Part II: Chapter Four
Stored Money: Fantastic Funds and Where to Find Them
Anyone who braves to “drill down” into the fiscal morass of the Louisiana Constitution will need to understand the scope and nature of its fantastic variety of “funds.” Unfortunately, an entire chapter is required to review them, even succinctly.
Compared to other states, Louisiana is a national champion at packing away windfalls and dedications to serve specific causes that few even know exist. Built up one by one over the decades, they lead a sheltered life free of scrutiny or any question about whether their aged priorities match the needs of today. Some don’t live at all, in fact, and are useless corpses in the Constitution that no one has bothered to bury. A very few of these instruments – such as the Rainy Day Fund — are vital and should be maintained in the Constitution. Others need a re-evaluation or, at the very least, a bit of daylight shone on them.
The Public Affairs Research Council of Louisiana has presented here a short description of the purpose and money behind each of the constitutional funds. A PAR recommendation accompanies each entry and fits the structural reforms suggested in Chapter 3.
The Constitution’s complexity is demonstrated by how tricky it is to even get a count on the number of funds it has. Auditors, accountants and state budget staff may all look at it differently depending upon their framework of analysis. While a good general estimate is “around 30,” PAR counts 28 constitutional funds for the purposes of this report. This total only counts funds that could be changed or eliminated through an amendment or constitutional convention. It does not, for example, count funds that were established by a previous constitution that still exist for various reasons.
Each fund listed below contains a constitutional reference, short summary and if available or appropriate a fiscal history. This history includes the fund’s annual beginning balance, revenue and expenditures. This review should serve to elevate the policy discussion about what could be changed by a constitutional revision and what the specific impacts would be.
1. Bond Security and Redemption Fund Art. VII, § 9; La. R.S. § 39:451 1974 Oversight: Legislature
The Constitution requires that all revenue received by the state or any state board, agency or commission that flows into a dedicated constitutional fund must first be available to satisfy required allocations into the Bond Security and Redemption Fund. The main function of this Security Fund is to assure that the first priority of state revenue is to satisfy debt obligations that are secured by the full faith and credit of the state and which become due or payable within the current fiscal year.
In this regard, the Security Fund operates more like a mechanism than a fund. Almost every dollar of state revenue flows through it. Some money coming into the fund remains there for a short time before being spent to satisfy debt payments. All money coming into the fund that is not needed for debt payments immediately flows out of the fund and into the State General Fund or dedicated funds. *Historical balance information is not available for this fund due to the nature of the Fund and the large sums of money moving quickly in and out of the fund.
The Bond Security and Redemption Fund should remain in the Constitution.
Constitutional protection of the fund is necessary to ensure that the state is always able to satisfy its debt obligations to bondholders. Constitutional protection of the fund also has the effect of enhancing the marketability and interest rates of the state’s bonds.
2. Budget Stabilization Fund (“Rainy Day Fund”) Art. VII § 10.3; La. R.S. § 39:94 1990 Oversight: Legislature
The Budget Stabilization Fund in theory helps to steady the state budget by taking the edge off of high revenue streams in boom times and providing a cushion during “rainy day” times of financial hardship. Although this type of fund is common among the states, in the past it was especially relevant for Louisiana, where oil and gas revenue has been known to fluctuate wildly due to changing energy prices. Temporarily overinflated revenues can lead to unsustainable levels of state spending. If state revenue drops, a well managed piggy bank can help stabilize the operating budget without resorting to higher taxes or deep budget cuts.
The Legislature may choose to make appropriations to the fund but normally the fund’s money comes from revenue sources triggered automatically. For example, the Constitution requires that the fund receive 1/4 of any non-recurring money, including budget surpluses and other designated one-time revenue boosts. State mineral revenue received in each fiscal year in excess of a base amount flows into the Rainy Day Fund (after first satisfying allocations to the Security Fund and a handful of other required appropriations).
The base, originally set at $750 million in the Constitution, may be adjusted every 10 years by a 2/3 vote of each legislative chamber. The current base is $950 million, meaning that annual mineral revenue exceeding that amount would flow into the Rainy Day Fund. However, oil and gas revenue in recent years has not been close to that level and therefore has not been a regular contributor to the fund.
There are limits on these flows. Once the fund reaches a level of 4% of the state’s previous year’s revenue, no more money may be placed into it. The Budget Stabilization Fund was due to grow to about $405 million as of August 2019. The cap is approximately $1.05 billion.
Money in the fund can be used in three situations:
• For Next Fiscal Year: If the official forecast of recurring money for the next fiscal year is less than the official forecast of recurring money for the current fiscal year, an amount up to 1/3 of the Rainy Day Fund may be appropriated after the consent of 2/3 of the elected members of each house.
