While the eyes of Gov. John Bel Edwards and legislators were on the revenue slumps reported in the State Capitol the other day, they should have been tuning into the financial news channels as well.
The linkage between oil prices and Louisiana’s immediate budget plight was obvious. Red numbers of declining bids for March delivery of oil flashed on television as Janet Yellen, head of the Federal Reserve Board, testified before Congress in Washington.
Meanwhile, in Baton Rouge, a committee called the Revenue Estimating Conference heard from state economists and officials and accordingly reduced the estimated cash that the state has to spend in this fiscal year, as well as the new fiscal year beginning July 1.
The state clearly faces multiple budget challenges at once, as deep tax cuts over the years of former Govs. Kathleen Blanco and Bobby Jindal eroded the tax base and led to raiding of trust funds and other short-term expedients. In many ways, the budget crunch is partly a cash crunch, as easy options for finding one-time money for the budget have been used up in the past few years.
But there also is the collapse of the price of oil, and even Yellen confessed on Capitol Hill that the Federal Reserve was surprised at the dimensions of the slump. Further, the interest rate cuts that might have been put into play to avert an economic downturn might be almost played out.
That uncertainty is a big issue for national policymakers but they have some comfort in knowing the financial institutions that are critical to commerce retain substantial assets. Reforms over the past decade, since the market crash of 2008, have required banks to hold assets underpinning their loans.
In cash terms, then, there may be a somewhat better situation — even in difficult times — for the national policymakers than those like Edwards and legislators at the state level. The latter don’t have much loose change to throw into the growing budget hole.
Commissioner of Administration Jay Dardenne told the Press Club of Baton Rouge that there are some one-time funds that can be tapped in the four months remaining in the fiscal year, but at $200 million to $300 million in the specific accounts he mentioned, that’s not nearly enough.
The price of oil will one day go up. The world needs energy. But the drilling and oilfield service activity that underpins the economy of Lafayette and other regions of Louisiana depends on lending, and that may be difficult to find as the national markets are unsteady and forecasters don’t see a rebound in the price of oil, instead of more of the red numbers on the business pages.