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π-yush insists on giving away the store in the form of corporate tax incentives–many to campaign contributors

Posted in Campaign Contributions, Contract, Contracts, Economy, Exemptions, Incentives, Governor's Office, Jobs, Taxes on December 19, 2012| 3 Comments »

Unless the Revenue Study Commission’s report on the state’s tax structure is destined to become just another government study that gathers dust, it must address one significant fact: that for every dollar in the state’s budget, 21 additional cents is given away in tax incentives, exemptions and credits.

The report is scheduled to be released sometime shortly after the first of the year.

The state, as has been the case the past several years, is facing a budgetary shortfall of about $1 billion for Fiscal Year 2013-14 and the Jindal administration on Friday, Dec. 14., announced another budget cut, this one $166 million—all in health care for the poor.

For the current budget of $25 billion, the state each year gives away almost $5 billion in various tax breaks which range from enterprise zone credits to 10-year property tax exemptions to sales and use tax rebates.

Louisiana corporate and industrial tax incentives were only $59 million as recently as 2001. The surge, of course, translates to less revenue in the state budget but Gov. Piyush Jindal has refused to offset the revenue losses with increased taxes elsewhere, choosing instead to cut services. As a consequence, higher education and health care have incurred devastating cuts.

Put another way, the Jindal administration continues to insist on transferring money from education and health care to businesses.

Louisiana commits $394 for every man, woman and child each year in tax breaks to manufacturers, retail outlets and movie production companies through the Louisiana Office of Economic Development (LED).

Those include:

• LED FastStart, which creates customized employee recruiting, screening and training solutions for eligible companies;

• Angel Investor Tax Credit of up to 35 percent for start-up and expansion investors;

• Digital Interactive Media and Software Development Incentive;

• Enterprise Zone tax credits of $2,500 for each new job created;

• Industrial tax exemption of 100 percent for up to 10 years on new manufacturing investment;

• Motion Picture Investor transferrable tax credit of up to 30 percent;

• Musical and Theatrical Production tax credit of 25 percent to 35 percent;

• Ports of Louisiana investor tax credit program to promote Louisiana ports;

• Quality Jobs program that offers up to 6 percent in rebates on annual payroll expenses for up to 10 years;

• Research and Development tax credits of up to 40 percent to existing businesses;

• Restoration Tax Abatement of 100 percent for five years for rehabilitation of existing structures;

• Sound Recording Investor Tax Credit of 25 percent;

• Technology Commercialization Credit and Jobs Program offering a 40 percent refundable tax credit and a 6 percent payroll rebate for firms that invest in the commercialization of Louisiana technology.

The New York Times recently conducted an extensive investigation into state tax incentives that revealed that Louisiana’s $1.79 billion in business tax breaks ranks 11th in the nation.

Local governments give up $9.1 million per hour ($80 billion per year) in tax incentives to business and industry, according to the Times story.

Movie maker Oliver Stone criticizes subsidies to industries but defends similar subsidies for movie production, the story noted.

Moreover, the $394 per capita cost is eighth highest in the U.S. and the 21-cent cost per state budget dollar is seventh highest in the country.

That $1.79 billion includes $1.61 billion in corporate income tax credits, rebates and reductions and $75 million in property tax abatement.

But one thing the Times story neglected to point out in its report is that the $1.79 billion in corporate tax breaks represents only about 40 percent of the total tax breaks given by Louisiana through other exemptions, including those for hazardous waste disposal, gift taxes, inheritance taxes, sales taxes on alcoholic beverages, tobacco, food and prescription drugs.

Only six other states had a higher ratio of tax incentives to state budget. Texas granted 51 cents per state budget dollar in corporate tax incentives. Following, in order were Nebraska (39 cents), Oklahoma and West Virginia (37 cents), Vermont (31 cents) and Michigan (30 cents).

Not surprisingly, Texas has the most corporate tax exemptions with $19.1 billion.

But Louisiana, like so many other states has plunged headlong into the ever-escalating race for industry and jobs and again, like other states, has placed a tremendous strain on state finances.

The current obsession with tax breaks began with the repeal of the Stelly Plan in Gov. Piyush Jindal’s first few months in office in 2008, a move that has cost the state approximately $300 million per year.

The repeal of the Stelly Plan, according to Jindal, was supposed to save individual taxpayers between $500 and $1,000 per year. But to save $500, a single filer would have to earn as much as $90,000 and joint filers would have to make more than $150,000 a year to save $1,000.