• For Current Fiscal Year: If a deficit for the current year is projected due to a decrease in the official forecast, an amount up to 1/3 of the Rainy Day Fund — not to exceed the projected deficit — may be appropriated after the consent of 2/3 of the elected members of each house.
• Because of a federally declared emergency.
The fund balance at the end of FY19 was $405 million and as of March 2020 the total was $410 million. Appropriation from surplus funds could increase this amount further
The Budget Stabilization Fund should remain in the Constitution. The mechanisms could be combined with the Revenue Stabilization Trust Fund to create a simpler and more streamlined system. Due to the timing triggers, in some circumstances a tapping and subsequent mandated refilling of the fund could prove to be unproductive; this feature of the fund could be corrected.
• Credit rating agencies assess the strength of Louisiana’s trust funds when calculating the state’s fiscal health and its reliability to make good on its commitments. Irresponsible spending and fiscal mismanagement by the state could cause the rating agencies to downgrade the state’s bond ratings, driving up the cost of borrowing money to finance important programs or long-term construction projects.
3. Revenue Stabilization Trust Fund Art. VII, § 10.15; La. R.S. § 39:100.112 2016 Oversight: Legislature
The purpose of the Revenue Stabilization Trust Fund is to smooth the volatility of corporate and mineral tax receipts from year to year and create a long-term asset for the state. The mission and mechanics of this fund overlap with the Budget Stabilization Fund. None of the revenue thresholds have been triggered since the fund went into effect in 2016, but it was created as a long-term plan in anticipation of eventually coming into play.
All recognized annual corporate income and franchise tax revenue above $600 million would be deposited into the fund. Mineral revenue between $660 million and $950 million would be set aside as follows: 30% is used toward state retirement system unfunded accrued liabilities (UALs) and the remaining 70% is placed into the fund. Any mineral revenue over $950 million in any given year would flow back into the Rainy Day Fund until the cap set by the Treasury is reached. At that point, the returns to the Revenue Stabilization Trust Fund are to be allocated to the UAL.
In any given year, the Legislature can use the interest earnings or other income derived from the investment of the trust fund for appropriation, but expenditure of the corpus of the trust fund is limited. If more than $5 billion is in the account at the beginning of a fiscal year, the Legislature may appropriate up to 10% of the total balance for capital outlay projects and transportation infrastructure, but not for general fund expenditures.
In order to provide for emergency situations, which might include budget shortfalls, a 2/3 vote by the Legislature would permit the funds to be appropriated for any use even if the total fund balance is below the minimum.
Until last year, there was no activity because the threshold amount of revenue for corporate and mineral revenues had not been met. However, in 2019, $30.5 million was added to the fund from corporate tax revenue.
The basic function of the Revenue Stabilization Trust Fund should remain in the Constitution. For clarity and streamlining, the functions of this fund and the Budget Stabilization Fund could be combined. Some of the provisions should be rethought. The fund can build as high as $5 billion, a large amount of public resources to keep locked up. On the other hand, the 2/3 legislative vote requirement to tap it gives the Legislature extraordinary power to trump what is otherwise a constitutionally protected fund.
• Mineral revenues and corporate taxes are two of the state’s most volatile revenue sources. Legislators likely do not have the willpower necessary to save money that comes in during years when these two revenue sources are robust. The fund helps reduce political pressure on legislators to spend new money on pet projects rather than long-term priorities like infrastructure and pension liabilities.
• The fund also provides the Legislature with an additional tool to address budget crises without having to make deep cuts or impose new taxes to raise necessary revenue.
4. Coastal Protection and Restoration Fund Art. VII, § 10.2; La. R.S. § 49:214.5.4 1989 Oversight: Coastal Protection and Restoration Authority (CPRA)
The Coastal Fund draws money from a variety of sources, including mineral revenues from severance taxes, royalty payments, bonuses and rentals; federal funds such as GOMESA funds paid to Louisiana for offshore oil and gas production in the Gulf of Mexico; and various settlements related to the BP oil spill. Most money in the fund comes from the federal government or legal settlements. Post-Hurricane Katrina, a significant amount of surplus money was deposited into the fund. That balance has been steadily declining over the past decade.
Coastal Fund money can be spent only on development and implementation of the Coastal Protection Plan and the Louisiana Coastal Wetlands Conservation and Restoration Program. Fund Recommendation The Coastal Protection and Restoration Fund should remain in the Constitution.
• Coastal land loss and sea-level rise represent an existential threat to Louisiana’s communities, residents and economy. The consequences of not properly planning for these threats are too significant to risk allowing legislators to spend mineral revenues on pet projects or other priorities rather than on the long-term priority of protecting Louisiana’s coast.
