Louisiana budget revenues are projected to take a $1 billion hit as the coronavirus hammers the state's businesses and workers, according to economists who took their first stab at forecasting the financial toll Monday.
The Revenue Estimating Conference, a panel that decides how much money the state has to spend on things like colleges, K-12 schools, health care and a host of other state services, voted to adopt a revenue forecast that is about $1 billion lower than the previous forecast.
That billion-dollar hit affects the revenues available in the budget year beginning July 1, and includes all taxes, licenses and fees. Sales tax collections are expected to fall about $316 million; severance taxes down by $351 million and riverboat gambling proceeds by $172 million. The state general fund was downgraded by $867.5 million.
"This is Katrina-sized downgrade in the forecast," said Greg Albrecht, the chief economist for the Legislature. "We don’t expect any boom quickly coming on here."
Legislators are in the process of crafting a budget for Fiscal Year 2021, the one beginning on July 1. But they couldn't get started in earnest until the REC officially "recognized" how much money is available to spend. That number will be $11.5 billion – when all taxes, fees and dedications are included – down from $12.6 billion in the April 2019 forecast. Of that number, the amount in the state general fund, which is where most of the money comes from to pay for services, is expected to drop $867.5 million to $9.2 billion.
When lawmakers convened in March, they were working under the assumption they would have millions more to spend on early childhood education, K-12 schools and teacher pay, among other things. That was before widespread unemployment, closed businesses because of the coronavirus pandemic hurt state collections along with a steep decline in oil prices. Now, many have raised the prospect of deep cuts to services in order to balance the budget as required in the state Constitution.
Legislators now have 21 days to draft and approve a state operating budget before the legislative session must adjourn at 6 p.m. June 1.
Gov. John Bel Edwards said Monday that lawmakers have enough time to pass the budget and probably should do so without calling a special session between June 1 and the end of the day on June 30.
“I don’t think we’re going to know anything more in the month of June,” Edwards told reporters Monday. “I would encourage them to pass a budget.”
The amount lawmakers must make up to balance the budget “is a very challenging number” even with federal money and adjustments expected to come, Edwards said. But how income and sales tax collections come after the pandemic subsides, how much money the federal government ultimately provides, is still largely unknown. Edwards opined that lawmakers could return to Baton Rouge in October to make adjustments to the budget after more is known.
Cratering oil prices did much of the damage to the budget. Albrecht projected oil prices at $28 and Manfred Dix, the economist for the Edwards administration, forecast oil at $32 a barrel. The REC adopted Albrecht's forecast, which was similar to Dix's but featured a slightly smaller total drop in all revenues. In the previous forecast, oil was pegged at $60 a barrel.
The projection adopted by the forecast also revises revenues downward by $362 million in the current Fiscal Year 2020, which has only seven weeks left, including $123 less in the general fund. That number is not larger because the state already experienced three quarters of decent numbers, Albrecht said.
Both economists said they were highly uncertain in their projections. It is not clear how many people will return to businesses even once they're allowed to, among many other unknowns.
"The biggest issue is what to consider from now on," Albrecht said. "How slow or fast will the economy recover? I believe it's at least three or four quarters before we even start to get better."
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The federal government has so far not provided aid to state and local governments that can be used to offset lost revenue. Edwards and other leaders hope that will soon change, and are asking for more flexibility in $1.8 billion in funding provided to the state. U.S. Sen. Bill Cassidy has proposed legislation to send $500 billion to state and local governments.
In January, the Revenue Estimating Conference met to try to come up with a forecast on which they could base the upcoming fiscal year’s budget. But legislative leadership and the Edwards’ administration failed to reach an accord, with the Republicans seeking a lower amount of Edwards advocating for an amount recommended by economists.