But the revenue losses caused by the ill-advised repeal of the Stelly Plan are dwarfed by the losses to the state treasury that have resulted in corporate tax incentives granted for projects that have produced few or no jobs.

In 2011, for example, the Board of Commerce and Industry approved exemptions totaling more than $2 billion in enterprise zone and property tax exemptions for new and expanded businesses that produced a mere 7,300 jobs, many of those low-salaried jobs.

But not even those comparatively few jobs turn out to be permanent.

• The Ormet Corporation kicked about 200 of its employees in Ascension Parish to the curb in November, only about a year after receiving tax credits worth about $1 million and a performance-based loan of $1.5 million from the state.

• International Paper Co. received more than $55 million in tax breaks while creating only 107 new jobs over the four-year period from 2008-2011. But that did not prevent IP from shutting down its plant in Bastrop in 2008 and another in Minden last May, putting 610 employees out of work.

• The $26.3 million in tax incentives received from the state by General Motors in 2008 and 2009 produced no new jobs and worse, failed to prevent closure of its Shreveport plant which sent 950 workers to the unemployment lines.

• Dow Chemical continued taking tax incentives from the state, even after announcing in 2009 that 2,500 workers would lose their jobs when three Louisiana plants that make ethylene and derivatives would close. Over the four years from 2008 through 2011, Dow accepted $70.3 million in tax incentives that resulted in not a single new job.

That could be because many established plants submit applications for renewals of existing 10-year exemptions, citing plant modernizations or improvements as justification for the continued tax break when in reality, many of the so-called modernization projects involve little more than landscaping, changing a few light bulbs or similar routine maintenance projects.

But even worse is the gnawing appearance of quid pro quo. Many recipients of the state’s generous tax incentives also made generous campaign contributions to Gov. Piyush Jindal.

In all, 29 separate entities received 32 tax exemptions totaling $774 million over the four-year period. Those same 29 have made $135,700 in campaign contributions to Jindal.

Some of the recipients, followed by total tax breaks and campaign contributions to Jindal, include:

• CLECO ($169 million, $14,000);

• Calumet Lubricants ($105 million, $1,000);

• Dow Chemical ($70.3 million, $13,000);

• Exxon/Mobil ($13.3 million, $11,000);

• Century Tel ($24.6 million, $5,000);

• The Coca Cola Co. ($23.9 million, $2,500);

• PPG Industries ($23.2 million, $1,000);

• Marathon Oil ($27.7 million, $11,000);

• Monsanto Co. ($38.7 million, $5,000);

• Conoco Phillips ($37.2 million, $5,000);

• General Motors ($26.7 million, $2,500);

• Stupp Corp. ($25.9 million, $6,000);

• DuPont ($21.3 million, $1,000);

• Select Energy ($14.3 million, $5,000);

• Dynamic Industries ($13.6 million, $5,000);

• General Electric ($11.2 million, $5,000);

• Syngenta Crop Protection ($11 million, $1,000);

• Georgia Pacific ($10.7 million, $4,200);

• Targa Midstream Services ($7.88 million, $5,000);

• Weyerhaeuser ($3.98 million, $5,000);

• Bollinger Shipyards and affiliated companies ($9.36 million, $63,850);

• Chevron ($3.7 million, $1,000);

• Rouse’s Enterprises ($3.48 million, $5,000);

• The GEO Group ($3 million), $5,000);

• Wal-Mart ($2.59 million, $5,000);

• Walgreens ($2.59 million, $5,000);

• Bruce Foods ($2.5 million, $4,500);

• Turner Industries ($2.42 million, $5,000);

• Boh Brothers ($1.76 million, $1,000);

In addition to campaign contributions, which are limited to $5,000 per individual per election cycle, several of the recipients of tax incentives have contributed even more generously to the Supriya Jindal Foundation, established by Jindal’s wife six months after Jindal took office.

Among the contributors are charter members (who give a minimum of $250,000) Marathon Oil, Dow Chemical and Wal-Mart.

Chevron is among the foundation’s Platinum members who pledge a minimum of $50,000.

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π-yush has more Christmas cheer: Revenue plans shutdown of all state satellite offices except Benson…er, New Orleans

Posted in Budget, Campaign Contributions, Economy, Governor's Office, Jobs, Layoffs, Revenue, State Agencies on December 19, 2012| 6 Comments »

Get ready, Louisiana taxpayers. If you encounter a need for a one-on-one meeting with a Louisiana Department of Revenue spokesperson to discuss your state taxes in the near future, you soon will be out of luck. You’ll need to juke on down to Baton Rouge or New Orleans to get face time.