• Long-term financing strategy is essential to a successful coastal restoration and protection plan.
• Trust, accountability, and transparency are critical to ensuring that the federal government continues to send money to Louisiana to protect our coast and our citizens. Placing federal dollars into a constitutionally protected fund that can only be used on important coastal projects vetted and informed by objective data signals to the federal government that Louisiana is committed to using the money wisely.
5. Transportation Trust Fund (TTF) Art. VII, § 27; La. R.S. § 48:77 1989 Oversight: Department of Transportation and Development (DOTD)/Legislature
To ensure that state fuel tax dollars would go to transportation projects, the TTF was created with constitutional protections. All state excise taxes on gasoline and motor fuels flow into the fund, including the original 16-cent per-gallon tax, as well as the additional 4-cent tax approved in 1989 and dedicated to the TIMED program (Transportation Infrastructure Model for Economic Development). Money in the fund can be used only for the costs associated with construction and maintenance of roads and bridges, flood control, ports, airports and transit. A portion is also set aside for local governments through the Parish Transportation Fund (La. R.S. §§ 48:715-56) pursuant to a formula based on population and mileage.
The Transportation Trust Fund should remain in the Constitution.
• Proper funding to maintain and build state roads, bridges, ports and other major infrastructure projects is critical both to ensure a good quality of life for Louisiana residents but also to ensure that infrastructure is able to adequately support and encourage economic activity.
• A large portion of TTF revenue is pledged to secure bonds to fund major infrastructure projects. Eliminating constitutional protection of the fund would almost certainly impair existing contractual obligations to bondholders. Additionally, future bonds secured by TTF revenues would likely be less attractive to bondholders and therefore priced less favorably for the state were the fund to be removed from the Constitution.
• Although the TTF should remain in the Constitution, the Legislature should consider changes to the fund to increase accountability and transparency. Today, a significant portion of TTF money is used to fund DOTD operations, including personnel and regional offices supporting maintenance. Because DOTD’s operating budget is funded almost exclusively by the TTF, the Legislature typically exercises little insight into or oversight of how the money is spent within DOTD.
6. Health Excellence Fund Art. VII, § 10.8; La. R.S. § 39:98.1 1999 Oversight: Louisiana Department of Health (LDH)
The Health Excellence Fund is one of the three funds that comprise the Millennial Trust along with the Education Excellence Fund and the TOPS Fund. One-third of all earnings from the investment of the Millennium Trust created with the proceeds from the tobacco settlement agreement flow into the fund. Revenues derived from the tobacco tax are also deposited into the fund. While the dedication is in statute, the constitution sets a minimum cigarette tax in Art. VII Section 4.1. This is another example of tax policy that would be better left to statute rather than the constitution.
Money in the fund can be spent on:
• Initiatives to ensure optimal development of children through appropriate health care, including health insurance, school-based health care, rural health clinics, primary care clinics, and early childhood intervention programs to reduce infant mortality, or
• Initiatives aimed at innovation in advanced health care sciences and comprehensive chronic disease management services.
7. Education Excellence Fund Art. VII, § 10.8; La. R.S. § 39:98.1 1999 Oversight: Department of Education (DOE)
One-third of all earnings on the investment of the Millennium Trust created with the proceeds from the tobacco settlement agreement flow into the fund. Money in the Fund can be distributed only to elementary and secondary schools for instructional enhancement including early childhood programs for at-risk children, remedial instruction, and assistance to children who fail to achieve the required scores on tests for advancement to a succeeding grade, or other approved programs.
8. TOPS Fund Art. VII, §§ 10.8, 10.10; La. R.S. § 39:98.3 1999 Oversight: Legislature Initially, one-third of the Tobacco Settlement proceeds deposited into the Millennium Trust, and one-third of all investment earnings on the investment of the Millennium Trust, flowed into the Fund. In 2011, a constitutional amendment was passed to require that once the Millennium Trust balance reaches $1.38 billion, 100% of Tobacco Settlement proceeds deposited into the Millennium Trust must be credited to the TOPS Fund. This threshold had already been reached when the 2011 amendment was passed. Money in the TOPS Fund must be used on state financial assistance programs for students attending Louisiana postsecondary institutions.
9. Louisiana Fund Art. VII, § 10.9; La. R.S. § 39:98.4 1999 Oversight: Legislature; Louisiana Department of Health (LDH)
Of the state’s 40% share of the Tobacco Settlement payments, the Louisiana Fund receives 25%.
