A mere two weeks ago, Louisiana legislators headed to pre-session parties with their biggest fiscal worry being how much of the surplus would go towards early childhood education, how much for schoolteachers, and how much for colleges.
But even as they lifted glasses that evening before the 85-day session was to gavel in, Saudi Arabia initiated an oil price war with Russia. The next day, March 9, Gov. John Bel Edwards opened his traditional gubernatorial welcoming address with the news that the first Louisiana resident had tested positive for the novel coronavirus.
Since then, oil prices plummeted and Louisiana had one of the highest infection rates in the country.
The Edwards administration moved to contain the “community spread” of the virus. Schools were suspended, casinos and gyms closed. Restaurants could only serve take-out. Stores went to limited hours. Employees were laid off. Louisiana hunkered down.
The Legislature went home Tuesday until March 31.
The Louisiana Legislature suspended its annual lawmaking session for two weeks Monday in response to the coronavirus pandemic, the latest in a…
Now, mainly through phone conferences, budget architects are trying to figure out what to do about the $32 billion spending plan for the next fiscal year that they are constitutionally required to balance with available revenues or state government comes to a screeching halt on July 1.
The Center of Budget and Policy Priorities, a Washington, D.C. think tank, said Thursday that Louisiana was one of the least prepared to weather the coronavirus impact because the state’s income is heavily dependent on taxes from now falling energy production and with services weakened by years of budget cuts.
Officials in Louisiana are more optimistic saying the state starts off in pretty good fiscal position. The rainy-day fund is flush. Surplus money is in pocket from last year with more calculated to come in this year and even more projected for next.
Still, they agree the task is suddenly daunting.
Very generally, casinos pay about $10 million a week in taxes. If sales tax from retailers drop by half, that’s another $34 million a week. Add to that the collapsing price of oil means the state is losing about $4 million a week.
“Just those three items alone, and we’re talking back of envelope calculations here, that’s $48 million, maybe $50 million a week,” said Robert Scott, president of the Public Affairs Research Council of Louisiana, the Baton Rouge-based government policy research group.
The state is strong enough to handle a few weeks of corona-closure.
“If it’s four weeks, won’t be that big a deal. We may not get a teacher pay raise, but we’ll be able to sustain,” Scott said. If it goes eight weeks, it becomes a deficit.
“We were singing very optimistic tones about the budget. Clearly that has to change,” Commissioner of Administration Jay Dardenne, the governor’s chief budget advisor, told The Advocate. “The investments in education are still going to be our priority.”
Edwards proposed increasing funding for various programs by almost $285 million overall. More than $100 million of that was to be for educational programs, including $25 million more for early childhood education, $35 million more for colleges and universities, and additional money for school districts to bump up teacher salaries.
Dardenne wouldn’t quantify how those proposals might change. He wasn’t being coy. Events are happening so fast that he doesn’t know.
“Things are going to be significantly different than when we expected a surplus,” Dardenne said.
The first step is to set the amount legislators to have available to spend.
Louisiana requires the Revenue Estimating Conference to officially determine that number. The four-member panel that represents the House, the Senate, the administration and a private economist review competing analysis by economists for the governor and for the legislature, then choose the number that the spending plans cannot exceed.
The last official revenue estimate for state budget use was approved in April 2019.
Dardenne, as Edwards’ representative on the REC, says he hopes a meeting can be called for April 8.
He realizes it’s a herculean task for the two economists – Greg Albrecht for the Legislature and Manfred Dix for the administration – to come up with reasonable estimates based on a few weeks of data.
The last time the four REC members could agree on a number was in April 2019 and that’s what the current year’s budget is based on as well as much of next year’s spending plan.
But those presumptions assumed oil would sell on average at $58.96 per barrel – a very conservative estimate up until two weeks ago. On Saturday the price started at $22.63. Severance taxes alone could take up to $400 million out of the budget if the prices remain that low for the entire year.
Legislative economist Albrecht said he does as most economists do and relies on collections from the past as the base for his estimates to the REC. There’s not much data for that. And since the reaction to this pandemic is a first, there’s not much information from the past that suggest future patterns.
“We trying to figure out oil price scenarios and diminished spending effects and influences on income taxes,” Albrecht said.
The Pew Charitable Trusts estimates Louisiana can pay for government operations for about 15 days out of its rainy-day fund, which had $409.7 million last week.
The surplus monies from 2019 is $534 million, of which legally 25% must go into the rainy-day fund. But legislators can only tap about a third of the amount to cover certain expenses, provided the REC’s officially recognized number comes in lower than the April 2019 projection.
A complex labyrinth of rules surrounding the use of the surplus revenues evolved to keep sticky fingers out of the pot.
Most of the $534 million from 2019 can’t be used for disaster recovery. But depending on what the REC recognizes, the current year’s $170 million projected surplus and the hoped for $230 million for next year, could presumably be partially used, if those dollars are still projected to exist.
Schools are closing. Gatherings of more than 250 people are banned. The presidential primary election is delayed for two months.
“It’s not all doom and gloom. We’re going to get some federal dollars out of this,” said state Sen. Bodi White, the Central Republican in charge of the Finance Committee that considers the budget after it is approved by the Louisiana House. The question remains how much will the federal government send, what strings are attached and who on the state level can decide how the money is used.
White is also concerned about dollars reaching local governments, which have been paying police overtime during the crisis, among other expenses. Parish and municipal governments rely more on sales taxes than locals in other state do.
House Appropriations Committee Chair Jerome “Zee” Zeringue, R-Houma, is sponsor of House Bill 105, the budget measure. He has been teleconferencing with leadership and members during his hiatus from the State Capitol, prepping for when the Legislature returns to Baton Rouge and his committee starts the process of passing the state budget.
“Obviously, it’s very complicated now,” Zeringue said. “We do know that and we are all working together to ensure that the resources will be made available for the response.”