The end is near
Any time major budget cuts for higher education come down the pike, faculty furloughs become a possibility. With that, rumors fly like snowflakes in a blizzard. Such is the case now at LSU, where, according to one administrator who didn’t want to be identified, “people are walking on eggshells.”
But Chancellor Mike Martin—hoping against hope the ultimate numbers will be far kinder than the slash job contained in the governor’s preliminary budget—says no furlough plan is in place, though “everything is on the table” when it comes to dealing with cuts. Faculty Senate President Kevin Cope concurs, though lots of proposals are being floated.
“I can say with certainty there is no particular plan in force yet,” Cope says. “I know for a fact no plan has been adopted.”
Undoubtedly, the nervousness extends across the campus.
At the Paul M. Hebert Law Center, Chancellor Jack Weiss likewise is hopeful that once the dust settles from the Legislative session, the final budget numbers will make draconian personnel adjustments unnecessary.
But there’s no mystery about what will happen at the law school if the news is as bad as it can be: A building-wide furlough of one day every other month will be implemented, from Weiss on down. Also, a “not insignificant number of staff” across every department will have to be laid off.
“It’s a tightrope, if I can put it that way,” Weiss says. “We’re going to keep chugging along and keep churning out really good lawyers, but our upward trajectory will certainly be flattened.”—Steve Clark
Adult swim
Did the Stanford Group’s investment advisers know the CDs they were peddling were shady? A lawsuit filed March 17 in Baton Rouge’s 19th Judicial District Court argues it doesn’t much matter. One way or another, the suit argues, the advisers owe the investors money.
The SEC alleges that the CDs tied to Stanford’s offshore bank in Antigua amounted to a Ponzi scheme. If that’s true—and the advisers knew it—then the advisers were engaged in unfair trade practices, the suit states. If the advisers didn’t know, then they were negligent in failing to perform their due diligence, perhaps because they were blinded by fat commissions.
“As the old saying goes, ‘You never know who is swimming naked until the tide goes down.’ In this case, defendants had been swimming naked by failing to make the necessary due diligence inquiries and defendants had failed to look underwater, in violation of their duty to plaintiffs,” the suit reads in one of its more colorful passages.
A Baton Rouge-based financial expert, who asked not to be identified and did not offer an opinion on the ultimate merits of the case, says the key question might be this: Did Stanford’s people make absolutely clear the controversial [and suspiciously high-performing] CDs were not safe, federally insured investments as CDs typically are? But the adviser stresses that just because the Stanford folks were good salespeople, it doesn’t absolve the investors also from performing due diligence. Several Baton Rouge area attorneys were contacted to comment on the case; all declined because of the highly complex nature of the suit.
While this suit is one of many from Stanford clients, it’s the first to be filed in Louisiana District Court. The plaintiffs represented by Preis Gordon, all Capital Region Stanford clients, are after damages and legal fees from the six named Stanford employees, their liability insurers and bond company. The final price tag won’t be determined until the lawyers take the floor. In the end, there’s at least one group that will win—the attorneys on both sides.—David Jacobs and Olivia Watkins
Banking on healthier numbers?
Louisiana’s rising loan delinquency rate shows the state is feeling the recession and points to a possible foreclosure increase this year, according to the Mortgage Bankers Association’s fourth-quarter survey. Overall numbers still point to a more stable economy based on sounder lending and fewer exotic loans compared to high-foreclosure states like Florida and California.
See some key indicators here.(PDF)—Anna Thibodeaux
Influential women in business
Each year, powerful, dedicated and innovative women throughout Baton Rouge are highlighted in the Business Report’s special issue honoring the most influential women in business. They are small business owners, company presidents, CEOs, CFOs, nonprofit leaders, community activists and entrepreneurs. They are the driving force behind many of Baton Rouge’s success stories—in the front lines of industry, technology and business. Last year’s honorees included Ann Silverberg Williamson, Rannah Gray and Sue Anne Kleinpeter Cox, to name a few.
Beginning Wednesday, March 25, the Business Report will be accepting nominations online at businessreport.com. The awards will be given to those women who are making a noticeable difference in the Capital Region.
More for their money
It seems that the recession is manifesting in strange new ways each day.
There’s been a lot of talk recently about the merits of billing by the hour in the legal profession. Critics argue the practice rewards effort, not results. And a recent New York Times article says the rough economic climate is making clients more demanding, leading firms to rethink their business model. But while the billable hour will probably never die out, it might just be evolving.