Though no announcement has yet been made of a target date, LouisianaVoice has learned that all other state revenue satellite offices are being shuttered.

The closures, of course, will not affect New Orleans where the state is locked into that overpriced lease agreement with Tom Benson as part of the notorious state giveaway to keep the Saints in Louisiana. That’s the deal whereby Benson purchased the old Dominion Tower across from the Superdome with the understanding that the state would move all its New Orleans offices there and pay about twice was it was paying for its former office space.

It was not immediately known how many state employees would be affected, but suffice it to say the timing of the decision, coming as it does a week before Christmas, couldn’t be worse for Revenue staffers in Shreveport, Monroe, Alexandria, Lake Charles and Lafayette.

Having already gone for more than three years without a raise, they now face the prospects of unemployment.

Of course, certain employees have nothing to worry about. The cutbacks will only apply to the grunts, the ones who actually do the day-to-day work, the ones who have to suffer indignities from supervisors and flak from unhappy taxpayers.

This is the same agency, by the way, that hired former State Rep. Jane Smith first as Assistant Secretary at $124,446 despite her professed lack of knowledge about revenue. Upon the firing of Secretary Cynthia Bridges over that alternative fuel tax (a bill authored by smith, no less, and signed into law by Jindal), Smith was briefly promoted to secretary by Piyush.

Jindal later hired former executive counsel Tim Barfield as secretary but circumvented the state law which limited the secretary’s salary to $124,000 by also giving him the title of Executive Counsel of Revenue and bumping his salary up to a cool $250,000.

Of course, it didn’t hurt that Barfield and his wife contributed $15,000 to Jindal’s campaigns in 2006 and 2010 and that one of his former employers, Amedisys, chipped in another $11,000 to the Piyush cause.

And apparently oblivious to the current state hiring freeze, the new secretary promptly went out and bought himself a chief staff in the person of Jarrod Coniglio, who “will take the lead for all of our day-to-day work and be a great help to us as we work to coordinate and execute with the highest efficiency, accuracy and customer service,” according to Barfield.

The price for his new aide that Bridges apparently never saw the need for? $115,003.

While on his shopping spree, Barfield also picked up a new press secretary: Douglas Baker at an annual salary of $105,997.

True to form in the Piyush administration, efforts to contact the newly-appointed Revenue press secretary for more detailed information about the office shut-downs and accompanying layoffs were unsuccessful.

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New round of budget cuts to be announced Friday as π-yush administration grapples with declining state tax revenues

Posted in Charters, Governor's Office, Health Care, Higher Education, Jobs, Layoffs, Legislature, Legislators, Privatization, Revenue, State Agencies, Taxes, Vouchers on December 12, 2012| 12 Comments »

Fiscal Year 2012-13 is just half over but more deep budget cuts will be announced on Friday and, in the words of one state official, “It ain’t gonna be pretty.”

And the latest fiscal problems haven’t even encountered a looming tax rebate program being offered to encourage financial viability of state charter schools, a centerpiece of the Jindal administration.

With health care and higher education already devastated by previous cuts, it’s anyone’s guess who will suffer in the new round of belt tightening.

Higher education has already been hit with more than $426 million in cuts since 2009—$25 million since June—and Gov. Piyush Jindal has been conducting a fire sale to unload state hospitals and prisons, so it’s difficult to pinpoint where other cuts can be implemented.

The Revenue Estimating Conference will meet on Thursday and the Joint Committee on the Budget will meet on Friday to officially hear the bad news.

Without specifics (because they weren’t available when this was written), that bad news is:

• Personal income tax revenue is below projections;

• Corporate income tax revenue is below projections;

• Severance tax revenue is below projections (because of an unexpected drop in the price of natural gas);

• Sales tax revenue is below projections.

With the bulk of state revenue coming from income taxes and sales taxes, the news, it seems, couldn’t be much worse.

But it might.

Remember the alternative fuel tax credit?

That’s the bill authored by former Rep. Jane Smith (R-Bossier City) that promised a tax credit of up to $3,000 for vehicles that burn “alternative fuel. It was estimated at the time that the tax credit would cost the state $907,000 over five years.

