NEW ORLEANS -- Attack ads began airing in earnest in the last two weeks of November as the heated runoff election for Louisiana’s open U.S. Senate seat approaches on December 10. In one, Public Service Commissioner Foster Campbell, D-Shreveport, accuses opponent John Kennedy, R-Madisonville, of selling out the state to Wall Street banks.
Kennedy is serving his fifth term as Louisiana State Treasurer, which also makes him the head of the Louisiana Bond Commission. It is the state agency that signs off on all state debt and what it’s used for.
A TV attack ad that the Campbell campaign has been running in the New Orleans market takes aim at Kennedy’s attempt to brand himself as an anti-tax and spend conservative.
The ad's claims are based on a legislative audit published in February 2016 on the impact borrowing will have on the state's future finances.
The report, titled, “Impact of Borrowing on Activities on Louisiana’s Future Financial Resources,” details financial moves made in 2014-2015 to balance the state’s massive budget deficits.
Auditors found taxpayers will have to pay $230 million more in interest over the next 20 years because of those financial decisions.
“Kennedy let Bobby Jindal borrow a half-billion dollars”—Campbell campaign ad
WWL-TV conclusion: VERIFIED
The campaign ad accuses Kennedy of “letting” former Gov. Bobby Jindal borrow half a billion dollars in order to plug the state’s budget gaps as an upward-scrolling ticker climbs to $540,709,090 on the screen.
That one sentence contains two claims: did the state borrow half a billion dollars under Gov. Jindal and did Kennedy “let” him do it?
The legislative audit report on borrowing says under Jindal, the state borrowed $545 million dollars to help plug the state's recurring budget deficits, making the dollar figure in the ad true.
Whether Kennedy “let” him do it requires a more complicated answer.
In 2014-2015, the Jindal Administration requested that the bond commission make two separate financial maneuvers in order to lower the state’s deficit without raising taxes.
“The Commission, as permitted by the Capital Outlay Act, approved the use of $210 million in bond premiums from fiscal years 2011 through 2016 to make debt payments, which reduced General Fund deficits. As a result, the state will have to pay back this amount with an additional $71 million in interest over the next 20 years without the added benefit of long-lasting capital improvements,” the report reads.
When the state borrows money, it does so by issuing bonds. When market conditions are favorable and the bond’s coupon rate (like an interest rate) is higher than prevailing interest rates, the state makes a premium on the bond.
Economic experts say sound economic policy is to use bond premiums to finance capital projects, such as building roads or bridges, for example.
“What they did was basically take that money and use it to pay off an obligation in a way that reduced the current deficit,” said Dr. Walter Lane, Chairman of the Department of Economics and Finance at the University of New Orleans.
Because that money isn’t available to fund infrastructure projects in the future, the state then has to borrow more money to pay for them, ultimately costing the state more money.
The legislative audit report says the commission never formally voted on how to use the premiums.
“The Commission, as required by legislation, approved the use of $335 million in non-recurring revenue to defease bonds. These defeasances allowed the state to reduce its required debt payments in fiscal years 2015 and 2016, which reduced General Fund deficits. However, the state could have saved $160 million in interest by directly allocating this revenue for capital outlay projects,” the report reads
As chairman of the bond commission, meeting minutes show Kennedy did object to one aspect of the restructuring.
“The bond commission did it anyway because as long as I've been state treasurer, the governor basically controls the bond commission," Kennedy said.
“I don't think he has very much to say about it. I think the treasurer administers it, but I don't think he's the ultimate decision maker,” Lane said.
Campbell counters that as the head of the commission, Kennedy could have kept the restructuring off the agenda, preventing the committee from taking action. But Kennedy responds that he has never kept anything off the agenda that had a completed application.
Who gets paid in the process? Lane says the bond buyers do.
“Yes, it’s Wall Street, but that's who buys most of them. That's who the big lender is. It's like saying I'm gonna borrow money. Who are you gonna borrow money from? I'm going to the bank, surprise, surprise,” Lane explained.
“Thanks to Kennedy, taxpayers are paying $786 million to Wall Street banks.”—Campbell campaign ad
WWL-TV conclusion: VERIFIED
The campaign ad cites the legislative audit report in making that claim. According to the report, the cost of the bonds, plus additional costs associated with the financial maneuvers and the possibility of higher costs associated with a potential downgrade in Louisiana’s credit rating mean the state could pay up to $786 million to banks in the long run.
“The big banks made millions while we lost hospitals and schools.”—Campbell campaign ad
WWL-TV conclusion: QUESTIONABLE
The audit report shows banks and bond holders did make millions in the bond restructuring completed during the Jindal Administration while Kennedy was the head of the bond commission.
Did Louisiana lose hospitals and schools at the time?
Jindal did close Huey p. Long Hospital in Alexandria at the time as a cost-saving move, but the state didn't "lose" any schools.
Despite massive cuts to education, a spokeswoman for the La. Department of Education confirmed no schools, elementary, secondary or colleges and universities, closed as a result of recent budget cuts.
“Grateful financiers and Wall Street lobbyists gave Kennedy hundreds of thousands for his campaign.”—Campbell Campaign ad
WWL-TV conclusion: VERIFIED
The ad cites an analysis done by Followthemoney.org, a money-in-politics watchdog website.
The $250,000-plus dollar figure in the ad includes campaign contributions to Kennedy from all financial services companies dating back to 1999.
In the 2016 race for the U.S. Senate, financial services companies have given Kennedy $49,500 in campaign contributions.
Political action committees, or PACs, have played a significant role in the financing of the race as well.
PACs don't have to reveal their donors, making it tough to tell who all is really bankrolling them.
Conservative PAC Ending Spending Action fund alone has spent more $2,871,290.27 supporting Kennedy, according to campaign finance data from the Center for Responsive Politics.
That same data shows the democratic-leaning Defend Louisiana PAC has spent nearly $248,678 supporting Campbell.
“John Kennedy sold us out to Wall Street.”—Campbell campaign ad
WWL-TV conclusion: YOU DECIDE
At the end of many of Campbell's campaign ads, the candidate fires off a shotgun adding that he approved the message. It's a Federal Election Commission regulation that requires disclosure of who paid for the ad.
As for the shotgun, Campbell's campaign confirms he owns at least 37 of them.