“Some clients really do want to build a better legal mousetrap,” says Steve Boutwell, the client services director at Kean Miller.
Boutwell met with Fortune 500 companies in Houston this month to discuss alternative billing arrangements. He says when times are tough, legal fees are one of the first things at which a board of directors looks. Alternative fee arrangements won’t necessarily save the client money, but can they make the expense more predictable.
Kean Miller sometimes offers volume discounts or partnering agreements, whereby the client and firm both have “skin in the game.” But such alternative billing arrangements have been slow to catch on, some say.
“There are some clients who would like a flat fee, but in my experience, I’m seeing the same hourly rates,” says Tim Hardy, a partner in Lemle & Kelleher’s Baton Rouge office. “It’s been more talk than it has been action at this point.”—David Jacobs
Look out below!
The state Mineral Board’s collections have been in slow decline. In December, producers cashed in on only $1.4 million worth of leases, the lowest year-end sale since 2004. January’s sale was the weakest on record for at least the past 13 years. And while the February sale boasted a modest $200,000 increase from the February 2008 collections, it wasn’t much.
This month, as expected, didn’t break the mold. Producers forked over $1.3 million to search the state’s energy leases, the bleakest March total since 2003. Even the state’s offshore leases have sat dormant since January and have been underperforming for a year or better. According to Houston-based Baker Hughes Inc., a respected reporting agency, Louisiana lost three active rigs this month.
When will things turn around? That depends on whom you ask. Predictions range from six months to two years. The simple answer is it’s only a matter of time. Reserves are brimming, and the passage of time will certainly help deplete them. Based on some estimates, there’s about 80 million barrels of oil alone just floating around on the high seas in supertankers waiting for a place to unload. “It’s inevitable,” says Don Briggs, president of the Louisiana Oil and Gas Association. “Depletion will absorb that surplus, and we’ll have a tight market again. There’s no question that it will eventually turn around.”
The economy is also keeping oilmen away from the state’s lease sales, says Robert A. Schroeder of Mandeville, who represents other producers in front of the Mineral Board. For starters, oil prices closed at a record high of $145 a barrel in July and are now around $46. Couple that dismal figure with the lack of investment capital and credit, and it’s no wonder exploration activities are being scrapped or tabled in 2009. “The ability to repay loans and the return on investments are keeping a lot of people at bay. You just can’t do much in those conditions,” Schroeder says.
Help could be on the way in late April. State Sen. Reggie Dupre, a Terrebonne Parish Democrat and chairman of the Senate Natural Resources Committee, says there’s going to be a big push this session to decrease the costs associated with tertiary recovery projects, or what are more commonly known as enhanced oil recoveries. “This is a way the state can regenerate some of these older sites,” Dupre says. “And it will also put Louisiana ahead of the curve.”—Jeremy Alford
Executive Spotlight: Elizabeth “Boo” Thomas
President/CEO, Center for Planning Excellence
Hometown: Abbeville
She walks inside after work and sees the book she was reading, lying in the same spot she left it. She’ll get to that later. First, she finds her battery-powered wine opener. Ingenious idea, she thinks to herself. She pours a glass of Chardonnay. The cool, curvaceous bottle feels good against her palms. Elizabeth “Boo” Thomas has spent the day overseeing strategic community development plans for Baton Rouge. She has high hopes for the capital city. Tomorrow, she’ll be back on the grind. But for now, she finds the perfect spot outside, kicks up her feet and finds the place where she left off in her book.
Want to find out more about Thomas? Read the rest of her profile Q&A here.
Book Review: Bernanke’s Test
Author: Johan Van Overtveldt
Publisher: Agate B2
Year: 2009
Pages: 287
You walked into the living room last night and felt terror. Wide-eyed, you couldn’t bear to approach the television. You were suffering from remotophobia.
Remotophobia: that fearfully sick, averse feeling you get when you use your TV’s remote control. With one click, you turn on the national news, and the ailing economy is all over the screen.
You don’t need to be reminded.
It’s easy to point fingers. There are scapegoats everywhere, but blaming isn’t fixing. So how did this happen, and what can be done? Read Bernanke’s Test by Johan Van Overtveldt, and things might be clearer.
Reading, at times, like a stiff college thesis, and suffering sorely from the lack of a glossary, Bernanke’s Test is not one of those books you can breeze through in a weekend. It’s cavernously steeped in politics and high-level finance and takes some extremely serious thought to understand.