After losing her bid to move up to the Senate in 2011, Jindal rewarded her loyalty (read: dedication to tax breaks) by appointing her as deputy secretary of the Department of Revenue.

The intent of the bill was to encourage the conversion of vehicles to propane but between the passage of Smith’s tax rebate bill and its implementation, flex-fuel vehicles that run on a blend of up to 85 percent ethanol hit the market.

These vehicles immediately qualified for the rebate and the real cost turned out to be more like $200 million, an increase of almost 1,900 percent after then-Revenue Secretary Cynthia Bridges got around to creating rules for the program.

Caught in a potential fiscal crisis over the tax credits, Jindal promptly fired Bridges, promoted Smith (who authored the bill in the first place) to interim secretary and rescinded the tax credits.

Now, a similar scenario may have arisen in the form of last session’s House Bill 969.

HB 969, by Rep. Kirk Talbot (R-Baton Rouge), which was subsequently signed into law by Piyush as Act 25, offers tax rebates to those making contributions to charter schools.

Piyush vetoed a similar bill by Rep. Katrina Jackson (D-Monroe) that would have given tax rebates of up to $10 million to those making contributions to public schools because, he said, there was no provision in the state budget for the rebates.

The only problem is, the provisions of Act 25 contain no dollar cap which, like the alternative fuel tax, could blow a gaping hole in the state’s budget should a sufficient number of people make contributions to the private scholarship program.

It’ll be interesting to see how the Boy Blunder handles the latest financial crisis since the state is running out of one-time money with which to plug budget holes, thousands of state jobs have already been eliminated, there are few remaining assets that can be sold off, and health care and higher education have already been cut just about as much as they can stand and still function.

Perhaps Piyush might actually see the need to jettison a few six-figure appointive positions handed out to former legislators like Smith, Noble Ellington, Troy Hebert, Lane Carson and numerous others.

That would be a start—a show of good faith, at least.

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OGB opponents of BCBS contract savor π-yush crash and burn following four-hour committee hearing on Thursday

Posted in Budget, Civil Service, Contract, Contracts, Economy, Education, Governor's Office, Health Care, House, Senate, Jobs, Layoffs, Legislature, Legislators, OGB, Office of Group Benefits, Privatization on November 2, 2012| 6 Comments »

Lyndon Johnson once said he had no use for any politician who, 30 seconds after entering a crowded room, could not tell who was for him and who was against him.

He would have little use for Gov. Piyush Jindal, the governor’s hand-picked committee chairmen or his chief budget officer, Commissioner of Administration Kristy Nichols.

It took them four hours Thursday to determine there were not enough “fer-votes” to push through an administration-proposed contract that would have Blue Cross/Blue Shield of Louisiana serving as the third party administrator (TPA) of the Office of Group Benefits (OGB) Preferred Provider Organization (PPO).

The upshot was a four-hour hearing that instead of ending with celebratory fireworks for the administration, ended first with considerable confusion over Mason’s Rules of Order, and then a whimper as Nichols pulled the bill from the flames just before it was reduced to a pile of metaphorical ashes.

At the end of the day, State Rep. Katrina Jackson (D-Monroe) had Nichols, House Appropriations Committee Chairman Jim Fannin (D-Jonesboro) and Senate President John Alario (R-Westwego) circling the wagons in a desperate attempt to avoid further embarrassment.

But Jackson had lots of help. Several members of the two committees, primarily from the House Appropriations Committee, peppered Nichols with a barrage of questions with several legislators indicated that they had heard from hundreds of constituents and no one supported turning over the administration of the PPO to BCBS.

One of those, Rep. Rogers Pope (R-Denham Springs), a former Livingston Parish School Superintendent was critical of what he termed a lack of communication between the administration and education officials about the proposed changes.

But it was Mary Patricia Wray, legislative director for the Louisiana Federation of Teachers, who delivered the most withering criticism of the proposed contract, coupling it with a blistering attack of the Jindal administration’s onslaught against public schools.

“Some say the school districts will save money,” she said. “Some have mentioned savings of $35 million but one important fact has been overlooked. Many who tout these savings to school districts are the very parties who have crafted policies that have starved our public schools of the funding they so desperately need.”

Noting that while public school systems have received no increase in their per-pupil funding (Minimum Foundation Program funding) for more than four years, she said, “millions of dollars of funds constitutionally dedicated to our K through 12 public schools are going to leave this year to go to non-public schools of inferior quality.