Money in the Fund may be used on:
• Initiatives to ensure the optimal development of children through educational opportunities and appropriate health care;
• Pursuit of innovation in advanced health care sciences and comprehensive chronic disease management services;
• Capital improvements for state health care facilities;
• Direct health care services for tobacco related illnesses and initiatives to diminish tobacco-related injury and death; or
• Enforcement of the requirements of the Settlement Agreement by the Louisiana Attorney General.
Fund Recommendations: The Education Excellence Fund, Health Excellence Fund, TOPS Fund, and the Louisiana Fund should all be converted to Permanent Trust Funds.
10. Louisiana Education Quality Permanent Trust Fund Art. VII, § 10.1; La. R.S. § 17:3801 1986
Revenue from offshore mineral production and leasing activity received through the Federal Outer Continental Shelf Lands Act flow into the fund.
Funds received are deposited into a Permanent Trust Fund. The Permanent Trust receives and holds 25% of earnings from investment and royalty income and 75% of earnings from net capital gains. Conversely, a separate Support Fund receives and holds 75% of the earnings from investment income and royalty income and 25% of earnings from net capital gains.
11. Louisiana Education Quality Support Fund Art. VII, § 10.1; La. R.S. § 17:3801 1986 Oversight: Department of Education (DOE), Board of Regents
This fund receives and holds 75% of the earnings from investment income and royalty income and 25% of earnings from net capital gains/losses.
Annual monetary allocations are made only from the Support Fund and are split 50-50 between two state agencies:
• The Louisiana Board of Elementary and Secondary Education (BESE) 8(g) Program: Funding for Pre-K through 12th grade education. Funds are awarded to public and non-public school systems and independent schools through block grants and a competitive grant process for programs that improve student academic achievement or vocational-technical skills. DOE also uses some funds for statewide programs that provide goods, services or flowthrough dollars to school systems.
•Board of Regents Programs: The Constitution mandates that funds be used for higher education efforts that enhance economic development. The Constitution and statutes outline four program areas that funds may be spent on: (1) research and development, (2) endowed chairs, (3) enhancement for academic, research, or agricultural departments within community college, college, or universities”, and (4) graduate fellows. The Constitution establishes the four programs but provides the Board of Regents with discretion over sub-programs and annual funding allocations of each component.
Fund Recommendations The Permanent Trust and Support Funds should be converted into Permanent Trust Funds. PAR identified extensive revisions needed for reforming the Regents Support Fund in its 2015 report, Innovation in Louisiana. The Support Fund is widely and thinly spent, does not adequately incorporate business input, and has fallen short of the impact of similar research funding for economic development in other states.
12. Conservation Fund Art. VII, § 10-A; La. R.S. § 56:10 1987 Oversight: Department of Wildlife and Fisheries (LDWF)
The Conservation Fund is made up of a variety of fund sources, including fees, licenses, and permits from hunting, fishing and other activities; royalties paid to the state for the use of state-owned lands; mineral revenues and leases; penalties and fines; and the shrimp excise tax.
The Legislature is required to appropriate money in the fund to the Department of Wildlife and Fisheries, which can then use the money on only two things: (1) “the conservation, protection, preservation, promotion, management, and replenishment of natural resources and wildlife and related research and education” or (2) the operation and administration of the department.
Within the Conservation Fund, there are also more than a dozen sub-funds. While the sub-funds are not created in the Constitution, they are essentially “bootstrapped” to the Conservation Fund and therefore enjoy constitutional protection. Each sub-fund was created for a specific source of revenue, which can only be spent on certain activities related to the source of revenue. An example is the “Derelict Crab Trap Removal Program Account.” The sub-fund consists of funds received from state crab trapping fees, and sub-fund monies can only be used to run LDWF’s derelict crab trap removal program. Today, LDWF’s operations are funded almost exclusively by monies from the Conservation Fund.
The Conservation Fund should become a Program Fund, no longer in the Constitution but protected with a 2/3 legislative vote requirement.
• The fund can operate effectively in statute.
• Case law already requires that fund revenue generated by user fees, licenses, and permits be spent on activities related to the fees imposed.
• A move to statute could improve legislative oversight of the agency and its programs.
13. Artificial Reef Development Fund Art. VII, § 10.11; La. R.S. § 56:639.8 2014 Oversight: Department of Wildlife and Fisheries (LDWF)
When oil and gas companies decommission offshore drilling platforms, they have an opportunity to participate in the state’s Artificial Reef Program, through which LDWF uses dormant rig structures for artificial reef habitats beneficial to marine life. Participating companies are required to deposit into the Artificial Reef Development Fund one-half of the savings realized from moving the structure to a reef site rather than removing the platform in a traditional manner. Fund monies can be used on either the maintenance of existing artificial reef sites or the construction of new artificial reef habitats and other related program expenses.
