Members of the Louisiana House of Representatives heard more bad news today about the state’s fiscal crisis in a briefing by LSU economist Jim Richardson, who co-authored a study last year explaining how the state budget came to be underfunded and what it will take to fix it both in the near and long term.
That situation has become increasingly dire in the months since Richardson’s report was released. As lawmakers heard today, the third of a three-day organizational session that began Monday morning, they have to find $750 million to balance the budget for the current fiscal year. Beyond that, they have to find a solution for a $1.2 billion shortfall in the 2017 fiscal year, which begins July 1.
Complicating the situation: Oil prices continue to plummet. A report released Monday by Morgan Stanley suggests oil prices could hover for months in the range of $30 per barrel, a level they reached Monday afternoon before climbing back to $34 per barrel, and could even dip as low as $10 per barrel.
“It’s going to have an immediate impact on this year’s budget, which was based on a $48 per barrel price, which means we’re going to lose more revenue than we thought we were,” Richardson says. “It means we have to do something now.”
Continued low prices will also hamper efforts to balance next year’s budget, though Richardson says the situation is not as bad as in the mid-1980s, when oil fell to $15 per barrel. Then, oil and gas revenues accounted for 45% of the state budget. Today, they account for about 15%.
“Still it’s a sizable portion of the budget and at the margin it hurts very badly,” he says. “I think it’s very hard in terms of how it affects businesses, too.”
So far, businesses in the Baton Rouge area have yet to feel many effects from the decreasing oil prices. The Capital Region economy has been generally healthy, with a boom in the real estate sector and modest employment growth. But the downturn in oil prices and the ripple effect it will have on the state’s economy will trickle down to the Baton Rouge area in the months to come.
“At some point it will catch up,” Richardson says. “It’s not quite as bad as the 1980s because we’re a little more diversified. It’s still going to be a big issue, though.”
—Stephanie Riegel
