legislators, OGB, Office of Group Benefits, Privatization on April 22, 2015| 19 Comments »

The absentee Jindal administration, already under fire for its fiscal train wreck that has legislators scrambling in attempts to cover a projected $1.6 billion budgetary shortfall, had a grenade dropped into its lap on Wednesday in the form of a LAWSUIT against the administration and the Office of Group Benefits (OGB) over the method in which OGB attempted to implement adverse changes in benefits and premiums for 230,000 state employees, retirees and dependents.

Baton Rouge attorney J. Arthur Smith filed the petition for declaratory and injunctive relief in Baton Rouge District Court on behalf of six plaintiffs who are either current state employees or state retirees.

At issue is the way that OGB attempted to increase premiums and reduce benefits for members of OGB last August without complying with the state’s Administrative Procedures Act (APA) which requires promulgation (a formal declaration of intent and public hearings) of any rule changes.

Listed as plaintiffs are Marilee Cash and Aileen Hendricks of East Baton Rouge Parish, Nancy Dickie and Debra Thornton of Lafourche Parish, Rebecca McCarter of Ascension Parish and Dayne Sherman of Tangipahoa Parish. Named as defendants were the State of Louisiana, the Office of the Governor, the Division of Administration (DOA), and OGB.

They claim to be members of an organization called Louisiana Voices of Employees and Retirees for Insurance Truth and Equity, (LA VERITE). They say they chose the name because La verite is French for Truth.

The petition tracks the record of the Jindal administration and chronicles the manner in which the plaintiffs claim that the administration, abetted by the legislature, frittered away a surplus of nearly $2 million at the time Jindal took office, repeatedly used one-time revenue to cover recurring expenses, repealed the popular Stelly tax plan, passed numerous business tax breaks totaling some $367 million, approved $20 million in private school tuition and home schooling tax credits and scrapped the sales tax that businesses previously paid on utility bills.

The rollback of the Stelly plan took place despite warnings from the Institute on Taxation and Economic Policy (ITEP) that the move would cost the state more than $1.8 billion in lost revenue over a three-year period from fiscal year 2010 through fiscal year 2012, the petition says.

The lawsuit says that the repeal of the Stelly plan provided a “substantial tax savings for upper income Louisiana” and accounted for about 75 percent of the state’s budget shortfall during those three years. “This does not take into account the billions of dollars the State of Louisiana hands out in business tax exemptions and incentives ever year that have gone unexamined by lawmakers to determine if they serve legitimate public objectives or are simply wasteful luxuries that the state can no longer afford,” it says.

Citing further examples of what it describes as fiscal mismanagement, the petition notes that from July 1, 2009 through June 30, 2010, the administration spent $2.4 billion in private consulting contracts. The following year, it said, that amount increased to $4 billion. The suit cited the Office of Contractual Review’s annual reports for 2009-2010 and 2010-2011 as its source.

Plaintiffs, in their petition, say that the administration announced in January of 2011 its intention to explore the privatization of OGB’s Preferred Provider Organization (PPO) even though a Legislative Auditor’s report predicted that premiums would increase because of marketing costs for a private provider, the necessity of a private provider’s turning a profit, the requirement that private health insurance companies pay premium taxes and the requirement that private companies must purchase reinsurance.

Despite that, the lawsuit says, then-Commissioner of Administration Paul Rainwater promised that in the event of privatization, benefits would remain the same and premiums would not be increased.

Blue Cross/Blue Shield of Louisiana won the contract to administer the PPO and the new plan went into effect on Jan. 1, 2013. That same year, the administration actually reduced rates by 7.11 percent and the next year another reduction of 1.77 percent went into effect.

“While this saved money for the employees,” the plaintiffs said, “it reduced the state’s required premium (matching) payments by about twice as much, thereby reducing the state’s obligation to pay into the system even though medical expenses were increasing by about 6 percent. The rate reductions, while saving the state money it could then apply to the budgetary shortfall, it meant that OGB could no longer cover expenses from current revenue and had to dip into its reserve fund, which was about $500 million when BCBS took over operations.

OGB has been spending millions per month more than it has been taking in in premiums and the Legislative Fiscal Office has said there is a risk that the reserve fund balance could be zero by the end of the current fiscal year (June 30).

“Gov. Jindal adamantly opposed every attempt on the part of legislators to deal with the financial crisis through tax increases,” the petition says, and he “capitalized on the financial crisis of the state to advance an ideological agenda that called into question the rationale for government to perform basic services on a wide range of issues.”

In listing three causes of action, Smith said the state and OGB violated the state’s APA by attempting to make “substantial unilateral modifications to both benefits and costs under the OGB health plan.”

Some of the changes included:

  • Significantly increasing out-of-pocket maximums for all health plan options;
  • Increasing deductibles for all health plan options;
  • Increased co-pays 100 percent for plans with co-pays;
  • Increasing the out-of-pocket maximums for prescription drug benefits by $300 (from $1,200 to $1,500, a 20 percent increase);
  • Eliminating out-of-network benefits for some plan options;
  • Requiring prior authorizations for certain medical procedures;
  • Removing all vision coverage from health plan options.

The plaintiffs point out that on Sept. 30, 2014, only seven days after an attorney general’s opinion said OGB had violated the APA with its unilateral modifications of benefits, OGB issued a press release “stating its intention to publish an emergency rule reinstating the legally insufficient Aug. 1 changes.”

OGB’s emergency rule, the petition says, “was an apparent effort to retroactively ‘cure’ the illegalities found by the Attorney General in his Sept. 23 opinion. Moreover, the fact (that) the changes would not become effective until March 1, 2015, belies the claim that (there) was an ‘emergency’ which necessitated less than full compliance with the APA.”

OGB did finally comply with the APA by conducting a public hearing on Dec. 29, 2014, in the middle of the Christmas and New Year’s holiday season and after the enrollment period had already been closed, causing the plaintiffs to call the hearing a “sham.”

“With all of the proposed changes, including significant changes (made) during the enrollment period, the haste in which they were handled, and the timing of the Dec. 29, 2014, public hearing, it was very difficult for state employees and retirees to intelligently evaluate their options under these proposed plans and (to) make informed choices,” the plaintiffs said.

The petition also claims the state violated due process and contract clauses.

It claims that state agencies can only change promulgated regulations by the process of the promulgation of a new rule or regulation and that if a change is not properly promulgated in accordance with the APA, “it is not a legally effective pronouncement by the agency (not a law), and therefore, none of the abortive attempts in August, September, October and thereafter should be viewed as having changed the existing law.

“Since the contracts clauses prohibit the state from passing a ‘law’ that retroactively impairs the obligations of contract, OGB can only legally change the benefits program when it adopts through proper procedure and final rule to that effect, and that final rule cannot constitutionally be given retroactive effect.”

The petition is seeking declaratory judgments that:

  • OGB’s health care plans are in violation of the Louisiana APA;
  • Defendants have violated the Constitution of the State of Louisiana;
  • OGB has violated its fiduciary duties as prudent administrators.

It also seeks injunctive relief enjoining the applications of the OGB health care plan modifications.

The lawsuit was assigned to 19th JDC Judge Janice Clark.

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