Having said that, this is an essential book. Author and think-tank director Van Overt-?veldt explains the Fed in a way that’s as lively and easy to understand as it can be. Though I was occasionally discombobulated, I did get caught up in the drama that Van Overtveldt promises in his subtitle, Ben Bernanke, Alan Greenspan and the Drama of the Central Banker.
Though sometimes difficult to understand, this is a book that all Americans—all homeowners, anyone with a 401[k], anyone who’s employed—should at least attempt to struggle through. Bernanke’s Test is a book you cannot pass up.—Terri Schlichenmeyer
Fast Forward: Check on priorities
The Employee Free Choice Act, also known as the “card check” bill, was reintroduced in on the U.S. House and Senate on March 10. The measure, which would make it easier for unions to organize, passed the U.S. House in 2007 but stalled in the Senate. As explained in an Oct. 20, 2008, Business Report story, “A more imperfect union,” and the Nov. 17 story “State of the unions,” supporters were hoping to build a filibuster-proof, 60-vote majority of senators in the 2008 elections.
If Democrat Al Franken becomes Minnesota’s newest senator, as expected, and unions hold the votes they got last time, EFCA will pass, and President Obama says he’ll sign it. But several former co-sponsors, like Sen. Mary Landrieu, are wavering. It was easy for Landrieu, a Democrat in a conservative state, to vote for a bill she knew wouldn’t pass, then bank on union support in her re-election. Now the political equation has changed, and business lobbyists have made beating “card check” a priority.
“The national union hierarchy is throwing workers under the bus for their own purposes,” says Jim Patterson, Louisiana Association of Business and Industry’s vice president of government relations.
Opponents say they’re defending democracy for workers, claiming the EFCA would strip away employees’ right to a secret ballot and force them to sign a card in front of intimidating union goons. In reality, EFCA would let workers choose between card check or a secret ballot election, a choice that now lies with employers.
Unions argue, with ample justification, that workplace elections are rife with employer intimidation. But during a recession, their best pitch might be the claim that stronger unions equal better pay, better health care and a stronger middle class.—D.J.
Fortnight March 25 – April 7
March 25 – The national economy might be down, but that doesn’t mean it’s time to quit pushing your brand or your career. The LSU MBA Spring Training session, “How to Market Yourself in a Down Economy,” will be held at 4:30 p.m. at the Faculty Club. Guest speakers Kerry S. Sauley and Dek Terrell will discuss finding opportunities in Louisiana and building optimism. For more information, visit bus.lsu.edu.
March 26 – The third annual Louisiana Groundwater & Resource Symposium kicks off two days of forums and discussions on technical, policy and historical information on Louisiana groundwater and water resources. Industry experts will gather at LSU’s Energy, Coast & Environment Building. For more information, contact dcarlson@lsu.edu.
March 28 – On this day in 2001 – On this day in 2001, former Sen. James David Cain backed down from an attempt to “aggravate the ACLU,” he said, with a bill that would have contradicted the Supreme Court’s decision to exclude formal prayers from public schools. Cain said he knew the legislation wouldn’t pass, but that it was merely a stunt to irritate the issue’s opponents.
March 31 – American Majority Louisiana provides an opportunity at an 11 a.m. luncheon at the Baton Rouge Area Foundation headquarters for community leaders to become more engaged by building coalitions, organizing meaningful events, getting involved in political campaigns and utilizing new media. For more information, contact Jacob Luneau at Jacob@americanmajority.org.
April 4 – On this day in 2005 – On this day in 2005, U.S. Rep. Charlie Melancon, a Napoleonville Democrat, said he would propose tax breaks for individuals and companies that helped to restore Louisiana’s coast—a measure that was too late to help protect Gulf communities from the wrath of hurricanes Katrina and Rita in the following months.
April 5 – On this day in 2005 – On this day in 2005, the cost of crude oil came in at $58 a barrel, and experts predicted that prices would only increase as demand remained high and supply low. They were right—at least through last year. In March 2008, the price of crude was more than $100 a barrel. Crude now sells around $47 a barrel.
Business of Politics
Fysics or phootball?
Rep. Rickey Hardy, a Democrat, wants the Board of Elementary and Secondary Education, the state’s top school board, to require public school students in grades 6 through 12 to maintain a 2.0 grade-point average to play sports and participate in extracurricular activities. Students already must make a 1.5 GPA to play football or volleyball, but there are no requirements to join Key Club or run for student council.