The fund was created initially in statute in 1986. In 2009, the Legislature began taking money from the fund to fill nonrelated budget shortfalls and drained the fund of approximately $46 million over five years. In 2014, a constitutional amendment was passed granting the fund constitutional protection.
The Artificial Reef Development Fund should be eliminated from the Constitution but should remain in statute as a Program Fund.
14. Hospital Stabilization Fund Art. VII, § 10.13; La. R.S. 46:2901 2013 Oversight: Louisiana Department of Health (LDH)
The fund is part of a funding mechanism in which eligible hospitals are assessed a fee that is then used as a match to draw down federal Medicaid dollars. The federal matching dollars flow back in the form of Medicaid provider rates to the hospitals, which ultimately receive more money than the original assessments. The purpose of the program is to compensate hospitals that are not fully reimbursed for the care they give to Medicaid patients and the uninsured. While many other states use this hospital fee system, Louisiana is unusual in housing this function in its Constitution. The measure was passed as a constitutional amendment rather than in statute to avoid the risk of a gubernatorial veto.
Although approved in 2013, the fund only became active in FY 2017-18 when the Centers for Medicare & Medicaid Services (CMS) approved the formula used by LDH to levy the hospital assessments. For FY 2017-18, both revenues and expenditures were equal to $47,447,375, indicating that all monies that came into the fund were paid out to hospital providers.
15. Louisiana Medical Assistance Trust Fund Art. VII, § 10.14; La. R.S. § 46:2623 2013 Oversight: Louisiana Department of Health (LDH)
Nursing homes, intermediate care facilities for the developmentally disabled and community pharmacies are assessed a charge that is deposited into the fund. That money serves as a state match to draw down federal dollars through the Medicaid program. The Medicaid dollars are used to compensate the facilities for the care provided to those with low incomes and others qualified for Medicaid assistance. The fund was originally established only in statute but was added to the Constitution in 2013 after the federal flowback dollars were often diverted to other state healthcare needs rather than to the healthcare groups that paid the provider fees.
The Hospital Stabilization Fund and Louisiana Medical Assistance Trust Fund should be converted to Program Funds. Despite almost every other state imposing one or more healthcare provider taxes, no other state constitution protects dedicated funds established for this purpose. Additionally, because regulations from the federal Centers for Medicare and Medicaid Services (CMS) impose certain restrictions on the way states may use provider tax revenue, there may be less reason for concern that the state might use the revenue for non-Medicaid related purposes.
16. Mineral Revenue Audit and Settlement Fund Art. VII, § 10.5; La. R.S. § 39:97 1991 Oversight: Department of Natural Resources (DNR)
Money from mineral settlements or judgments of $5 million or more resulting from underpayment to the state of severance taxes or other mineral revenues are deposited into the fund. After required allocations to the Bond Security and Redemption Fund and required allocations to local governments, $35 million must be credited to the Coastal Protection and Restoration Fund. To the extent there is a balance remaining in the fund, the money can only be used for the early retirement of state debt or advanced payments on the unfunded accrued liability (UAL) of public retirement systems.
In 1999, $19.4 million went to the UAL. For bond defeasance, $23 million was used in 2001 and $66.4 million was used in 2003. The fund had an increase in revenue for 2016-17 due to a large, one-time settlement.
The Mineral Revenue Audit and Settlement Fund should be converted to a Program Fund. The Legislature should consider requesting that the Revenue Estimating Conference classify settlements separately to ensure that legislators recognize this is one-time money.
• But for this fund, revenue from mineral settlements or judgments would be treated as mineral revenue. The Budget Stabilization Fund, together with the Revenue Stabilization Fund, are already in place to protect against volatility in mineral revenues by ensuring that during “good times,” a portion of excess mineral revenues are set aside for the “bad times.” In this regard, the Mineral Revenue Audit and Settlement Fund serves no additional purpose. In addition to moving the fund to statute, the statute should also be amended to clarify that interest and penalty revenue from the fund should also be treated as mineral revenue.
• To the extent that the fund serves as a safeguard against the Legislature coming to rely on one-time settlement monies in the state budget, nothing would prevent the Legislature from mandating that any settlement money over a certain amount must be classified by REC as “non-recurring revenue.”
17. Oil Spill Contingency Fund Art. VII, § 10.7; La. R.S. § 30:2483 1995 Oversight: Department of Public Safety (DPS)
Louisiana refineries that store or process crude oil are charged a per barrel fee that is deposited into the fund. In addition to this fee, the fund can receive reimbursements from the National Pollution Funds Center (NPFC) for reimbursable expenses associated with specific incidents as well as monies from responsible parties to reimburse for response, assessment, restoration or monitoring costs associated with an incident. These additional sources of revenue are usually paid after expenses have been incurred on a particular incident. These monies reimburse the state and its respective agencies for agency-specific costs associated with oil spills.
