ATLANTA - Setting a diet is one thing. Living with it is something else.
Now that Louisiana voters have written debt limits into the state constitution, state officials are figuring out how the government will get by while borrowing no more than about $200 million a year.
"We have finally set the broad guidelines for reining in our borrowing - now we must sort out how the borrowing will occur within the guidelines," said Rep. Steve Theriot, D-Marrero, chairman of the House Ways and Means Committee and a member of the State Bond Commission. "There is a lot of work yet to be done."
The course was set on Oct. 16 when state voters overwhelmingly approved Constitutional Amendment No. 2.
The amendment, modeled on a debt-limitation statute that state lawmakers passed in June, stipulates that Louisiana cannot issue more tax-supported state bonds than can be serviced by 6% of state revenues. Louisiana will have until fiscal year 2004 to bring its debt load into proportion with the revenue figure. The debt-limit percentage could be waived by a vote of two-thirds of elected members of both houses.
Now lawmakers need to devise "a mechanism to guide allotment" as the state sorts out what bonds it should sell, Theriot said. The Legislature reconvenes in early 1994.
Theriot said the mechanism should incorporate not only Amendment No. 2 but also two other amendments that were passed on Oct. 16.
Of these, Amendment No. 3 mandates feasibility studies for all projects involving capital outlays, while Amendment No. 4 provides that the state can use nonrecurring, or one-time, revenues only to retire state bonds.
"All of these tie together, it seems to me, to make Louisiana focus in its bond issues more on state-oriented rather than local projects," Theriot said.
Theriot said there will be important instances, particularly in education and health care, where the state should consider issuing tax-supported debt for local projects, but that in general such projects should not have a blanket exemption from the debt limit. Rather, lawmakers should make use of the override provision to authorize these bonds, particularly when a large borrowing is being considered, he said.
State Treasurer Mary Landrieu, the chairwoman of the State Bond Commission, also said she favors an approach to state debt issuance that favors funding of statewide projects.
"As I see it, the [state] capital planning process and the decisions on what bonds get sold under the cap are inseparable," Landrieu said in a recent interview.
But before the question can be resolved, both officials say, there must first be further clarification of what bonds fall under the cap.
In fashioning the debt-limitation statute this spring, lawmakers decided to define Louisiana tax-supported bonds as follows: general obligations of the state, any debt that relies on statewide tax revenues, and borrowings backed by legislative appropriation.
But the language was not included in the constitutional amendment because lawmakers decided to leave themselves room to change the definition without having to go through amending the constitution all over again.
In any case, the statute's language has not averted confusion over what tax-supported debt is. Most recently, at a State Bond Commission meeting held Oct. 21, commissioners were asked to consider a request from the LaSalle-Jena Economic Development Corp. to sell $47.9 million of bonds to build a juvenile detention center in LaSalle Parish, which is located in east central Louisiana.
The bonds would be payable from revenues from the LaSalle Parish Hospital Service District No. 1. The district, in turn, has entered into an agreement with the State Department of Corrections that guarantees a minimum monthly payment equal to $5.8 million annually, subject to legislative appropriaton.
Some supporters of the project have argued that the bonds should not fall under the cap because the appropriations would be made by the state whether or not bonds are sold.
For Theriot, such arguments are suspect because the state will own the facility when the contract ends, and because bondholders will expect the state to make an annual appropriation.
With these questions in mind, the Bond Commission has asked Louisiana's Attorney General Richard P. Ieyoub to render an opinion.
At the Oct. 21 bond commission meeting, assistant attorney general Martha Hess said that Ieyoub's office will form a task force "to analyze the debt limitation law, to advise the attorney general in conection with the rendering of a global opinion on these matters." The "formal legal opinion" will be forthcoming before the next commission meeting, now scheduled for Nov. 18, Hess said.
According to Bond Commission director Rae Logan, the commission will not approve the Lasalle Parrish jail bonds as currently structured if the attorney general decides to count them against the debt limit.
As state officials work to live with their new limitations on borrowing, ratings agency officials are keeping a watchful eye on Louisiana, which has approximately $2.5 billion of outstanding GOs.
At Standard & Poor's Corp., director Jay Abrams warned Louisiana not to water down its debt limitation guidelines by permitting numerous exceptions to the limits.
"What tends to happen is that capital needs are identified and ways are found to meet those needs," Abrams said. "It would be unfortunate if the intent of the guidelines is weakened in this way."
"As we see it," Abrams said, "what is needed at this point is just better debt management and planning rather than a lot of additional institutionalized guidelines."
At Moody's Investors Service Rene Boicourt, a vice president, took a similar tack.
"Voter approval of the debt limitation is eventful because it is consistent with a policy direction that the state has embarked on, and that's a plus," Boicourt said. "Our worry would be that issuers get too creative about loopholes."
Standard & Poor's has assessed Louisiana's Go debt at A since December 1990, when it raised the rating from BBB plus. Moody's rates Louisiana's GO debt at Baa1.