“Moreover, this legislature approved a policy that provides un-capped tax rebates for donations to non-public schools while simultaneously our governor vetoed a bill that would have provided reasonably-capped rebates for donation to our inadequately-funded public schools.

“These priorities created the same emergency that their supporters now frantically want you to believe will be partially undone with your vote today—if you vote yes.

“So while the policies of the same administration that now asks you to support this contract have been consistently, habitually, and unapologetically to place funding public education at the very bottom of the priority, it seems a bit odd that they would take this moment to become proponents for the adequate funding of K through 12 education in our state.”

Wray called the proposed contract “fixing something that is not broken” and that it was “high on the administration’s list—and not because they suddenly care about adequately funding public schools they denigrate or supporting the institutions in which the teachers they humiliate are educating the next generation of Louisiana citizens.”

She said the policies of the Jindal administration “have starved government at every level. The lack of planning on their part should not and must not constitute an emergency for the people you serve. This contract may seem inconsequential but to the people served by OGB and to the people who elected you, it about doing the right thing, setting the right standards. Our public servants are more valuable than the rhetoric of the moment. They are more important than the flip-flop policy making that constantly puts them and their benefits in the crosshairs of our state’s budget crisis.”

But the real fun occurred over the last few minutes of the four-hour session.

It all started when Alario, after apparently realizing the numbers were there for concurrence by both the House Appropriations and Senate Finance committees, said, “We all know that change is difficult,” a rather odd observation given the Jindal administration has never considered the difficulties involved in change when he had the votes on such matters as education.

“I think we probably need to give a little more thought and a little more time on this issue,” he continued. “I’m going to suggest that we defer action on this matter today.”

Fannin immediately made an identical motion on behalf of the Appropriations Committee.

Before they could vote on Alario’s motion, however, Jackson offered a substitute motion to vote on the contract immediately. That motion passed the Appropriations Committee by a vote of 16-9. Voting for her substitute motion were Reps. Cameron Henry (R-Metairie), James Armes (D-Leesville), Jared Brossett (D-New Orleans), Henry Burns (R-Haughton), Roy Burrell (D-Shreveport), Brett Geymann (R-Lake Charles), Joe Harrison (R-Gray), Jackson, Edward James (D-Baton Rouge), Walt Leger (D-New Orleans), Helena Moreno (D-New Orleans), James Morris (R-Oil City), Pope, John Schroder (R-Covington), Patricia Smith (D-Baton Rouge) and Ledricka Thierry (D-Opelousas).

Voting no on Jackson’s substitute motion were Reps. Fannin, John Berthelot (R-Gonzales), Robert Billiot (D-Westwego), Chris Broadwater (R-Hammond), Simone Champagne (R-Erath), Charles Chaney (R-Rayville), Lance Harris (R-Alexandria), Bob Hensgens (R-Abbeville) and Anthony Ligi (R-Metairie).

In the voting along party lines, seven Republicans were evenly split on Jackson’s motion with seven for and seven against. Two Democrats voted no and nine voted yes.

Reps. Patrick Connick (R-Marrero), Franklin Foil (R-Baton Rouge) and Jack Montoucet (D-Crowley) were absent.

After that vote, presiding chairman Sen. Jack Donahue (R-Mandeville) attempted to call a Senate Finance Committee vote on Jackson’s substitute motion before being informed that someone from Finance had to make a similar motion. When no one did, Jackson’s motion died.

When he finally realized that the next vote needed to be on Alario’s motion to defer action, he announced the motion and asked if there were any objections and Sen. Dan Claitor (R-Baton Rouge) voiced his objection, forcing a roll call vote.

Claitor was able to inject some gallows humor into situation. When he voiced his dissent, he referred to himself as a “former Senate Finance Committee member” in reference to two other legislators—Reps. Harold Richie and Morris—who were demoted from their vice chairmanships of the House Committee on Insurance and House Natural Resources and Environment Committee, respectively.

They opposed Jindal and were summarily demoted. Richie opposed tax rebates for those who donate money to private and parochial schools while Morris fought Jindal over the governor’s decision to use one-time money to fund recurring expenses in the state’s General Budget.

The Senate members then voted 11-3 in favor of Alario’s motion to defer action. Those in favor of deferral included Donahue, Norby Chabert (R-Houma), Bret Allain (R-Franklin), Ronnie Johns (R-Lake Charles), Gerald Long (R-Natchitoches), Fred Mills (R-New Iberia), Dan “Blade” Morrish (R-Jennings), Greg Tarver (D-Shreveport), Francis Thompson (D-Delhi), Mike Walsworth (R-West Monroe) and Bodi White (R-Baton Rouge).