The operations of the Louisiana Oil Spill Coordinator’s Office (LOSCO) are financed through the fund. The money may be used on oil spill prevention and response efforts, including removal costs related to abatement and containment of actual or threatened hazardous material spills; restoration of natural resources; and grants, including for research, testing, and development of discharge and blowout prevention and training.
18. Oilfield Site Restoration Fund Art. VII, § 10.6; La. R.S. § 30:86 1995 Oversight: Department of Natural Resources (DNR)
The Louisiana Oilfield Site Restoration Program was created in 1993 within the Department of Natural Resources to address the growing problem of unrestored orphaned oilfield sites across the state. Orphan wells are abandoned oil and gas wells for which no viable responsible party can be located, or such party has failed to maintain the wellsite in accordance with state rules and regulations. The focus of the program is to properly plug and abandon orphan wells and to restore sites to approximate pre-wellsite conditions suitable for redevelopment.
Revenue for the program is entirely generated from a fee on oil and gas production. The flat-rate fees are deposited to the fund, along with certain fines, penalties and judgments associated with site cleanup activities.
Money in the fund may be used, among other things, on oilfield site assessment or restoration projects on orphaned wells; DNR’s costs associated with administering the program (up to $750,000 per year); and costs associated with response to an oil and gas environmental emergency.
The Oil Spill Contingency Fund and Oilfield Site Restoration Fund should be converted to Program Funds.
• Both of these funds would operate effectively in statute. Additionally, because both are funded by fees imposed on oil and gas companies for the production or storage of oil and gas, there are already limitations that would prevent the fee revenue from being used on unrelated programs or functions
19. Lottery Proceeds Fund Art. XII, § 6; La. R.S. § 47:9029 1990 Oversight: Louisiana Department of Health (LDH); Department of Education (DOE)
Net proceeds from the operation of the Louisiana Lottery — deducting administrative costs and the payment of prizes — are deposited into the fund. In 2003, a constitutional amendment was passed which mandated that the Legislature may only appropriate monies from the Fund (1) to the Minimum Foundation Program (MFP) to fund K-12 education and (2) up to $500,000/year for services related to compulsive gaming.
The Lottery Proceeds Fund should be converted to a Program Fund.
• Because the Constitution already requires that the state fund the MFP, pursuant to the formula adopted by the Legislature (Art. VIII, § 13), there is already a constitutional mandate to appropriate the required amount of state general funds to the MFP. Thus, moving this fund to statute, or even eliminating it altogether, would have no effect on the amount of money appropriated for the MFP in any given year.
• Because the Constitution prohibits any form of gaming or gambling without a vote of the people, removal of the Lottery Fund from the Constitution does not eliminate the need to legalize the state lottery in the Constitution. Language in Article VII, § 6 granting the Legislature authority to “provide for the creation and operation of a state lottery” therefore would need to remain intact to allow the lottery to exist.
20. Patient’s Compensation Fund (PCF) Art. XII, § 16; La. R.S. § 40:1231.4 2011
The Patient’s Compensation Fund was established to ensure that private healthcare providers have affordable and guaranteed medical malpractice coverage and to provide a reliable source of compensation for medical malpractice claims. Healthcare providers in the state pay a surcharge on medical malpractice insurance premiums, which goes into the fund.
Under Louisiana medical malpractice laws, providers who pay into the fund have financial responsibility for the first $100,000 of exposure per claim but are able to use the fund for excess coverage up to the statutory cap on damages.
The PCF was created by statute in 1975 and was originally a budget unit of the state regulated by the Department of Insurance. In 2010, the requirement that the PCF Oversight Board seek spending authority from the Legislature was abolished, and in 2011, a constitutional amendment was passed that made clear that monies deposited into the PCF are not public dollars available for appropriation by the Legislature. The amendment stemmed from concerns that with only statutory protection, the Legislature might raid the PCF during tight budget cycles. Although the amendment passed in 2011, transfer of the existing PCF balance from Treasury to the PCF did not happen until FY 2013-14. Today, the PCF is an off-budget unit of the state that is 100% self-funded and not pooled in the state general fund. But, in accordance with a Cooperative Endeavor Agreement, the state treasurer is authorized to invest a portion of the private money comprising the corpus of the fund.
The Patient’s Compensation Fund should be converted to a Program Fund.
