Louisiana will borrow up to $400 million from two banks to lessen a state government cash crunch and help keep bill-paying on track at state agencies.
The Bond Commission agreed without objection Thursday to the short-term loans, which will be drawn down as needed and must be repaid by August 2017. Gov. John Bel Edwards' administration, Treasurer John Kennedy and legislative leaders all sit on the commission and agreed to the transactions.
The state's financial adviser, Renee Boicourt with Lamont Financial Services Corp., estimated Louisiana will need to tap into $300 million of the loans by the end of October for cash flow across departments.
The loans, from U.S. Bank and J.P. Morgan, are likely to cost the state at least $1.3 million in interest and other fees — and up to $1.6 million, depending on how much money is borrowed. Proposed repayment of the loans would be in three monthly installments, beginning in June, though some lawmakers hope to pay off the loans earlier.
Louisiana last took out a similar short-term loan nearly 30 years ago, according to Kennedy, though local governments regularly use the approach. The maneuver, state officials say, is needed because Louisiana has fewer reserves to use after years of budget raids.
Tax collections, fees and other payments to state coffers tend to be back-loaded, with most of them arriving in the second half of the state's budget year. Until those payments roll into the treasury, the state usually borrows from its own savings accounts.
But former Gov. Bobby Jindal and lawmakers drained many of those accounts to patch together prior budgets, and that left the state with about $3 billion less in treasury reserves for short-term borrowing.
For example, Senate Finance Chairman Eric LaFleur, D-Ville Platte, noted the state used to have about $300 million in unspent cash that rolled over from year to year. Former Gov. Bobby Jindal's administration identified that cash cushion as a surplus and, with the Legislature's approval, used it to plug holes in the budget.
"That is why we are here today for the most part," LaFleur said. "We blew it all, and we all voted for it."
House Appropriations Chairman Cameron Henry, R-Metairie, said he expects Louisiana might need to take out a similar cash-flow loan in the next budget year as well. Meanwhile, the Edwards administration is looking for ways to shrink some upfront state expenses.
One of the state's larger early expenses is the payment to the private managers of the charity hospitals, clinics and patient services previously operated by LSU. Edwards' top budget adviser, Commissioner of Administration Jay Dardenne, said the state has been paying 80 percent of its more than $1 billion budget for the privatization deals by October.
"We're going to change that," Dardenne said. "I've notified the partners."