Voting against Alario’s motion to defer were Sens. Sherri Smith Buffington (R-Keithville), Claitor, and Ed Murray (D-New Orleans).

Sen. Eric LaFleur (D-Ville Platte) was absent.

Before a vote could then be taken on Fannin’s motion to defer consideration of the contract for one week, Jackson threw another curve at the proceedings by making a second substitute motion—this one to reject the contract outright.

That brought things to a screeching halt as it appeared no one knew what to do: a vote would be suicidal to proponents of the contract since the House committee seemed almost certain to go along with Jackson.

Morrish, after several minutes of total confusion, was finally recognized and asked, “What happens if the House votes to reject? If the substitute motion passes, where will the contract stand?”

“The contract is rejected,” responded Donahue.

“Even without a Senate vote?”

“With no Senate vote,” Donahue repeated. “If either body votes to reject, the contract is rejected.”

As more confusion reigned and amid the chatter that was reminiscent of a crowded room scene from a movie (only without the rattle of ice and the clinking of drink glasses), the barely audible word “adjournment” was suggested by someone on one of the committees at least twice.

Finally, after a full five minutes of idle chatter, Donahue explained that because it was a joint meeting of two individual committees and not a meeting of the Joint Committee on the Budget, “the rules are different.”

The only thing that needed to be done, however, was to call a vote on Jackson’s motion to reject the contract which, of course, would be a disaster for the administration.

Donahue, obviously in a quandary, began stalling. At that point, the two committees had been in session for four hours and five minutes.

At precisely 4:09:40, Nichols quietly slid back into a seat at the witness table in front of the committees looking defeated. Again, the word “adjourn” rose above the din from someone on one of the committees.

But right on cue, at 4:10:32, Donahue called on Kristy. “Commissioner, do you have anything you want to bring to the agenda at this time?”

It was almost as if his line was scripted.

“Mr. Chairman, I’d like to ask that the committee allow me to remove the contract from the agenda at this time,” she replied.

“I don’t think you need permission. You don’t need permission. You can just pull it from…”

“We’d like to come back at a later date,” she interrupted abruptly. “We’d like to pull it.”

It took another ten seconds for some to make the formal and more audible motion to adjourn.

In the words of the delightful Yogi Berra: It ain’t over ’til it’s over.

And in the immortal words of Walt Kelly in his wonderful Pogo comic strip: To be drug out.

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Former OGB employee critical of BCBS contract with OGB: Legislative committees to consider proposal on Thursday

Posted in Civil Service, Contract, Contracts, Governor's Office, Health Care, Jobs, Layoffs, Legislature, Legislators, OGB, Office of Group Benefits, Privatization, State Agencies, Teague on October 31, 2012| 2 Comments »

Editor’s note: LouisianaVoice would like to acknowledge and thank Kay Prince of Ruston for contributing much of the research that went into this article. She has worked tirelessly with former Sen. Butch Gautreaux on this issue and was gracious enough to share this information with us for our use.

A former employee of the Louisiana Office of Group Benefits OGB) has taken issue with several points in the proposed contract between the Division of Administration (DOA) and Blue Cross/Blue Shield of Louisiana (BCBS) that calls for BCBS to take over the operations of OGB’s Preferred Provider Organization (PPO) plan as the plan’s third party administrator (TPA) in January.

The former employee, who is now retired, examined the contract which is scheduled for consideration by a special joint meeting of the House Appropriations and Senate Finance committees on Thursday, Nov. 1 and found several areas in which he said the state will be getting a bad deal if the contract is approved.

Gov. Piyush Jindal has pushing for the transition for nearly two years now in what he insists will be a cost-cutting measure but which will result in the loss of 177 positions at OGB and 111 actual jobs. The other 66 positions are currently vacant.

One of the things the former employees warns about is an obscure clause on page 8 the contract which says the maximum amount to be paid BCBS shall not exceed $1.1 billion for any one year “unless the director of the Office of Contractual Review approves a contract amendment.” (emphasis ours.)

That is an important provision considering what happened with the privatization of the Office of Risk Management (ORM) in September of 2010. Under terms of that contract, the state was to pay F.A. Richard and Associates (FARA) of Mandeville $68 million to be the TPA for ORM but only a few months into its contract, FARA asked for and received a $6.8 million amendment to its contract, increasing the over contract cost to just under $75 million.

