The Jindal administration will have to reduce spending for the next seven months by $171 million after the state officially on Friday recognized that revenues would not be as high as anticipated.
Commissioner of Administration Kristy Nichols said she already is working with agencies to come up with ways to reduce spending enough to balance the budget. She doesn’t expect to have to only slash spending for services to meet the entire amount. An existing freeze on nonessential spending should help some.
But Nichols said she hoped to have a plan ready by next Friday that would include cuts to some services, locating additional monies and getting rid of some unfilled jobs.
“I’m not anticipating any layoffs, and we’re not having those discussions,” Nichols said.
The Revenue Estimating Conference, which Nichols chairs, heard testimony from two state government economists before ruling without objection to take the lower and more optimistic estimate of $171 million less than the originally anticipated $10.6 billion in collections from taxes, fees, royalties and other revenue sources. It’s a drop of about 1.9 percent for the remaining months of fiscal year 2015, which ends on June 30.
The economists said a dramatic drop in the price of oil would reduce the amount of royalties and severance taxes the state could collect. Sluggish returns in personal income tax and sales tax receipts also played a part in the new figure.
The four-member REC includes the governor’s commissioner of administration, the Senate president, the House speaker and an independent LSU economist. Their finding sets into motion the procedures that would allow Gov. Bobby Jindal to do what is necessary to balance the budget with the new revenue projections.
The findings will be presented next week to legislators, who will be asked to officially certify the reduced revenue figure. Jindal then has 30 days to come up with a plan to balance.
The REC also cut $201 million from the $8.9 billion projection of revenue collections for the fiscal year 2016, which begins July 1. When the Legislature convenes in 2015, it will have to tackle a budget that has $1.4 billion less money available to pay for services at their current levels.
Senate President John Alario, R-Westwego, said both forecasts were relatively close and based on conservative assumptions. He backed the lower one to keep from having to immediately cut services.
“If you make the cuts now, you can’t uncut them,” Alario said.
Greg Albrecht, an economist working for the Legislative Fiscal Office, calculated that the state would collect about $171 million less than anticipated when this fiscal year’s budget was passed.
He estimated the price of oil, which hovered over $100 a barrel when the state budget was drawn for fiscal year 2015, would drop so low that when prices were averaged through the year, a barrel of oil would cost $81.33. That translates to about $93 million less in royalties and severance taxes. The budget originally was constructed using a $95.80 price.
Additionally, Albrecht calculated that individual income taxes would be $63 million less than overly optimistic prediction of $2.9 billion.
“This economy is growing. Why we don’t have more responsiveness in tax receipts is a bigger question that we’re struggling with,” Albrecht said. One reason could be that tax credits and tax cuts have negated any increases created by Louisiana’s slow but steady economic growth, he said.
Manfred Dix, the economist for the Division of Administration, estimated the shortfall would be $226.9 million. He put the price of oil at $87.49 per barrel, saying he factored in the findings of some of the financial analysts who predicted the prices would rebound. However, Dix said the numbers suggested that individual income tax receipts would come up $130.8 million shy of the original predictions. Dix said though the economy was growing, it was not fast enough to meet the predictions.
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