The state’s operating budget for the fiscal year that begins Friday is balanced for the time being.
By mid-August, however, the state could be short a couple hundred million dollars because lackluster of tax collections. State government also may need to take out a “pay day”-style loan to cover bills until expected revenues arrive.
All this anxiety was voiced during a hearing that led to the approval to use the $371.4 million in taxes and fees raised by legislators during the two most recent legislative sessions. Much the money already is dedicated to specific uses, leaving only $126.2 million available for spending for everyday expenses, the Revenue Estimating Conference ruled Thursday.
The four-member REC must “recognize” the money before state government can add it to the $25.9 billion spending plan for the next year. Gov. John Bel Edwards is expected to sign, within the next day or two, the legislation that authorizes state government to spend the money.
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REC Chairman Jim Richardson, an economist who also teaches at LSU, raised the possibility that last year’s budget — the one that ended Thursday — could be about $200 million short once all the revenue is collected. “Revenues have just not come in as they should,” he said.
Greg Albrecht, the Legislature’s chief economist, couldn’t provide much comfort. He said that while taxes were raised, a number of the sales tax increases from earlier in the year were rolled back or changed, plus how some tax breaks were handled were reworked. Just how much money would be collected from this milieu is indeterminable, at least for the time being.
“It was a lengthy list of corrections,” Albrecht said, adding a couple months more are needed to see how the tax collections go.
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That’s the uncertainty Richardson was addressing, said Commissioner of Administration Jay Dardenne, the chief budget architect for the Edwards administration.
“There is still money coming in. The question is will it be enough to avoid having a shortfall in the fiscal year that’s ending. If it doesn’t come at the level we’re hoping, we could end up with a deficit,” Dardenne said.
Legally, if Fiscal Year 2016 is short, then those expenses must be paid with the money set aside to provide services for the next 12 months.
Another separate issue is the possibility that state government will have to take out a short-term loan in a few months to cover bills as they become due.
Agencies whose money doesn’t arrive until later in the year routinely borrow from funds whose money from fees and other sources are received earlier. The agency must repay the loan by the end of the fiscal year. It’s called interfund borrowing.
But those reserve funds are so depleted that interfund borrowing as a source of ready cash is all but tapped out. The administration is concerned about having enough cash on hand to pay bills when they become due.
This time last year the amount available was down about $151 million. Now, it’s $1.5 billion off.
“That’s a whole different story,” said Ron Henson, first assistant state treasurer. “That’s an awful lot of ground that has to be made up. We are concerned about it.”
Dardenne said the state’s low credit rating would keep the administration from selling bonds on the open market — the most common and cheapest way for government to raise money. Instead, government would likely take out a short-term conventional bank loan to cover the bills. But the loan would be repaid as soon as the revenues arrive.
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“It sounds like a ‘payday loan’, doesn’t it? It’s short term, we know the money is coming. It’s unfortunate but we really don’t have any other choice,” Dardenne said, adding that the size of the loan and when it would become necessary is dependent on many factors that will change in the coming weeks.
Because legislators approved about half of what Edwards said would be needed to fully fund government services, the state budget that goes into effect Friday will include less money, therefore a reduction in services, for K-12 schools, LSU’s medical schools in New Orleans and Shreveport, state museums, prisons, the governor’s office, the Legislature, the judiciary, schools for the deaf and visually impaired, the attorney general’s office and dozens of other programs.
The Legislature raised enough to fund only 70 percent of the popular Taylor Opportunity Program for Students during the coming school year. The 70 percent TOPS funding will force each LSU student who gets the aid to pay about $2,100 in tuition next year to make up the difference.