Hardy’s House Bill 47 is a copy of similar legislation he pushed—and the House Education Committee shot down—during the 2008 regular session. But with Baton Rouge making the final term on its own GPA upgrade, Hardy might have a new argument to make. In fact, the Louisiana High School Athletic Association polled the issue through its Web site in November. More than 26,000 Internet votes were cast, with 58% of participants in favor of raising the state’s GPA requirements.
When educators attack
Gov. Bobby Jindal wants to stuff Louisiana’s colleges and universities into a time machine and turn the dial back to 1999. At least that’s how LSU Chancellor Michael Martin described Jindal’s executive budget, which assigns about $219 million worth of cuts to higher education. “It will be like the flagship agenda never happened,” Martin says. “The cut will likely cause us to fall back to where we were eight or 10 years ago.”
Some education officials contend Jindal’s time machine will reach even further back. McNeese State University President Bob Hebert, for instance, says the scheduled cuts are similar to those doled out during the early 1980s. “For a decade following the cuts, we continued to pay the price because of the loss of programs, deteriorating buildings, negative impacts on recruiting, retention, and graduation rates,” Hebert says, predicting a similar path should Jindal’s budget stay intact.
University of Louisiana at Lafayette President Joseph Savoie is lobbying the business community. He argues that ULL attracts roughly $50 million in external research funding each year. “That money is used to pay salaries,” he says. “It is used to purchase equipment, supplies and services. So, when the university’s research budget is cut, the Acadiana and state economies feel the sting.”
To help soften the blow, Jindal has directed roughly $99 million from the state’s remaining surplus to be used for infrastructure projects at the state’s two-year and four-year colleges.
The money will be used on projects that are already planned or under way. Some of the Baton Rouge cash includes $11 million for a research building at Pennington Biomedical Research Center, $3 million for LSU’s band hall and nearly $3 million for a water system at Southern.—J.A.
Better than you!
Mayor Kip Holden says it was awkward for Gov. Bobby Jindal to reject federal stimulus money after Louisiana legislators announced the state needed the cash. Holden told the Baton Rouge Press Club that he “would have been a lot more diplomatic.” Holden says refusing the money could also doom Louisiana’s smaller towns without help in a tougher economy. “I would hope that the governor will revisit his thoughts on this whole package,” he says. “We can’t afford to lose hundreds of millions of dollars with this state on the edge of a financial crisis.” Jindal has said he plans to turn down $98 million in stimulus money, set aside for expanded unemployment coverage. Holden says the Legislature could still pass a measure to override Jindal and take the money.
The mayor also hopes to land some stimulus money to help lower the price tag of a bond proposal planned for the October ballot. Potential stimulus funding for the project should be identified by June, he says. The Audubon Alive project will be in the new package. Holden says he’s working on generating community support. An additional project is being considered, but the mayor declined to name it at this time.—A.T.
Intangibles
During a time when Louisiana’s public universities are sweating over big budget cuts looming in the next fiscal year, the state Department of Revenue wants schools to pay back taxes it says are owed on student meal plans. Apparently an exemption on the tax was removed years ago, and no one noticed until now. LSU would have to pay $750,000 in back taxes on meal plans, though the university sees things differently.
In a Jan. 28 letter to the revenue department, LSU System general counsel Ray Lamonica questioned the department’s characterization of meal plans that constitute “tangible personal property” and are thus taxable under statutes. The legal definition of tangible personal property includes “personal property which may be seen, weighed, measured, felt or touched, or is in any other manner perceptible to the senses.” LSU’s meal plan doesn’t qualify, Lamonica argues, since it is only “an intangible right to obtain future meals”—something that can’t be “seen, weighed, measured, felt or touched.” Lamonica says he hasn’t received a response from the revenue department and doesn’t know when to expect one.—Steve Clark
ONTHEBEAT
No landlines: Fifteen percent of Louisiana households only have cell phones, according to estimates from the National Center for Health Statistics. That put Louisiana 27th on a list of cell-only households by state. Oklahoma had the highest level, with 26.2% not having a landline. Vermont had the lowest number of cell-only households at 5.1%.
Get low: A new report says Louisiana puts a low tax burden on businesses. Taxes gobbled up 12.22% of business profits in 2006, compared with the national average of 16.7%, says Anderson Economic Group, a Michigan consulting firm. In 2005, taxes took up nearly 19% of Louisiana business profits.
