Fiscal Review Committee 021919

The Fiscal Review Committee, from left to right, is Assistant Treasurer Ron Henson, Legislative Auditor Daryl Purpera, and Assistant Attorney General Bill Stiles. The panel met Monday, Feb. 18, 2019, to recommend that more fiscally strapped communities be taken over by a fiscal administrator.

As bad as the state budget will fare because of a drop in sales tax revenues from closed businesses and high unemployment, the real crisis will be in Louisiana’s parish and municipal governments.

Before the novel coronavirus was a thing, Legislative Auditor Daryl Purpera had a long list of small Louisiana towns so fiscally distressed that the state was on the verge of shoving aside elected local leaders and taking over administration.

“You had a lot of communities already struggling,” Purpera said. “I can’t imagine what this (pandemic response) is going to do. It can’t be good.”

From back porches and kitchen tables, Purpera’s remotely working auditors are calling each city, town, and village to offer advice and check on their status. In much the same way as the Division of Administration and Legislative Fiscal Office monitor the state’s economic health, the Legislative Auditor's Office is the central repository for local government finances.

A quick review of last year’s financial audits for about a third of the state’s municipalities shows that smaller communities receive, on average, 59.7% of their annual revenues from sales taxes and that was before businesses went on hiatus and shoppers sheltered in place. Most of these towns have only a few businesses — surely a gas station/convenience store, sometimes a grocery, maybe a pharmacy — generating sales taxes that help pay law enforcement, fix streets, supplement public schools, as well as fund other services.

Compare those numbers to Texas, where small towns rely on sales taxes for about 30% of their revenues. Texas communities also have significant property taxes. Louisiana’s homestead exemption, which forgives the first $75,000 of a home’s value from taxes, means towns can count on property taxes producing an average of about 16% of collected revenues.

And then there’s unemployment.

Bank of America and Goldman Sachs predicted Thursday that the U.S. will have to weather the loss of income taxes and buying power from about 15% of workers losing their jobs. That’s like a regular Tuesday for most rural Louisiana towns, where double-digit unemployment is something of the norm.

As plush as the recently passed CARES Act is, the $2.2 trillion in federal funds isn’t enough, the Economic Policy Institute said Thursday. “We estimate that roughly $500 billion more will be needed by the end of 2021 to keep state and local governments from becoming a significant drag on economic recovery after the public health crisis passes,” estimated the Washington, D.C.-based economic research group, which is affiliated with organized labor.

Congress has been talking about passing another coronavirus aid package. And the Board of Governors of the Federal Reserve on Thursday agreed to a broad $500 billion program of loans and loan guarantees for state and local governments.

But right now, the Coronavirus Economic Stabilization Act of 2020 is the main allocation. The only direct federal aid is for counties with 500,000 or more people. That means nothing for Louisiana where only East Baton Rouge and Jefferson parishes come close to the minimum needed.

Louisiana gets $1.8 billion of the $2.2 trillion, of which 45% is set aside for local government entities, but with a lot of strings attached.

John Gallagher said the Louisiana Municipal Association, which he heads, wrote Wednesday asking Gov. John Bel Edwards not to forget local governments when the funds are distributed.

That might prove difficult as the federal money is tied to the coronavirus outbreaks and the smaller communities haven’t suffered the same intensity as the big cities. Edwards says often that just because the numbers are low now doesn’t mean they won’t change. Only Tensas Parish hasn’t reported any positive tests.

And Gallagher points to statistics that show a goodly number of smaller parish residents commute to work in the bigger cities and to plants along the Mississippi River. As small towns get more tests and are exposed more often, those numbers surely will rise.

Ben Nevers said the lessons of history show that the small communities don’t receive their fair share of federal disaster response dollars.

A former state senator and Edwards first chief of staff, Nevers chairs the governor’s Advisory Council on Rural Revitalization. Cities have professionals and lawyers on staff who are facile with all the necessary caveats that come with federal grants and loans, he said. Most small towns employ a mayor, a police chief, a maintenance man, and a clerk to collect fees and utility payments. If any lawyers are in town, they usually specialize in wills, contracts and divorces rather than the complexities of federal funding.

“There’s still a lot of confusion. But rural communities have never been really plugged in. I don’t think that’s going to change,” Nevers said.

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