Special session inevitable as $313M midyear shortfall looms, officials say

State officials today announced a $313 million budget shortfall—driven largely by job losses—setting the stage for a special session to take place sometime between Valentine’s Day and Mardi Gras for lawmakers to close the gap.

At today’s Revenue Estimating Conference meeting, Commissioner of Administration Jay Dardenne said Gov. John Bel Edwards will inevitably call the special session to mitigate “untenable” cuts to state agencies. The shortfall is technically $340 million, but once the panel included other spending figures it came to the “magic number” of around $313 million—the amount needed to fill the budget hole. The governor has limited authority to cut the budget, and a special session allows the Legislature to tap into more areas to spread out reductions. Dardenne added the administration will ask lawmakers to use $119 million of the state’s rainy day fund to lessen the blow of cuts or tax increases.

“It’ll ease the pain,” said Senate President John Alario, R-Westwego. “There’s going to be a lot of pain regardless.”

Spending cuts to state agencies dominated the conversation surrounding the budget problem, but Dardenne said after the meeting the administration has not ruled out tax or fee increases, and expects fee hikes to come up in either the special or regular session.

The shortfall has been anticipated for months, and the Revenue Estimating Conference decided last month to wait and see if more money would be in the state coffers in the new year, but bad news followed with today’s announcement.

“We are still losing jobs on a monthly basis,” said the state’s chief economist Greg Albrecht, echoing his remarks for several months that the state is essentially in a recession. “I do think it will be turned around in the second half of 2017.”

From the peak in 2014 to the low point in 2016, the state lost 26,000 jobs. The oil patch was hardest hit, and mining, manufacturing, transportation and finance sectors also saw the biggest job losses. Those losses have largely driven the budget problems, with the latest estimates pegging the loss in personal income tax revenue at $207 million.
A rebound in oil prices is expected to bring in around $125 million more in severance taxes, but the oil and gas industry in the state faces systemic problems, Albrecht added. Royalties actually dropped in his forecasts, despite increasing the projected oil price from $30 to $48 per barrel.

Oil production in Louisiana has been on the decline for years, and Albrecht said it is not a sustainable source of income for the state budget moving forward. Generally speaking, the state can expect $12 million for every $1 per barrel increase in the price of oil, if all else stays the same. That would have given the state budget $216 million more, but the steep declines in output mean less dollars.

“We shouldn’t get too optimistic,” Albrecht said. “We’re a very mature producer.”

Department of Revenue Secretary Kimberly Robinson told the panel that Amazon’s recent decision to collect sales taxes in Louisiana will not provide as big of a boost as originally hoped. The online sales giant will only apply sales tax to goods made by Amazon, not everything bought through the site.

The state can expect a roughly $17 to $20 million bump in sales tax collections per year because of the move, Robinson said.

—Sam Karlin

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