Continuing low oil prices, while a boon for drivers, mean state government again must readjust its finances in the middle of the fiscal year; and they mean probable cuts — up to about $300 million — in state funding for colleges and universities next year.
Kristy Nichols, the governor’s budget architect, said Thursday that the exact numbers are still being calculated, but her best guesstimate is that the Jindal administration, which went through a similar $180 million exercise a couple months ago, will have to find another $50 million, perhaps $100 million, in cuts and other adjustments this month to balance the budget year that ends in June. The state’s colleges and universities were shielded the last time and hopefully won’t lose state funding in this latest round of budget adjustments.
But the low oil prices also mean less state revenues for fiscal year 2016, which starts July 1, and that’s likely to mean cuts to higher education.
“At this point now, midyear, we’re at a wait-and-see posture,” said Nichols, the state’s commissioner of administration. “Next year is a bit different. The gap that we are trying to solve for, especially in light of the adjustment for oil prices, simply requires that everyone is going to have to see some reductions. There’s simply no way around it.”
Nichols’ aide Meghan Parrish said the administration is looking at $200 million to $300 million in cuts for higher education institutions, but the actual number depends on how a lot of things play out.
The governor’s budget recommendations for fiscal year 2016 are due to lawmakers by Feb. 27. Legislators will work on a final version of that 2015-16 budget during their next regular session, which runs from April until mid-June.
Senate President John A. Alario, a member of the four-member board that determines how much money state government has available to spend, says the word he is getting — as the fiscal staff and state economists run the numbers — is that a readjustment for this fiscal year is necessary. But the market for oil continues to slump, and that spells danger for higher education budgets.
“I’m afraid, if it’s big enough, there won’t be any other place to go to spread it around as happened in the past,” said Alario, R-Westwego. “The oil prices, while it helps the consumer at the pump, it has a big effect not only on the state revenues but what it means for the future.”
University of Louisiana System President Sandra Woodley, who is in charge of nine universities with about 90,000 students, said higher education leaders have been holding various meetings, including strategy sessions about the budget, in preparation for next year.
“There are some concerns that the drop in oil prices and other things might make unexpected problems,” Woodley said.
From 2008 to 2013, higher education faced annual cuts in state revenues, totaling roughly $700 million.
According to an analysis from the national Center on Budget and Policy Priorities, Louisiana’s funding for colleges and universities during that period fell $5,004 per student — more than any other state.
State Senate Finance Chairman Jack Donahue, R-Mandeville, said cutting another couple hundred million would have a devastating impact on higher education in Louisiana.
“I’m not sure at this point what it will do, but it won’t be pleasant. We have to do everything we can do not to make those cuts,” Donahue said.
But the drop in oil prices will probably end up having a $500 million impact on the state’s revenues next year, which will be on top of an expected $1.4 billion shortfall for fiscal year 2016, beginning July 1, he said.
“We’re not going to have the money that allowed us to have some flexibility in the past,” Donahue said. “We need to come up with permanent solution.”
He proposes looking hard at the exemptions and credits that reduce the amount of revenues coming into the state.
As it would turn out, LSU economist Jim Richardson, one of the four members of the Revenue Estimating Commission, also is compiling a report for legislators on exemptions and the tax code. His recommendations will be ready in early March.
Richardson also predicts the REC will reduce the revenue forecasts for the rest of fiscal year 2015 when the group meets on Jan. 26.
“But the real issue will be adjustment for fiscal year 2016,” Richardson said. “If you look at how the market is playing out, it’s a safe bet. We won’t know that much more in a couple weeks. We’re going to have to be very cautious.”
Severance taxes, royalties and other energy-related revenues were supposed to account for about $1.3 billion of the $10.6 billion raised from Louisiana sources in the fiscal year that ends on June 30.
The revenue estimate for the original budget calculated the price of Louisiana Sweet crude averaging about $95.80 per barrel for the year.
In November, after the price of oil dropped $14 a barrel, the Revenue Estimating Conference revised projections down to $81.33 per barrel. Additionally, the state failed to bring in as much in personal income taxes as hoped.
The REC’s decision required Nichols and the Jindal administration to juggle about $180 million of spending to balance the budget. Additional money from a tax amnesty program, fees charged to drivers without automobile insurance and other sources were found. Some properties were sold, travel was curtailed and money appropriated for programs that didn’t attract as much interest as predicted was diverted.
The price of oil is hovering around $50 a barrel for Louisiana Sweet, the crude oil on whose price state government sets its calculations.
For drivers, the drop in price is good.
The average price for a gallon of regular unleaded gasoline in Louisiana is $2.01. On this day a year ago, the average was $3.14 per gallon.
These low prices put about $550 additional dollars in the pockets of the average family over the year, said Gifford Briggs, vice president of the Louisiana Oil and Gas Association, a Baton Rouge-based group that represents oil drillers and the companies who service them.
The private sector energy companies are scaling back work, but layoffs and shutdowns won’t really be felt for a few more months of lower prices.
“The Acadiana service companies are likely to feel this eventually,” Briggs said. “But the first to feel the impact is the state budget.”
Elizabeth Crisp contributed to this report.