• Funds deposited into the PCF are not state-owned funds, and the state does not make decisions regarding how the funds are spent. Removing the PCF from the Constitution should have no effect on the state’s ability to appropriate from the fund, as current statute already states: “Neither the fund nor the board shall be a budget unit of the state. The assets of the fund shall not be state property, subject to appropriation by the Legislature, or required to be deposited in the state treasury.” (La. R.S. § 40:1231.4) While at least nine states have some type of patient compensation fund, Louisiana is the only state to include such a fund in its constitution.
21. Millennium Leverage Fund Art. VII, § 10.10; La. R.S. § 39:98.5 1999 Oversight: Legislature
The fund was originally established as a vehicle for the state to bond out future Tobacco Settlement payments and invest the proceeds back into the three other settlement funds (Health Excellence, Education Excellence, and TOPS). However, in 2001, the state created the Tobacco Settlement Financing Corporation (Act 1145 of 2001) as a conduit to securitize 60% of the annual revenue payment streams. To date, only the Corporation has been used to bond out future settlement payments, and there is no expectation that the Leverage Fund will be used for this purpose.
Fund Recommendation The Millennium Leverage Fund should be repealed.
22. First Use Fund Art. IX, § 9 1978
The First Use Tax sought to tax the use of natural gas that was produced outside of Louisiana but first used within Louisiana. Proceeds from the tax were to be deposited into the fund. The tax was declared unconstitutional by the United States Supreme Court in 1981 but the fund was never removed from the Constitution.
The law required that 75% of proceeds and interest from the fund were to be divided between three separate accounts: (1) the Initial Proceeds Account for investment only; (2) the Debt Retirement and Redemption Account to purchase, call, pay, or redeem any outstanding bonds or debt of the State prior to maturity; and (3) the Barrier Islands Conservation Account for capital improvement projects to conserve and maintain the barrier islands, reefs, and shores of the coastline. Recommendation Eliminate the fund because it has had no activity since inception. 23. Higher Education Louisiana Partnership (HELP) Fund Art. VII, § 10.4 1991 Oversight: Board of Regents The fund was established in statute and in the Constitution in 1991 as a vehicle for investing private donations, grants, gifts and other monies appropriated by the Legislature in higher education. Money in the fund may be used only on endowed professorships, endowed undergraduate scholarships, library acquisitions, lab enhancement, research and instructional equipment acquisitions, or facilities construction or renovation. No immediate source of revenue was identified when the fund was established in 1991.
The HELP Fund has had no activity and should be eliminated.
24. Agricultural and Seafood Products Support Fund Art. VII, § 10.12; La. R.S. § 3:4712 2004 Oversight: Department of Economic Development (LED)
This fund was originally established to assist farmers and fishermen. Monies received by the state from licensing of trademarks or labels for use in promoting Louisiana agricultural and seafood products are required to be deposited into the fund. Monies in the fund may be appropriated only for programs to assist farmers and fishermen through the support and expansion of their industries.
Recommendation: The Agricultural and Seafood Products Support Fund has had no activity and should be eliminated.
25. Atchafalaya Basin Conservation Fund Art. VII, § 4(D); La R.S. § 49:214.8.7 2012 Oversight: Coastal Protection and Restoration Authority (CPRA)
Fifty-percent of revenues received from severance taxes and royalties on state lands in the Atchafalaya Basin are deposited into the fund after first satisfying required allocations to the Bond Security and Redemption Fund, parish mineral revenue allocations, and other required allocations into the Conversation Fund and Coastal Protection and Restoration Fund. Monies in the fund may be used only for projects in the state or federal basin master plans or to provide matching dollars for the Atchafalaya Basin Floodway System Project. Since the fund’s inception, severance taxes and royalty revenues have not been high enough to trigger a deposit into the fund.
The Atchafalaya Basin Conservation Fund has had no activity and should be eliminated.
26. Tideland Fund Art. IV, § 2(d) (1921 Constitution); Art. XIV, § 10 (1974 Constitution) Oversight: Legislature/Treasury
The fund was established as a result of historical litigation between the state and the federal government regarding ownership of submerged lands off the Louisiana coast that are used for offshore drilling. The fund originally held monies derived from offshore mineral leases and held in escrow under agreement between the state and the United States pending settlement of the dispute between the parties. Money in the fund could only be used to purchase, retire, or pay in advance of maturity the bonded indebtedness of the state which existed at the time the fund was created. If any money in the fund cannot be expended within one year, the Constitution allows the Legislature to appropriate 10% of the remaining funds, up to $10 million per year, for capital improvements or the purchase of land. The current fund balance is zero.
The Tideland Fund should be eliminated.
Since 1997, the only activity in the fund has been an expenditure in 2014 of a remaining balance of $5,000 to pay for state debt service.