Border crossing: Izzo’s Illegal Burrito is set to open its first locations outside of Baton Rouge in the next few months. Franchise locations will open in Metairie, Lake Charles and Lafayette. Ozzie Fernandez, who co-owns Izzo’s, says the chain has been trying to get into metro New Orleans and Lafayette for several years now.
Farewell Corky: Corky’s Ribs & BBQ has closed its location on Siegen Lane. The Memphis, Tenn.-based restaurant, which was attached to the Days Inn, had been open since February 2006. Dr. Gary Jones, an Alexandria heart surgeon, owned the franchise.
Aversion to plastic: A new report on credit card debt found Louisiana residents are carrying a lower balance than the national average. According to TransUnion.com, the average Louisiana resident had $5,016 in credit card debt during the fourth quarter of 2008. That put the state 41st in terms of average balances. The national average was $5,710 in credit card debt.
Happy days: A new survey shows that people who live in the 6th Congressional District are happier and healthier than the national average. The ongoing Gallup-Healthways Well-Being Index found that the 6th District scored a 64.3 on the well-being index, compared with the U.S. average of 63.8. The index measures 1,000 Americans a day, asking them about their physical, mental and social well-being.
Game on! Nerjyzed Entertainment is teaming up with a Texas firm to publish, distribute and market its BCFx video game. Aspyr Media will work with Nerjyzed to make the black college football game available this spring for a variety of consoles. Jacqueline Beauchamp, co-founder and CEO of Nerjyzed, says the company had to work with Aspyr because it isn’t a certified publisher for systems such as Xbox 360.
Redistribution of faith: A new survey shows that Louisiana had the biggest percentage drop since 1990 in the number of Catholics, but saw the largest increase in members of other Christian groups. According to the American Religious Identification Survey of more than 54,000 people published in USA Today, Louisiana was one of two states to show an increase in Christians between 1990 and 2008.
Soft market
Available sublease space spiking to a level not seen since pre-Hurricane Katrina indicates recessionary worries are softening the Baton Rouge office market, according to some experts. Branon Pesnell, an associate broker with Beau Box Commercial Real Estate who closely follows the Capital Region market, estimates nearly 100,000 square feet has become available in the past 30 days—and there’s little to no demand for it. Some of the space was created by Raising Cane’s moving some of its operations to Dallas as well as by companies, such as Regions Bank, consolidating offices.
“I don’t think Baton Rouge has anything wrong with the market,” Pesnell says. “I think the national economy and news has everyone here scared to do anything. People are constricting what they have, trying to save money in a reaction to what they’re hearing.”
Pesnell anticipates rising available space combined with sliding rental rates to cause a shift in favor of tenants later this year. He projects as much as a 10% decline in rental rates—or to pre-Katrina levels—if the recession lingers.—A.T.
Fresh face
A 7,200-square-foot office building at Florida and Wooddale boulevards is the first new structure to open in a new overlay district. R.K. Mehrotra and his wife own the building, which is home to his State Farm insurance office. “I wouldn’t want to be anywhere else,” says Mehrotra, who for the past 11 years had an office behind his current location. “This used to be the business district of Baton Rouge, and it has been very good to me.”
The overlay district, which was adopted in February 2008, runs along Florida Boulevard from North Foster Drive to Flannery Road. The regulations cover a number of design issues, from landscaping and building materials to requiring monument signs. Kyle Kramer of Fusion Architecture, who designed the building, says the standards added about an extra 1% or 2% to the cost of the $750,000 structure. “We had to do a little more landscaping, but it wasn’t much of an impact,” Kramer says.
Mehrotra, who has 4,200 square feet of lease space in the building, says he hopes other businesses are inspired by the standards. “You look at Louisiana Office Supply and Hollingsworth Mazda—there are a lot of things going on in this area,” he says.—Timothy Boone
Redevelopment authority
The new owner of the former Living Foods building says he’s about 60 days away from deciding what to do with the Perkins Road property. Ken Jacob bought the 2,300-square-foot building for $300,000 in a deal that closed Dec. 30.
Since purchasing the store, Jacob has hired Brown Studios as the architect. “They’ve come in and measured the building, and they’re coming up with some concepts,” says Jacob, president and CEO of Cajun Industries. The architects should come back with some recommendations in 60 days. “The building is going to remain commercial. We know that,” Jacob says.
Living Foods is next to the former Perkins Road Hardware site, which is undergoing an extensive redevelopment as a mixed-use building with commercial and residential space.—T.B.