Legislators were upset to learn that the amendment was legal because the law allows a one-time contract amendment of up to 10 percent with only the approval of Contractual Review. The FARA contract amendment was exactly 10 percent and legislators had no say in the matter.

The Jindal administration claims that allowing BCBS to become the TPA for OGB will save the state $20 per year. But if BCBS should seek a similar 10 percent increase in its contract, the $110 million in additional contract costs would wipe out any savings.

Administration projects of OGB’s spending 100 percent of budgeted amounts in several areas whereas the agency historically has spent between 65 and 80 percent of budgeted amounts on administrative costs. “This inflates the projected savings by approximately 20-35 percent,” the retired OGB official said.

Projected savings on building rental may also be overstated, he said, because OGB is locked into a 10year lease for its Baton Rouge office space. The cost of that lease is $100,000 per month and will not be reduced unless OGB can renegotiate its lease.

He said it was misleading to compare Louisiana to other states. First, the only other state that self-administers its health benefits program is Utah which has a smaller population. “You cannot compare staffing patterns for completely different ways of doing business” as the administration did with Florida and Mississippi, for example. “You need to compare total administrative costs for the other states, not just (the) number of employees,” he said.

But of even more importance, he said, is the misconception that it was a sound move to reduce premiums by 7 percent last July.

“The program operated at a small deficit for the fiscal year ending June 30, 2010 (before the premium rate reduction) and is almost guaranteed a significant loss for Fiscal Year 2013 with the 7 percent reduction in premium that was approved by the Division of Administration,” he said.

“The only reason that premiums could be reduced was the fact that the program had a significant surplus. For the current fiscal year the program will be operating on its surplus for significant portion of the current year’s operating expenses…but this cannot go on forever.

“It is another example of using one-time funds to pay for continuing operations of the state. Once the surplus is exhausted, rates will need to be increased significantly to cover continuing operations,” he said.

State health insurance programs have varied over the years and remained pretty much in a state of flux until the administration of OGB CEO Tommy Teague, who was fired on April 15, 2011. It took a major political scandal involving a top state administrator and underworld boss Carlos Marcello to pull the state’s health and life insurance programs out of the doldrums.

OGB itself is relative new as a state agency, having been created on Sept. 1, 1979, as a result of the FBI’s Brilab sting operation which resulted in Commissioner of Administration Charles Roemer’s conviction of conspiracy to violate federal racketeering laws over accusations that he and Marcello took part in a scheme to win a multi-million dollar state group insurance contract through bribery.

Roemer served 15 months of a three-year prison term before his conviction was overturned.

Prior to July 1, 1970, each state agency was responsible for procuring its own insurance contract for its employees. This created a multitude of problems since each contract had different dates, coverage, premiums, etc. Plus, when an employee transferred from one agency to another, it forced the employee to switch coverage which resulted in considerable confusion and in some cases, loss of coverage because of different waiting periods among the various contracts.

The Uniform Insurance Act was passed and went into effect on July 1, 1970 and all Executive Branch agencies were brought under one consolidated health/life insurance contract, which was awarded to Blue Cross for health and Pan American Life for life insurance.

In 1973, when Blue Cross proposed a significant rate increase, the contracts with both Blue Cross and Pan American were terminated and the state’s health and life insurance programs became self-funded by the state. Continental Assurance (CNA) was retained as the TPA to handle claim payment functions, an arrangement that remained in effect for the remainder of the seventies.

It was during this time that the FBI began its sting operation after learning of alleged bribes and the legislature subsequently passed Act 749 of the 1979 regular session which created OGB and placed it under the State Treasurer’s office.

On May 1, 1981, the CNA contract was terminated and all employees who were working for CNA were offered an opportunity to become Civil Service employees, effective May 1. The agency operated under this arrangement until 1998 when the legislature was forced to make a supplemental appropriation of $77 million to cover an unfunded accrued liability (UAL) in the program because the OGB trustees had failed to increase rates to keep up with the program’s claims experience.

The program continued to operate with an UAL until the mid-2000s at which time it began generating a surplus each year through FY 2011, going from a $105 million deficit to its current $500 million surplus in about five years.

Here are the links to the committee memberships:

http://house.louisiana.gov/H_Cmtes/H_Cmte_AP.asp
http://senate.legis.louisiana.gov/Finance/Assignments.asp

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