27. Louisiana Investment Fund for Enhancement (LIFE Fund) Art. IX, § 10; La. R.S. § 30:302 1981 Oversight: Legislature
This fund was established to siphon off “excess” mineral revenues. Accordingly, the Constitution requires that 50% of all mineral revenues that accrue above a “base” level be deposited into the fund. The original base level was established in the 1974 Constitution, which contains a formula for adjusting the base each year going forward. Money in the fund may be appropriated for any public purpose by a 2/3 vote of each house of the Legislature. The base level of mineral revenue collections has not been reached since fiscal year 1992-93.
The LIFE Fund should be eliminated. The fund has had no activity since 2003- 2004. The current balance is $603.95.
28. State Revenue Sharing Fund Art. VII, § 26 1974 Oversight: Legislature
The Constitution requires that the Legislature appropriate at least $90 million of state general funds annually to the fund. The money is distributed to parishes in proportion to population and the number of homesteads as a means of offsetting parishes’ lost revenue from constitutionally mandated homestead exemptions. Some money from the fund is also distributed to local retirement systems and to local tax collectors in the form of a commission.
Each fiscal year, the Legislature passes a bill appropriating and distributing the $90 million to local governing authorities. (See, e.g., Act 335 of the 2020 Regular Session.) While the distribution formula is based on parish population and homesteads, the bill also includes numerous restrictions on how funding must be allocated among the various taxing authorities within each parish. These taxing authorities include, for example, fire protection districts, school boards, and recreation districts.
After passage of the bill each year, $90 million of state general funds are transferred to the Revenue Sharing Fund and distributed to local governments in three equal installments on December 1, March 1, and May 1. Since the same amount of money comes into the fund and is transferred out to local governments each year, a historical fund balance graphic is not necessary here.
The Revenue Sharing Fund should be gradually eliminated or, at a minimum, revised to require that local governments align their fund expenditures with the collaborative priorities of both state and local interest, such as early childhood education or mental health services. The success of state programs sometimes depend upon local governments’ participation and allocation of resources toward common goals. Direct state support for local governments would have greater strategic impact for Louisiana if the money were spent collaboratively on priorities that create better socio-economic conditions and rankings. Although local governments are allowed to bond their revenue streams from the annual fund allocations, few do so, meaning that an elimination of the fund or a change in spending priorities will not impact specific indebted projects on the local level.
For each of the dedications listed above, the Louisiana Department of the Treasury maintains a separate fund and invests each in a distinct class of assets. However, the Constitution also mandates some dedications of state revenue without creating a distinct fund. In these cases, while getting rid of the dedication in the Constitution would not technically require eliminating an existing fund, it would nonetheless result in more state general fund dollars that the Legislature would have flexibility to spend on current priorities.
Two examples of this type of constitutional dedication without a corresponding fund include the Parish Severance Tax and Parish Road Royalty Fund.
Parish Severance Tax Art. VII, § 4(D); La. R.S. § 47:645 1974 Oversight: Department of Natural Resources (DNR)
The Constitution requires that a portion of all severance taxes collected be remitted to the governing authority of the parish in which the severance or production occurred. The Constitution does not establish a separate “special fund” to hold and distribute these funds to local governments but does establish a mandatory dedication. During calendar year 2018, a total of $45,367,035 was distributed to parishes from general and timber severance payments.
Parish Road Royalty Fund Art. VII, § 4(E), La. R.S. §§ 30:145-46, 47:633.2, 48:484, 56:797 1952 Oversight: Local Governments
The Parish Road Royalty Fund was created in 1952 to pay local governments a portion (1/10th) of mineral lease royalties from state-owned lands, lakes and river beds. In the original 1974 Constitution, the reference to a specific Parish Road Royalty Fund was removed, but the dedication of royalty revenues remained in place. Most royalties are paid directly to parish governing authorities, while some are paid into specific funds or sub-funds established to hold mineral revenues generated in specific geographic areas. The requirement that local governments use the funds on road projects was also removed in the 1974 Constitution, which in its current form allows parishes to use the money on general obligation bonds of the parish or for any other lawful purpose.
During calendar year 2018, a total of $18,271,253 was distributed to local governments, the Conservation Fund (for distribution to geographic sub-funds) and the Atchafalaya Basin Conservation Fund.
Both of these constitutional dedications of state mineral revenues help local governments benefit from natural resources in their parishes since the Constitution otherwise prohibits local governments from imposing their own severance tax. A system to allow local severance taxes would be hard to manage administratively and might also make it harder for the state to incentivize economic development in the energy industry through coordinated tax policies. For these reasons, among others, PAR is not recommending changes to the current system of distributing a portion of state mineral revenues to local governments.