State legislators said they hope that the solution — which calls for spending money meant for an old set of projects on newer ones instead — will head off a potential problem with the Internal Revenue Service. The IRS requires that money raised from the sale of tax-exempt bonds be spent within a certain period of time, tax attorneys said.
How to spend that bond money in the upcoming year is now in the hands of state lawmakers, who have been doing their best not to draw attention to the problem. The plan calls for taking $70 million that was supposed to be used for dozens of older projects and spend it on $70 million of new or existing projects in the next year. The old projects would be next in line for funding.
Members of the House Ways and Means Committee on Thursday made changes meant to ensure that funding isn’t jeopardized for the older projects, which in some cases have been delayed for years. Then they approved House Bill 2, which authorizes state construction funding, without any legislators requesting an explanation during the hearing.
Their changes mean that money will be delayed a bit longer for dozens of projects that have been delayed for years due to logistical and legal reasons. Among them:
$572,000 for a chiller at Delgado Community College in New Orleans, which was earmarked in 2010.
$580,000 for ramps at the Danziger Bridge in New Orleans, allocated in 2004.
$123,000 for the Northeast Louisiana Delta African American Heritage Museum, which was funded in 2001.
At issue is how Louisiana finds millions of dollars each year to build and upgrade state hospitals, roads, sewer systems and the like. Rather than pay for the projects with tax revenue that flows into the state treasury every year, Louisiana — like other states and local governments — borrows the money from private investors by issuing bonds. The state typically pays off those bonds over a 10- to 20-year period.
In some cases, the projects financed with those bonds have been delayed — such as when contaminated soil is found on a site or the state can’t secure rights to all of the property. The Division of Administration has failed to adopt alternate plans, leaving the money unspent.
Officials Worried about Violating IRS Rules on Bonds
In separate interviews, Senate President John Alario and House Speaker Chuck Kleckley told The Lens before Thursday’s committee vote that they expect the Legislature to pass HB 2 in a way that cures the problem.
The Lens asked Alario, R-Westwego, if the state had run afoul of the IRS’ rules by failing to spend the money on the prescribed projects. “That is the issue,” he said. “The IRS has some rules about issuing bonds and holding onto the money.”
Kleckley, R-Lake Charles, said, “It’s important for all legislators to get the problem solved” because “of the potential of losing the tax-exempt status.”
Tax attorneys consulted by The Lens said it’s more likely that the state would pay a penalty if the IRS determined that Louisiana had violated rules for tax-exempt bonds.
The state has already had to make a payment in a related instance. The state (had to pay $6.69 million) (https://www.documentcloud.org/documents/1156962-treasurer-office-treasury-state-la-us-20140508.html#document/p1/a157508) to the IRS last year for earning too much interest income on unspent transportation bond money from 2006-11.
Benjamin Huxen, deputy executive counsel for the Commissioner of Administration, downplayed the concerns in an interview, saying the state has been spending proceeds from tax-exempt bonds on schedule.
“There’s no issue with that at all,” Huxen said.
That’s the opposite of what Mark Moses, who oversees how bond money is spent by the Division of Administration, told the House Ways and Means Committee on April 28.
“We had those old projects that had bond proceeds that weren’t spent timely,” Moses told committee members.
Huxen described the effort to shift money within the state construction budget as “something we do every year.”
That’s partly true, based on The Lens’ review of HB 2 as originally filed this year and similar bills approved during the past three years. This year, the number of projects to be shifted took up 23 pages; they weren’t longer than three pages in the other bills.
“We have reappropriated funds from existing projects to a greater extent this year than in past years,” Moses told the committee. He added that in prior years, the state shifted money when it had leftover money after finishing a project. Now state officials want to shift money away from projects that haven’t been completed.
The projects to be shifted in HB 2 show that the state has failed to spend bond proceeds as far back as 1994 – when Edwin Edwards was governor – but it’s happened more frequently since 2008, under Gov. Bobby Jindal’s watch.
Read the original and the rest of the article by Tyler Bridges on The Lens.